Rosenberg& Associates, LLC *

USFN Member (DC, MD, VA)

Congress recently passed the “21^st Century ROAD to Housing Act” (hereinafter “the bill”), the largest housing legislation in decades. Although the President did not sign it, by operation of law, the bill became law overnight on Friday, July 10, 2026. While the focus of the bill is on housing affordability and supply, certain provisions of the bill could affect mortgage default servicing.

The first, and possibly most significant area of impact for the bill appears to be point of loan origination. Title IX of the bill seeks to expand banking services among rural and minority populations. Sections 906 through 909 specifically seek to ease the establishment, support, and mentoring of newer and “de novo” institutions in these areas.

Section 906 amends Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1463) to establish a Mentor-Protégé program. The intent of the amendment is that established institutions will help guide the new institutions that subsequent sections of this title seek to encourage.

Section 907 seeks to streamline the application process for establishing new institutions. The section requires the appropriate federal agencies to review the application process and submit annual reports for five years, recommending changes to encourage more applicants. It also requires that, upon request, applicants be assigned a caseworker and/or provided a list of appropriate mentor institutions.

Section 908 gives qualifying institutions, or their holding companies, two years to meet applicable federal capital requirements. Qualifying institutions are those that benefit underserved communities. The section also requires federal banking agencies to study the program’s effectiveness and submit a report to Congress.

Finally, section 909 requires the federal banking agencies and the National Credit Union Administration to prepare a study for Congress identifying federal statutes or agency regulations that limit the establishment and growth of rural banking institutions.

If successfully implemented, these sections of the bill will lead to the establishment of several new banking institutions. New banks mean new policies and procedures. When the mortgages issued by these new institutions inevitably become available on the after-market, they will require extensive vetting.

Title X has been the headline grabbing section of this bill. The Title consists of a single section, Home Ownership for Main Street America. In very broad terms, it attempts to limit larger corporate entities from taking over too much of the residential real estate market and thus encourage individuals to buy those properties. Specifically banning large investors who own 350 or more properties from purchasing additional single-family homes. However, there is a lengthy list of exceptions contained within the bill. Section 1001 (2)(G) specifically excepts foreclosure properties. This would seem to remove Title X’s limiting provisions from the area of mortgage default.

            While the “21^st Century ROAD to Housing Act” as currently written does not include many hurdles to the mortgage default industry, its implementation bears watching. If nothing else, the bill represents the federal government’s increasing interest in inserting itself into the broader mortgage industry in general; and as always, that’s worth keeping an eye on.

Copyright © USFN 2026

USFNews - July 22, 2026

* Denotes firm is a 2024 Award of Excellence recipient.

By Kylie Hembree

Aldridge Pite, LLP *

USFN Member (AL, AK, AZ, CA, DC, FL, GA, HI, ID, MD, NV, NM, NY, OR, TN, TX, UT, VA, WA)

USFN members and industry professionals gathered to attend a recent USFNgage session, Women in Servicing: From Influence to Impact webinar. This session, held in April, brought together several women leaders within the mortgage industry to lead discussions focused on how leadership, communication, and collaboration can create meaningful change within organizations. Moderator Carrie Ward of Aldridge Pite, LLP facilitated discussions led by panelists Monica Hadley, Laura O’Sullivan, Stephanie Ruiz, and Jodi Bell.

Monica Hadley, Default Reporting & Post-Sale Manager at Evergreen Home Loans, spoke about the importance of accountability, communication, and team involvement when it comes to achieving goals. Using concepts from the book Traction, she discussed how quarterly goals, Key Performance Indicators (KPI) tracking, and weekly meetings can help teams stay aligned and focused. One of the biggest takeaways from her discussion was the idea that employees are often more motivated when they are involved in setting expectations and goals themselves. Her session also emphasized that communication is one of the most important parts of leadership because employees cannot succeed if they do not fully understand expectations or how their role contributes to the larger team. Hadley highlighted several ways leaders can support and empower employees without major financial investment, including mentorship programs, cross-training opportunities, and open discussions across departments. Her message focused heavily on creating a collaborative environment where employees feel supported, heard, and motivated to grow.

Laura O’Sullivan, Bankruptcy Managing Attorney for Pennsylvania and New Jersey at McCabe, focused her discussion on confidence, communication, and navigating professional environments where important decisions are made. She talked about the importance of speaking up in high-pressure situations and learning how to contribute effectively, even when not holding the most senior position in the room. O’Sullivan stressed the value of listening to understand rather than simply listening to respond, explaining that strong communication often begins with being fully engaged in the conversation. She also addressed the challenges women sometimes face with bias or misinterpretation in leadership settings and encouraged attendees to support one another by reinforcing and amplifying each other’s ideas. Another key point from her session was the importance of preparation and relationship-building. Whether through networking, project planning, or bringing solutions to discussions, Laura emphasized that influence is built through consistency, confidence, and a willingness to step outside of one’s comfort zone.

Stephanie Ruiz, SVP of Default Operations at Celink, shared insights on how influence turns into real execution and measurable results. One of the strongest points from her session was that many important decisions are often shaped before formal meetings even begin. She explained that building relationships, having one-on-one conversations, and aligning key stakeholders early can make a significant difference in whether ideas are ultimately successful. Ruiz also discussed the importance of separating ego from outcomes, reminding attendees that leadership is not about receiving credit but about helping move projects and teams forward. She emphasized that maintaining composure during difficult conversations and following through after meetings are critical parts of building trust and credibility. Her discussion reinforced that true influence comes from preparation, communication, and consistent follow-through rather than simply having a voice in the room.

Jodi Bell, Senior Vice President of Business Development at Finance of America, focused on discussing executive presence and intentional preparation. She described executive presence as the ability to remain calm, confident, and clear during stressful or uncertain situations. One comparison that stood out was her metaphor of “being in the pocket,” like a quarterback remaining composed under pressure. Bell explained that this type of confidence comes from preparation, not perfection. A participant contributed information about the BLUF method, meaning “Bottom Line Up Front,” a system for improved communication by focusing on the most important message first before diving into details. Bell also encouraged attendees to take time each week to prepare for upcoming meetings and conversations instead of reacting in the moment. Her overall message highlighted that leadership is not only about personal success, but also about creating clarity and helping others perform at their best.

Overall, the Women in Servicing: From Influence to Impact webinar provided valuable insight into how women leaders are continuing to shape the mortgage servicing industry through communication, collaboration, and operational leadership. Each speaker brought a different perspective, but all emphasized the importance of preparation, accountability, and supporting others. The webinar demonstrated that effective leadership is not just about influence alone, but about turning ideas into action, building stronger teams, and creating lasting impact across organizations. As the mortgage servicing industry continues to evolve, conversations like these highlight the growing impact of collaborative and forward-thinking leadership.

To see a schedule of future USFNgage discussions and topics, visit https://www.usfnevents.org/usfngage.html.

Copyright © USFN 2026

USFNews - July 8, 2026

* Denotes firm is a 2024 Award of Excellence recipient.

By Carly Imbrogno, Esq. and

Marcello Rojas, Esq.

BDF Law Group *

USFN Member ( AL, AZ, CA, CO, GA, MS, NV, OK, TX, WY)                                                                       

In 2024, Colorado passed the Consumer Protection for Artificial Intelligence Act to protect consumers in their interactions with artificial intelligence systems. The 2024 law established broad and ambiguous obligations for developers of artificial intelligence systems. Initially scheduled to become effective February 1, 2026, the law's effective date was deferred to June 2026. The legislation mandated that AI developers and deployers of high-risk systems actively mitigate algorithmic discrimination. Specifically, affected businesses were required to conduct risk assessments, notify consumers when AI influences major outcomes, establish clear governance frameworks, and openly disclose their strategies for preventing bias.

The AI industry and Colorado Governor Jared Polis quickly pushed back, warning that the law went too far. Critics immediately described it as the nation's most aggressive state-level AI framework, drawing direct comparisons to the European Union’s strict AI Act. Ultimately, the Colorado AI Act marked a major turning point in U.S. technological governance. It proved that state legislatures will not wait for Congress to act; instead, they are ready to step in and impose heavy compliance demands directly on AI developers and users.

To address the concerns that have been raised, Colorado recently passed Senate Bill 26-189, titled Automated Decision-Making Technology, which is a step back from the 2024 law.  The 2026 Act repeals and reenacts provisions with new requirements regarding the use of automated decision-making technology (ADMT). This consequential Act will take effect on January 1, 2027.

Scope

Under the law, ADMT broadly covers any technology that processes personal data and uses computation to generate predictions, recommendations, classifications, rankings, or scores to guide decisions about individuals. A system qualifies as a “covered ADMT” when its outputs "materially influence a consequential decision.” A consequential decision is defined as a decision that materially impacts an individual's access to, eligibility for, or compensation related to education, employment, housing, financial/lending services, insurance, healthcare, or essential government benefits.

The law divides regulatory responsibility between technology creators and the businesses implementing the technology.

Rules for Technology Creators (Developers)

Developers, defined as “a person doing  business in Colorado that, develops, offers, sells, leases, licenses, or otherwise makes commercially available a covered ADMT; develops a component that is designed, marketed, intended, documented, advertised, configured, or contracted to be used as part of ADMT; or intentionally and substantially modifies an ADMT such that it becomes a covered ADMT, must explain what the AI is meant for, what data it was trained on, and how deployers should monitor it.” Additionally, developers must furnish deployers with comprehensive technical documentation detailing the system's intended uses, training data categories, known limitations, and operational protocols for human review. They must also notify deployers of any material software updates and retain compliance records for a minimum of three years.

Rules for Companies Using the Technology (Deployers)

Deployers are defined as a person doing business in Colorado that deploys a covered ADMT. Deployers using AI to make significant decisions must provide clear and conspicuous notice to consumers at the point of interaction with a covered ADMT. When AI is used to make a significant decision, deployers must maintain record of such decision, and how it is compliant with the Act for three years. Deployers must inform consumers that they are using AI when they interact with it. Additionally, if the AI gives a consumer a negative result, such as denying a loan, the deployer has 30 days to explain what role the AI played in that decision-making process. Lastly, consumers have the right to review the data that was used, fix mistakes, and demand human review and reconsideration of the AI’s decision. In summary, whenever AI is used in a significant manner and the result is adverse to a consumer, deployers should be aware that consumers can dispute the outcome, which will require human intervention. This intervention can ultimately slow down whatever process is at play.

How it Affects the Default Mortgage Servicing Industry

ADMT sounds technical, but the idea is simple. If a system is doing more than administrative work, such as shaping, guiding, or narrowing the outcome of a decision about a borrower, it may fall within the law’s scope. Think about the tools that support loss mitigation decisions, default or risk segmentation, workout recommendations, or pricing and eligibility adjustments. None of these tools are new in the industry. Under the new law, what matters isn’t whether a system is labeled AI, but whether it meaningfully influences what ultimately happens to the borrower. When such influence occurs, borrowers need to be notified.

            Servicers will need to be much clearer with borrowers when automated systems are part of the decision-making process. Servicers will need to be more candid when the interaction is actually happening. If a borrower receives an unfavorable outcome, the expectation isn’t just a standard notice. Servicers will need to explain what happened, and what role the ADMT played in that decision.

            Lastly, if a borrower requests reconsideration of the ADMT’s decision, meaningful human review will need to be conducted. Servicers must review the decision and information used, understand the context, and reconsider the outcome if needed.

Violations

Violations of the Act will be enforced by the Attorney General through the Colorado Consumer Protection Act, specifically as a deceptive trade practice. Once the Attorney General is made aware of such violations, a notice of violation must be issued, and then developers or deployers will have 60 days to cure. However, if the Attorney General can show that developers or deployers “knowingly” or “repeatedly” violated the Act, a cure period is not required before penalties are sought.

Violations now extend to civil liability. Developers and deployers may be found liable if ADMT is found to have made a consequential decision that is discriminatory.

Final Thoughts

Colorado's legislative pivot offers immediate regulatory relief, but it requires businesses to recalibrate, rather than abandon, their AI strategies.

·       Audit and Streamline Current Compliance: Servicers should audit their AI programs and compliance processes. The new framework eliminates previous burdens, and existing compliance roadmaps may be unnecessarily complex. Make note of the programs currently in use that make consequential decisions. Restructure your governance model to meet actual statutory demands.

·       Formulate Disclosures and Recordkeeping: Servicers should assemble the materials that will be provided to borrowers when AI is used in a consequential decision. Furthermore, servicers should develop their recordkeeping systems to prove compliance with the Act for three years.

·       Monitor the Shifting Dynamics Between Federal and State AI Legislation: Stay up to date on the shifting dynamic between state laws and federal policy. Although Congress faces constant pressure to pass a unifying federal AI law that could override state rules, the political cycle introduces unpredictability that businesses will need to continue to navigate as technology and laws change.

·       Reinforce Strategic Ethics: While state mandates are shifting from bans to transparency, baseline AI governance is still nonnegotiable. Establishing clear human oversight and open disclosures protects servicers from traditional discrimination claims.

Copyright © 2026 USFN

USFNews - July 8, 2026

* Denotes firm is a 2024 Award of Excellence Recipient.

U

Trott Law, P.C. *

USFN Member (IN, MI, MN)

For nearly 250 years, tax foreclosure sales have been used to help recover delinquent property taxes in the United States. In Pung v. Isabella County, the U.S. Supreme Court affirmed the validity of such sales and rejected an argument that threatened to disrupt foreclosure practices nationwide.

In 2004, the Pung family believed they would receive a property tax exemption for their home in Isabella County, Michigan. The County revoked the exemption and when the family refused to pay back taxes, the County began foreclosure proceedings.

Before the tax foreclosure sale, the County determined the property was worth $194,400. The property sold for just $76,008 and was resold 18 months later by the purchaser for $195,000.

A member of the Pung family filed a lawsuit challenging the validity of the tax foreclosure process, and in February 2026, the U.S. Supreme Court considered the following questions:

1.     Should the measure of compensation paid to a tax foreclosed party be based on the fair market value of the property, or the value obtained at the tax foreclosure sale?

2.     Does the tax foreclosure of a property worth more than the taxes owed constitute an excessive fine?

Pung suggested that compensation should be measured by a property’s fair market value at the time of foreclosure, and any tax foreclosure of a property worth more than the taxes owed is an excessive fine. The lack of precedent supporting these arguments proved to be fatal.

In the Court’s nearly 250-year history, it has never stated that a fair market value analysis is appropriate in this context. Nor has it ever construed taxation as a fine. Rather, several cases cited by the Court support opposite conclusions.

In siding with the County, the Court held that the appropriate measure of just compensation is the price obtained at the tax foreclosure sale, so long as the sale is fairly conducted. The Court also agreed with the County on the excessive fine question. The Court remanded the case to the 6th Circuit for further proceedings consistent with the opinion.   

The Impact of this Opinion

By rejecting Pung’s argument, the Court confirmed that governments may continue to use tax foreclosures as a debt collection tool, but potential issues on remand could still impact foreclosure practices.

Notably, in Pung’s merits briefing and at oral argument, he suggested that the County should have attempted to recover the unpaid taxes by less drastic means, such as seizing and selling Pung’s personal property.

In Justice Thomas’s concurrence, he questioned the County’s decision to sell the property. While this issue was not before the Court, Thomas made his thoughts on the process very clear. “What Isabella County did to the Pungs was wrong, and, on my initial view, likely unconstitutional.”

For more information, you can view the full opinion here.

Copyright © 2026 USFN

USFNews - June 24, 2026

Frenkel LambertWeisman & Gordon, LLP

USFN Member (FL, NJ, NY)

On May 20, 2026, the New York Appellate Division, Second Department, issued a Decision and Order in US Bank National Association v. Nelson, ___ N.Y.S.3d ___ (2d Dept. 2026), involving the borrowers’ attempt to amend their answers, post-Judgment of Foreclosure and Sale, to raise a defense that the plaintiff lacked standing.

RPAPL 1302-a, which became effective on December 23, 2019, states, in relevant part:

Notwithstanding the provisions of subdivision (e) of rule thirty-two hundred eleven of the civil practice law and rules, any objection or defense based on the plaintiff’s lack of standing in a foreclosure proceeding related to a home loan, as defined in paragraph (a) of subdivision six of section thirteen hundred four of this article, shall not be waived if a defendant fails to raise the objection or defense in a responsive pleading or pre-answer motion to dismiss.  A defendant may not raise an objection or defense of lack of standing following a foreclosure sale, however, unless the judgment of foreclosure and sale was issued upon defendant’s default.  (emphasis added). 

Since its enactment, defendants in foreclosure actions have tried to persuade the courts that RPAPL 1302-a allows defendants to raise a defense based on lack of standing “at any time.”  The Appellate Division’s decision in Nelson is the latest in a number of cases in which the court continues to dispel that notion[1].

To understand the court’s decision in Nelson, it is important to consider the procedural history of the case. Nelson was commenced in September 2009, a decade before RPAPL 1302-a was enacted. The defendants interposed timely answers to the complaint but did not include the defense of lack of standing. Plaintiff was awarded summary judgment in 2015 over the defendants’ opposition, and defendants did not attempt to raise the defense at that time. Later, when the plaintiff moved for a Judgment of Foreclosure and Sale, defendants opposed and filed a cross-motion, arguing for the first time, inter alia, that plaintiff lacked standing to commence the action. By Decision and Order dated December 15, 2015, the court granted the plaintiff’s motion and denied the cross-motion, holding that the standing defense should have been raised previously when plaintiff successfully sought summary judgment and an order of reference. The defendants’ first appeal followed.

On January 23, 2019, still prior to the enactment of RPAPL 1302-a, the Appellate Division, Second Department, affirmed the Judgment of Foreclosure and Sale, holding in part that the defendants waived the defense of lack of standing by failing to raise the affirmative defense in their answers. US Bank National Association v. Nelson, 169 A.D.3d 110, 93 N.Y.S.3d 138 (2d Dept. 2019). Defendants moved for leave to reargue the appeal or, in the alternative, for leave to appeal to the Court of Appeals. The court denied leave to reargue but granted leave to appeal to the Court of Appeals.

On December 17, 2020, the New York State Court of Appeals handed down its Memorandum opinion affirming the order of the Appellate Division. The Court concluded that, “under the circumstances of this case, Supreme Court did not err in granting plaintiff’s motions for summary judgment and for a judgment of foreclosure and sale.” US Bank National Association v. Nelson, 36 N.Y.3d 998, 999, 163 N.E.3d 49, 139 N.Y.S.3d 118 (2020). The Court held that, under the law in effect at the time of the orders appealed from, the defense of lack of standing had been waived by the defendants by failing to raise standing in their answers or in pre-answer motions as required by CPLR 3211(e).  Id. The Court expressly stated that it did not reach the issue of whether RPAPL 1302-a, enacted while the appeal was pending, would afford defendants an opportunity to raise standing at this stage of the litigation, and the Court remitted to the Supreme Court for further proceedings.

Back in Supreme Court, the defendants moved for leave to amend their answers to add a defense that the plaintiff lacked standing, to vacate summary judgment and the judgment of foreclosure and sale, and for related relief. In their motion, defendants argued that, pursuant to RPAPL 1302-a, “the defense of standing is not waivable and can be raised at any time prior to a foreclosure sale.”  Plaintiff opposed, and the trial court, relying heavily on the language of the Court of Appeals’ opinion, held that “1302-a does not allow a defendant who defended the action on the merits to raise standing following the grant of judgment of foreclosure and sale.” Unlike at the motion for summary judgment stage, where attempts to raise standing for the first time should be credited, the court observed that “[t]here appears to be no appellate precedent supporting the proposition that a non-defaulting defendant can raise a standing defense post-JFS.”  Accordingly, the defendants’ motion was denied by the trial court. Once again, the defendants appealed.

The Appellate Division affirmed, holding that “the Supreme Court, upon determining that RPAPL 1302-a did not provide an independent basis to vacate a judgment of foreclosure and sale, properly denied the defendants’ motion”.  Nelson, supra, ___, N.Y.S.3d ___ (2d Dept. 2026). It remains to be seen whether the defendants will seek leave to appeal to the Court of Appeals, or whether such leave will be granted.  But for now, the law is clear: A defense that the plaintiff lacks standing may not be raised “at any time.”  More specifically, RPAPL 1302-a does not permit a non-defaulting defendant to raise a standing defense post-Judgment of Foreclosure and Sale.

Copyright © 2026 USFN

USFNews - June 10, 2026

McCalla Raymer Leibert Pierce, LLP*

USFN Member (AL, CA, CT, FL, GA, IL, KY, MS, NV, NJ, NY, OH, PA, TX, WA)

USFN may be known as a mortgage‑servicing industry trade organization, but in practice it is so much more than that.

Our member firms often operate in overlapping jurisdictions, which means they are—at least on paper—competitors. In many industries, that dynamic would create tension, guarded conversations, or the kind of gridlock we see far too often in our federal legislature. Yet at USFN, my experience has consistently been the opposite. When the industry needs thoughtful, informed, and timely work, our members show up. They contribute their expertise, their judgment, and—most impressively—their time, which is always in short supply.

A recent experience offered a perfect example.

Many of you are familiar with The USFN Source™, and if you aren’t, I strongly encourage you to explore it. The Source is an invaluable tool for servicing professionals, offering comprehensive information on foreclosure, bankruptcy, eviction, and other critical processes across all 50 states, plus Puerto Rico and D.C.

One of its signature features is the set of state‑by‑state timeline matrices. Recently, we received feedback from the servicing community that these timelines needed updating. In response, USFN launched a large‑scale effort to ensure their accuracy and integrity. Each member firm was asked to submit a completed foreclosure timeline for every state in which they practice.

In Pennsylvania, six firms participated. Naturally, their submissions varied—after all, as the saying goes, “Two lawyers, three opinions.”

To reconcile these differences, Kristi Payne, who leads Publications at USFN, brought all six firms together on a single email chain and asked us to collaborate on a unified timeline. Every firm that had submitted a proposal immediately volunteered to meet. We found a time that worked for everyone and convened recently. The meeting was scheduled for an hour. It took 45 minutes.

We worked through each milestone, discussed the nuances, and reached consensus with remarkable efficiency. It was a masterclass in professionalism and collaboration.

I couldn’t be prouder of this group—or more grateful. Their willingness to work together, even as competitors, reflects the very best of what USFN represents. This spirit of shared purpose is one of the reasons I value this organization so deeply.

My sincere thanks to the talented attorneys from Diaz Anselmo, Gross Polowy, Orlans, Powers Kirn, and Vitti & Vitti for lending their expertise and their time. Your volunteerism strengthens our industry and ensures that the resources we provide are accurate, reliable, and truly useful.

I look forward to the next opportunity to work together to move our industry forward.

Copyright © 2026 USFN

USFNews - June 10, 2026

* Denotes firm is a 2024 USFN Award of Excellence Recipient

Thomas Kivell, who helped found Kivell, Rayment & Francis, PC (USFN Member – OK), has recently passed away. USFN, on behalf of the board and staff, shares its condolences with his family, friends, and colleagues. Kivell founded Kivell, Rayment & Francis in 1991 with partners Joe Francis and Brian Rayment, and became an early member of USFN.

Scott & Corley PA (USFN Member – SC) is pleased to announce that Ronald (“Ron”) C. Scott co-founder of the firm, has been selected as one of the inaugural 2025 “POWER 500” Most Influential Leaders from the business, government, education, and nonprofit sectors for the state of South Carolina. The selection of the State’s Most Influential Leaders was made by SC BIZNEWS, the state’s largest business media group. Ron was one of only 20 leaders from the legal profession honored in this inaugural group.

Baer Timberlake, P.C. (USFN Member – OK) has been recognized by The Oklahoman as one of Oklahoma’s Top Workplaces for 2025, an honor based entirely on employee feedback. The Top Workplaces designation is earned solely through employee responses and cannot be purchased. Survey participants provide feedback on key factors such as pay and benefits, leadership, direction, appreciation, and overall workplace culture. Companies with the highest ratings receive recognition. Founded in 1968, Baer Timberlake provides experienced legal counsel in real estate and related corporate matters. With decades of experience, Baer Timberlake remains committed to delivering efficient, knowledgeable, and reliable legal representation.

When or why should a servicer or counsel reach out to the investor leading up to a mediation hearing?

Typically, a servicer has the authority to negotiate and settle on behalf of the investor. However, there are times when a particular investor has restrictions on what a servicer may or may not do on a loan – which ultimately prevents a borrower from modifying/settling. In those cases, servicers and counsel must reach out to investors to see if there is the possibility to waive any of those restrictions. As such, needing investor input typically arises when a servicer is limited on what they can do due to a restriction placed by the investor.

How do you handle mediators, and OC pushing for calculations from denials as servicer? We have been taught not to provide the calculations. This has been becoming more and more of an issue.

In New York, under CPLR 3408, if a borrower is denied for a modification, and seeks to know why, the servicer must provide a denial with details. These details include, but are not limited to, the waterfall calculations used to determine the eligibility of the borrower. At the outset, many judges and referees seek to know what modification programs are offered by servicers (i.e. term extension, interest rate adjustment, balloon payment, etc.) Due to this, the borrower and the court have an idea of what to expect for a potential modification review. The court does not view this to be privileged information. As such, in New York, servicers are required to provide calculations when directed to do so.

Click Here to watch the recording and download session slides.

The Mortgage Law Firm, PC *

USFN Member (AZ, CA, HI, NM, OK, OR, TX, WA)

The Washington Supreme Court recently issued an opinion that could materially alter foreclosure strategy for home equity products in the state and potentially influence broader national conversations about negotiability and enforcement rights. In Marquez Vargas v. RRA CP Opportunity Trust 1, No. 103735-0 (Wash. Apr. 30, 2026), the Court held that a HELOC note is a nonnegotiable instrument and, therefore, cannot support non-judicial foreclosure under Washington’s Deed of Trust Act (DTA) as currently written.

For the default servicing industry, this is not a technical footnote. It is a structural limitation on the use of Washington’s non-judicial process for a category of loans that has historically moved through foreclosure channels with relatively little distinction from traditional mortgage products.

The Core Holding

The Court’s holding – that a HELOC is not a negotiable instrument as defined by the UCC – was not exceptional; it keeps with most other states. Washington defines “negotiable instrument” at RCW 62A.3-104; it requires that the instrument define the debt as a “fixed amount of money.” The Court concluded a HELOC does not meet the UCC requirement of a promise to pay a “fixed amount of money.”

Unlike a traditional note with a fixed principal balance, a HELOC balance fluctuates based on draws and repayments. Although the line itself contains a ceiling, the amount owed is variable throughout the life of the instrument. According to the Court, that variability defeats negotiability.

Importantly, the Court rejected the reasoning adopted in certain other jurisdictions that a HELOC may become negotiable once the draw period closes. Instead, the Washington Supreme Court held that negotiability must be determined from the four corners of the instrument at origination. It means the determination cannot change during the life of a loan. A HELOC that begins as nonnegotiable remains nonnegotiable, regardless of later maturity or closure of ability to draw.

Having resolved that certified question, the Court moved on to whether the beneficiary of a nonnegotiable instrument could still use the DTA to foreclose non-judicially. “It shall be requisite to a trustee’s sale: … [t]hat, for residential real property of up to four units, before the notice of trustee's sale is recorded, transmitted, or served, the trustee shall have proof that the beneficiary is the holder of any promissory note or other obligation secured by the deed of trust. A declaration by the beneficiary made under the penalty of perjury stating that the beneficiary is the holder of any promissory note or other obligation secured by the deed of trust shall be sufficient proof as required under this subsection.” RCW 61.24.030(7)(a). (Emphasis added).

The Court held that, under Washington law, a beneficiary seeking to foreclose through the DTA must provide a “holder declaration.” The Court determined that the term “holder” within the DTA is limited to parties in possession of negotiable instruments.

That distinction matters.

Why This Matters Operationally

The practical effect of the decision extends beyond standing arguments. The Court effectively held that the non-judicial foreclosure framework established by the DTA is unavailable where the instrument does not qualify as a negotiable instrument because of the use of the term “holder” and the significance of possession in determining standing – which are only relevant tests with respect to negotiable instruments.

The Court’s reliance on scholarly commentary is also notable. Citing Professor Dale Whitman, the opinion emphasized that possession alone is not a reliable indicator of enforcement rights for nonnegotiable instruments. The Washington DTA, as currently written, uses the UCC’s “holder” mechanism to establish standing. That reasoning potentially weakens assumptions that have historically underpinned transfer and enforcement practices within the industry.

That creates immediate operational consequences:

• Increased reliance on judicial foreclosure for HELOC products.
• Potential timeline extensions and increased litigation exposure.
• Portfolio segmentation concerns for loans with draw features.
• Review of transfer documentation practices.
• Additional title considerations.

This opinion not only creates a difficult operational reality for servicers operating in Washington, but it changes the borrower’s expectations related to equity. Non-judicial foreclosure has long been valued for predictability, efficiency, and cost control. Removing that option for certain products fundamentally changes the economics and risk profile of default servicing. For borrowers, judicial foreclosure is more expensive and that cost is assessed against the potential equity in the real property.

The Bigger Issue: HELOCs May Not Be Alone

The Court expressly addressed HELOCs, but the reasoning may reach beyond HELOCs.

Any product containing draw provisions or variable balance mechanisms may invite similar scrutiny. The decision raises broader questions for instruments that do not fit neatly into traditional negotiable-note analysis. This Court also has set a review framework: Can you identify the debt amount at the time of origination?

Looking Ahead

The Washington Legislature may ultimately need to address the issue directly if preservation of non-judicial foreclosure remedies for HELOC products is viewed as a policy priority. Until then, servicers, investors, foreclosure counsel, and trustees should carefully review affected portfolios and coordinate with local counsel regarding enforcement strategy.

The decision is a reminder that mortgage servicing does not operate in a static legal environment. Small definitional issues, like whether an instrument is “negotiable,” can have significant operational consequences.

Copyright © 2026 USFN

USFNews - May 27

* Denotes firm is a USFN 2024 Award of Excellence Recipient

Brock &Scott, PLLC *

USFN Member (AL, CT, DC, FL, GA, IN, KY, ME, MD, MA, MI, NH, NJ, NC, OH, PA, RI, SC, TN, TX, VT, WA, WV, Guam)

The Vermont Supreme Court, in Ditech v. Bisson (2025 VT 54), recently overturned a trial court’s dismissal with prejudice holding that the trial court abused its discretion. This matter stemmed from a foreclosure that began in 2015. In 2018, the plaintiff obtained judgment after a full evidentiary trial against an active defendant. The defendant appealed the entry of judgment of foreclosure.

In Vermont, a party must seek permission to appeal before the appeal will be accepted.  In this case, the defendant’s permission to appeal was denied. The defendant then filed for bankruptcy, which, along with the COVID-19 stays, stayed the case for quite some time. In 2023, the plaintiff filed a motion to substitute the current plaintiff, which was granted. The defendant then filed multiple motions to dismiss, which were all denied. In 2024, the defendant filed a motion to vacate the order substituting the new plaintiff, which, against objection, was granted by the court. The substance of the motion was that there was no apparent authority for the mortgage loan servicer to act in the name of the plaintiff due to Ditech’s bankruptcy. 

The trial court held that although there was a power of attorney executed before judgment was entered, the power of attorney did not state who the real party in interest was in 2024, even though judgment was entered in 2018. Despite evidence submitted at the hearing to the contrary, the trial court held that the plaintiff failed to prove that it or the prior servicer exited the prior plaintiff’s bankruptcy with continued control over the judgment or loan.

The court rejected the plaintiff’s argument that Vermont Rule of Civil Procedure 25e permitted the action to continue with the original party because the original party no longer existed and dismissed the action with prejudice. Plaintiff sought permission to appeal, which was granted. 

The Vermont Supreme Court, which is the only level of appellate jurisdiction in Vermont, held that the trial court abused its discretion in dismissing the case. In its opinion, the Court held that the dismissal in this case was similar to a sanction against the plaintiff and was not in fact a jurisdictional adjudication, which is the sole purpose of a motion to dismiss. Since the trial court made no findings that the plaintiff failed to pursue the case, caused delay, or demonstrated noncompliance with the court’s orders, nor did the plaintiff fail to attend any hearing or respond to any request from the court, the trial court abused its discretion in dismissing the case. The dismissal was reversed by the Vermont Supreme Court and the judgment was reinstated.

Typically, appellate courts give wide latitude to trial courts’ discretion, but this case shows clearly that foreclosing plaintiffs should not shy away from appealing trial court decisions when those courts fail to follow the law or accepted principles of jurisprudence. This case also shows the importance of creating an adequate record for appeal. 

Copyright  © 2026 USFN

USFNews - May 13, 2026

*Denotes firm is a USFN Award of Excellence recipient.

Tiffany& Bosco, P.A.*

USFN Member (AL, AZ, CA, FL, KY, NV, NM, OH, WV)

Executive Summary of HB315

On April 15, 2026, HB 315 became law in Alabama. The new law, which is effective October 1, 2026, authorizes, but does not require, Class 1 municipalities — which in Alabama means Birmingham — to require owners of vacant properties[1] to register, maintain, and pay fees for buildings sitting empty for more than three months. The law allows for a registration fee of $250 with a 150% increase per year, capping at $1,000, and the law may be enforced through unannounced inspections and fines, with unpaid fines potentially resulting in a lien being placed on the property. Property owners are generally required to register within 30 days of a property being deemed vacant or assuming ownership, or within 90 days if ownership was acquired through foreclosure. 

Why HB 315 May Matter to Foreclosure Buyers

If Birmingham adopts a vacant property registration program, as it is authorized to do, a servicer or investor that acquires a vacant property by foreclosure or deed in lieu of foreclosure inside city limits will be subject to the requirements of said program The ordinance may allow registration within 90 days after assuming ownership, and the same 90-day window also applies to the first subsequent transferee after the property has been acquired by foreclosure or deed in lieu. That extra time is helpful, but it is not a safe harbor against liability. 

Just as important, HB 315 does not let a foreclosure purchaser start with a clean slate. The law requires a vacant-property ordinance to provide that subsequent good-faith purchasers, parties who foreclose, and parties who acquire title by deed in lieu of foreclosure assume the obligations of the prior owner. That means the act of taking title may also mean inheriting existing compliance problems, unresolved registration issues, or conditions already likely to trigger enforcement. 

The registration process itself can also be more burdensome than it first appears. The ordinance may require the owner to provide contact information, the property address, the date the property became vacant, the expected length of vacancy, and the names and addresses of known lienholders or servicing representatives. If the owner is not an Alabama resident, the ordinance may require designation of an in-state agent authorized to receive notices and service of process, or submission to Alabama jurisdiction in a form satisfactory to the program administrator. That is especially significant for out-of-state investors, lenders, and institutional buyers managing Birmingham properties from elsewhere. 

Legal and Practical Risks for Foreclosure Purchasers

One of the biggest legal risks created by HB 315 is successor liability at the property level. Because the bill requires foreclosure buyers and other good-faith subsequent purchasers to assume the obligations of prior owners, a new owner may inherit a troubled asset that is already on the city’s radar. If the prior owner let the property sit vacant and deteriorate, the foreclosure purchaser may have to solve that problem immediately, even though they did not create it.

A second major risk is missing the vacant-property registration deadline. Although foreclosure purchasers receive a longer 90-day period, many acquired properties will already satisfy the statute’s vacancy standard because the 90-day vacancy period can run before the foreclosure sale ever occurs. A buyer that waits too long to inspect, evaluate, and triage the property may lose valuable time and fall behind on registration obligations almost as soon as title transfers.

HB 315 also creates a direct carrying cost risk through registration fees. The statute authorizes an initial annual registration fee of up to $250, with subsequent annual fees allowed to increase by as much as 150% of the previous year’s fee, capped at $1,000. The penalties may be even more serious than the fees. The law allows municipal fines of up to $1,000 per violation for failing to comply with ordinance requirements. Unpaid registration fees and fines may become liens on the property once a notice of lien is recorded in probate. In addition, if the owner does not secure or maintain the property after notice, the municipality may take corrective action and charge the owner its reasonable costs, and those costs may also become liens if properly recorded. That creates a compounding risk: registration fees, violation fines, municipal abatement costs, and title complications can all stack on top of each other.

Out-of-state purchasers face an added compliance challenge. If ownership is held through a remote investment vehicle, loan servicer, or special-purpose entity, the owner will need reliable systems for receiving certified mail, monitoring local conditions, and responding quickly to notices. Otherwise, a missed notice can become a missed deadline, then a fine, and, eventually, a lien. For larger foreclosure operators, HB 315 turns local asset management into a legal compliance function, not just a property-preservation issue.

The statute does contain a modest protection for new buyers. Any lien created under the act is subordinate to prior mortgages, mechanic’s and materialman’s liens, and certain tax-related liens, and the municipality may release liens or waive accrued fees or fines when a vacant property is transferred to a good-faith purchaser. Even so, a foreclosure purchaser should not assume that relief is automatic. Due diligence will still matter, including checking recorded liens and engaging the city early if the property is already distressed. 

Exemptions and Opportunities to Reduce Exposure

For non-government foreclosure purchasers, one useful exemption will likely be the one available when the owner files a statement of plans for restoring the property to productive use and occupancy during the 12 months after initial registration would otherwise be due. If the owner fails to begin restoration or occupancy by the end of that period, the waived fee may come due, but the administrator may extend the waiver for one more year if conditions outside the owner’s control significantly impeded progress. 

That means the law rewards active repositioning and punishes drift. A foreclosure buyer with a real rehab plan, listing strategy, or leasing effort may be able to reduce exposure. A buyer who acquires title but delays action may end up paying recurring fees and defending against enforcement without ever improving the property’s value.

Notice, Appeals, and Enforcement

HB 315 requires the ordinance to provide owners with prior notice and appeal rights. Before an adverse decision, certified-mail notice must be sent to the registered owner at least 10 days in advance using the address maintained in probate office records or tax records, if different. Appeals of violations or fines go to the applicable division of the municipal court, and a further appeal may be taken to circuit court within 30 days. The law also allows inspections of the interior and exterior upon at least 10 days’ prior notice after registration is effective or required, and at yearly intervals thereafter while the property remains in the registration database.

For foreclosure purchasers, those procedural rights are important, but they only help if the owner has systems in place to use them. Someone must be monitoring title records, receiving notices, documenting the condition of the property, preserving evidence of repairs or marketing efforts, and responding within deadlines. Without that operational discipline, the statutory right to appeal may arrive too late to prevent a costly enforcement problem. 

Practical Takeaways

The safest approach under HB 315 is to treat every newly acquired Birmingham foreclosure as a potential regulated vacant property from the moment title is obtained. If Birmingham adopts a vacant property registration program, buyers should quickly determine whether the building has been unoccupied for 90 consecutive days, whether there is visible evidence of neglect, whether prior obligations may already exist, and whether an exemption based on marketing, renovation, or restoration planning is available.

They should also move quickly to secure and maintain the property, register it on time if required, appoint an Alabama-based agent if ownership is out of state, and create a documented plan for restoration, sale, or occupancy. The central practical lesson of the bill is that Birmingham has the ability to make vacancy expensive and inactivity costly. Foreclosure purchasers can still invest in distressed property, but the law strongly favors owners who act quickly and visibly to return those assets to productive use.

SouthLaw, PC *

USFN Member (IA, KS, MO, NE)

The U.S. Supreme Court’s decision in Coney Island Auto Parts Unlimited, Inc. v. Burton, 223 L. Ed. 2d 438, may provide clarity in an area that has long divided federal courts: whether a party seeking relief from a void judgment under Federal Rule of Civil Procedure 60 must file its motion within a “reasonable time.”

The dispute arose from a 2014 Chapter 11 bankruptcy filed by Vista-Pro Automotives and a related adversary proceeding against Coney Island Auto Parts seeking roughly $50,000 in unpaid invoices. A default judgment was ultimately entered against Coney Island, although questions remained about whether service had been properly effected under the governing rules.

In 2016, the Chapter 11 case was converted to Chapter 7, and the trustee demanded payment from Coney Island based on the previously entered default judgment. This demand appears to have been the first confirmed notice Coney Island had of the judgment.

Despite that notice, Coney Island did not seek relief until 2021—five years later—when federal marshals attempted to seize the $50,000 pursuant to the judgment.

In its motion for relief, Coney Island argued the judgment was void because it had never been properly served. According to the company, the court therefore lacked personal jurisdiction, rendering the judgment void. Because a void judgment cannot be validated by the passage of time, Coney Island contended the one-year limitation for certain Rule 60 motions should not apply.

The bankruptcy court rejected that argument, concluding that the delay between Coney Island’s actual notice of the judgment in 2016 and its motion for relief in 2021 was unreasonable. The United States Court of Appeals for the 6th Circuit affirmed, holding that motions under Rule 60(b)(4) must still be brought within a reasonable time. The appellate decision included a dissent arguing that courts lack authority to enforce void judgments.

Writing for the Court, Justice Samuel A. Alito Jr. emphasized that Rule 60’s timing requirement applies to all motions brought under Rule 60(b), including those seeking relief from a void judgment:

Federal Rule of Civil Procedure 60 permits a court to ‘relieve a party . . . from a final judgment, order, or proceeding,’ and subdivision (b)(4) specifically authorizes relief from a ‘void’ judgment. … Rule 60(c)(1) provides that a ‘motion under Rule 60(b) must be made within a reasonable time.’ Because a motion for relief from an allegedly void judgment is a motion under Rule 60(b), the reasonable-time limit applies.

Coney Island, at 442–43.

The Court did not define what constitutes a “reasonable time.” That omission may stem from the posture of the case: Coney Island did not argue that its motion was timely under the circumstances, but rather that no time limitation should apply at all.

Potential Divergence in Kansas

While the decision may clarify federal practice in some jurisdictions, Kansas courts may take a different approach as it relates to its own statute, K.S.A. §60-260. In the recent decision in MidFirst Bank v. Sipple, 2026 Kan. App. Unpub. LEXIS 110, the Kansas Court of Appeals acknowledged Coney Island but began its analysis by stating: “First, our Kansas caselaw establishes that a ‘reasonable time’ for challenging a void judgment is any time.”

Ultimately, however, the court determined that the defendants’ arguments failed on the merits, making further analysis of the timing issue unnecessary. As a result, the broader implications of the Supreme Court’s ruling for Kansas law remain unsettled.

The Sipple case involved pro se litigants who had repeatedly challenged rulings throughout a foreclosure proceeding dating back to 2022. Given the procedural posture and the nature of the appellants’ arguments, the court appeared to have little need to fully address how Coney Island might affect Kansas precedent.

Looking Ahead

Whether Kansas and other jurisdictions ultimately align with the Supreme Court’s interpretation remains to be seen. The Coney Island decision could become a useful tool in cases involving long-delayed challenges to judgments, particularly in litigation involving pro se parties.

At the same time, the ruling may raise practical concerns in contexts such as junior lien disputes, tax foreclosures, and post-sale title issues where challenges to underlying judgments may surface years later.

For now, the decision underscores the importance of identifying potential service or jurisdictional defects early and consulting local counsel to evaluate the evolving impact of the Supreme Court’s ruling as what is “reasonable” will vary from jurisdiction to jurisdiction.

Copyright © 2026 USFN

USFNews - April 1, 2026

USFN Member (SC)

The Veterans Affairs (“VA”) published advance notice of proposed rulemaking (“ANPRM”) at 87 FR 62752[1] for “Loan Guaranty: Loss Mitigation Options for Guaranteed Loans” in October 2022. This proposed rule was published in the Federal Register.

The purpose of ANPRM is to gather important input from the public, stakeholders, and interested industry parties regarding proposed regulatory changes. This formal process allows agencies to consider various perspectives, insight, and data before finalizing upcoming rules. The feedback provided through ANPRM can influence the development of proposed regulations and rules, ensuring they are well-informed and achieve the intended outcome.

This rule was an effort by the VA to explore the possibility of changes to their incentivized loss mitigation options to further assist veterans, who have VA-backed loans, to retain their homes. The VA had anticipated incorporating responses from the ANPRM into the proposed rule, thereby amending the VA's loss-mitigation regulations to include some of the feedback received.

The proposed rule had received numerous public comments,[2] some noting concerns regarding the efficacy of the proposed rule. One such public comment stated, “The average interest rate for VA-guaranteed loans originated after 2019 is 3%, which is less than half the current market rate. Because VA ties its foreclosure relief options to the market interest rate, the dramatic difference between the market rate and the note on existing loans significantly reduces the effectiveness of the available loss mitigation options.”

On January 21, 2026, the VA announced the withdrawal of the above cited proposed rule on loss mitigation options for guaranteed loans.[3] The VA stated this decision was made due to ongoing assessments of agency “needs, priorities, and objectives.” The VA went on to state that it “appreciates the public comments submitted and continues to consider the best means of addressing some or all of the issues covered in the ANPRM. If, in the future, [the] VA decides it is appropriate to issue regulations on this topic, [the] VA will do so through a new notice of proposed rulemaking, subject to the requirements of the Administrative Procedure Act, 5 U.S.C. 551, et seq.”[4]

Additionally, and as a reminder, on July 30, 2025, President Trump signed the VA Home Loan Program Reform Act.[5] This Act established a partial claim program that, by design, provided federal assistance to veterans struggling to make their mortgage payments. This program replaced the Veterans Affairs Servicing Program (“VASP”) as a “last-resort option” for qualifying borrowers. It was specifically designed to aid delinquent borrowers in avoiding foreclosure by lowering their mortgage rate and thereby making their monthly payments more affordable.[6]

Copyright © USFN 2026
USFNews - Feb.25

Rubin Lublin, LLC (USFN Member – AL, AR, FL, GA, MS, TN) expands into Arkansas and welcomes attorney Robert Coleman, Esq. to lead the Arkansas office. Coleman brings a wealth of experience in foreclosure, bankruptcy, litigation, and title services. With this expansion, Rubin Lublin now serves clients across Georgia, Florida, Tennessee, Mississippi, Alabama, and Arkansas – offering efficient, compliant, and client-focused legal solutions across the Southeast.

Scott & Corley, P.A. (USFN Member – SC) was recognized again in the Tier 1 Metropolitan Rankings for the area of "Mortgage Banking Foreclosure Law" in the 2026 edition of U.S. News – Best Lawyers^®. The Firm was also recognized for the areas of "Financial Services Regulation Law," "Government Relations Practice," and "Litigation – Real Estate." Achieving a tiered ranking signals a unique combination of quality law practice and breadth of legal experience.

Additionally, Firm President and Managing Attorney Reggie Corley was recognized in the practice areas of Mortgage Banking Foreclosure Law and Financial Services Regulation Law; and Firm Chair Ron Scott was recognized in Mortgage Banking Foreclosure Law, Litigation – Real Estate, and Government Relations Practice.

Associate member a360inc acquires Notary Hub, expanding its digital signing and remote online notarization capabilities. Notary Hub, a fast-growing digital notarization and signing platform serving the title, legal, lending, and professional services markets nationwide, will continue operating without interruption while its technology and vendor network are integrated into a360inc’s CloseClear notary management platforms. Clients will gain increased automation, stronger document controls, and expanded signing capabilities across multi-industry use-cases.

Gross Polowy LLC

USFN Member (NJ, NY, PA)

USFN hosted a webinar in December which explored how leaders react to the ever-changing default mortgage servicing landscape. This USFNgage session, titled Leading Servicing & Legal Teams Through Change: Building Resilient Leadership that Inspires and Perseveres, highlighted how industry leaders are navigating the complexities of the current environment, building leadership pipelines, shaping inclusive and agile team cultures, and preparing their organizations for what lies ahead in 2026.

The discussion was moderated by Christianna Kersey of Cohn, Goldberg & Deutsch, LLC and featured a panel of distinguished industry leaders.

The webinar began with an overview and opening remarks from Kersey. Attendees were then divided into four breakout rooms with each group concentrated on a different topic.

Following 30 minutes of group discussion in the breakout rooms, participants reconvened for a panel-led summary of key insights and takeaways from the respective sessions.

Attracting Talent and Promoting Pathways

Andrew Brenner of BWW Law Group led a discussion on how companies can attract strong talent as well as promote pathways to leadership. This conversation focused on the challenge of bringing in employees that have the skills and experience to do the work but also possess the traits and attributes needed to thrive in their role. Emphasis was also given to identifying high performers and ensuring they are given plenty of challenges but are not overwhelmed to the point of burnout or driven to look elsewhere for another job.

This session also addressed the importance of providing a leadership path for those strong performers. Often, the ability to do the day-to-day work does not translate into a leadership position and can even present a roadblock to advancing career growth. Most contributors in this session agreed that it can take a long time to advance a new group of leaders. It was noted that prioritizing development early in an employee’s career can provide the most advantageous growth path for both the employee and the company.

Evaluating Talent & Providing Effective Feedback

Alicia Byrd of AMIP Management tackled the challenges presented by remote or hybrid environments where alternative methods of communication may be less effective than in-person feedback.  During her session, Byrd’s group discussed the significance of providing meaningful feedback on a consistent basis and ensuring performance evaluations were done based on effective, measurable metrics of success across all teams.

Communicating, Influencing & Change Leadership

Victoria Vickrey of JP Morgan Chase oversaw a discussion on identifying and building future leaders. This included working to ensure that those leaders reflect and respect their team’s needs, vision, and responsibilities. They also referenced the ever-changing dynamic of effective team engagement, with emphasis on strong leadership and inclusive communication. This session highlighted the value of good leadership in establishing effective workplaces.

Mentoring, Coaching & Building Leadership Depth

Finally, Carrie Anne Deal of McCabe, summarized her group’s discussion on mentoring, coaching, and leadership development noting common themes that emerged across the group.

Many experienced a shift away from older, more formal training models in favor of approaches that feel more practical and integrated into daily work. Some examples are shadowing, hands-on coaching, and intentional conversations when someone steps into a new leadership role. Participants shared that using tools like the DISC personality assessment or similar models are only impactful if the organization commits to using the results long term. Otherwise, people tend to forget the insights shortly after the session.

Several suggestions were given on the topic of fostering inclusive leadership. These included using intentional mentor/mentee pairings, considering differences in personality and background, along with respecting communication preferences.

The overall message was clear. Mentoring and leadership development only succeed when they are done intentionally, supported by leadership, built into the workday, and paired with meaningful goals.

The collective insights from the breakout sessions underscored how important it is for everyone to invest in the next generation of leaders in our companies and provided meaningful tools and strategies to achieve this goal.

USFN will be kicking off its 2026 USFNgage series soon exploring topics such as Women in Servicing, Managing Risk, Technology, and Hot Topics of the Industry. Stay tuned for more information on these sessions coming soon, or visit https://www.usfnevents.org/usfngage.html for more information as it becomes available.

Copyright © USFN 2026

USFNews - February 4

On Thursday, December 11, 2025, the Federal Housing Administration (FHA) issued a waiver of certain language in section III.A.2.d.ii(A) of the Single Family Housing Policy Handbook 4000.1 (Handbook 4000.1). The waived language was introduced in Mortgagee Letter (ML) 2025-06, Updates to Servicing, Loss Mitigation, and Claims. That ML was updated and replaced by ML 2025-12, Tightening and Expediting Implementation of the New Permanent Loss Mitigation Options, which became effective on October 1, 2025.

The provision that has now been waived affected how partial payments are applied to mortgages in default and how the date of default is determined. Specifically, the language could be interpreted to require the date of default to remain unchanged even when sufficient partial payments were received to satisfy a full monthly payment. This interpretation caused confusion for mortgagees attempting to comply with FHA requirements.

FHA determined that the language in ML 2025-12 could be read as inconsistent with the Department of Housing and Urban Development’s (HUD’s) regulations at 24 CFR § 203.331, which explains how to calculate the date of default, and 24 CFR § 203.556, which governs the return of partial payments. As a result, HUD will not enforce compliance with the provision that has now been waived, and mortgagees should service mortgages as though the waived provision had never been in effect.

FHA has updated its Extensions and Variances Automated Requests System (EVARS) to align with this waiver. Mortgagees may consider EVARS denials prior to December 15, 2025, for the extension of time to initiate foreclosure related to advancing the date of default approved.

FHA believes this waiver enhances clarity and consistency in FHA’s default-related servicing requirements. FHA encourages borrowers to make payments to bring their mortgages current and avoid foreclosure; therefore, it is important that payments made on defaulted mortgages, including partial payments, allow the date of default to advance. This helps ensure the continued stability of the Mutual Mortgage Insurance Fund (MMIF).

Interested parties are encouraged to review the Handbook 4000.1 waiver of date of default language in section III.A.2.d.ii(A) “Application of Partial Payments Totaling a Full Monthly Payment under Partial Payments for Mortgages in Default”.

The waiver will be incorporated into a future version of Handbook 4000.1.

Mortgagees and other interested parties are encouraged to contact the FHA Resource Center with any questions.

FHA INFO 2025-59

“We are delighted to diversify our associate member base and welcome Aristocrat Process Serving as a new associate member,” said Pamela L. Donahoo, CAE, USFN CEO. “Applying for USFN associate membership is an extensive application process. It is organizations like Aristocrat Process Serving, who have demonstrated success and ongoing support of the industry that ultimately become members of USFN - America’s Mortgage Banking Attorneys.”

Chey Vaughan, Director of Marketing at Aristocrat Process Serving, LLC, says “Joining USFN allows Aristocrat to connect with industry leaders and further our commitment to excellence, compliance, and client-focused service.”

USFN is dedicated to fostering industry collaboration, promoting best practices, and providing resources to its members and their network of service providers. USFN provides a platform for industry professionals to network, share knowledge, and stay informed in an ever-changing landscape. USFN associate members meet the highest industry standards in their fields, participate in mortgage finance industry organizations, as well as actively participate as speakers and writers for USFN events and publications. Learn more about USFN’s newest associate member Aristocrat Process Serving, LLC at servingprocess.com.

USFNews - Dec. 17, 2025

McCalla Raymer Leibert Pierce, LLP *

USFN Member (AL, CA, CT, FL, GA, IL, KY, MS, NV, NJ, NY, OH, OR, PA, TX, WA)

              The Connecticut Appellate Court recently issued its long-awaited decision in U.S. Bank N.A. v. Israel Melcon, et al (234 Conn. App. 667). The factual situation giving rise to Melcon was an issue of first impression for the Connecticut courts and had the possibility to redefine Connecticut foreclosure judgment procedure. 

              As the reader may be aware, under Connecticut’s Strict Foreclosure process, the court enters a judgment, selects dates that act as the last chance of a borrower and subsequent encumbrancers to resolve the action (called the Law Day or Law Days), and title vests automatically in the foreclosing Plaintiff the following business day. Significant litigation has occurred over the years regarding this process and various court rules, particularly timelines to appeal either the foreclosure judgment or court action on later requests to postpone a vesting. 

This gave rise to what is now known as the “three-strike-rule,” which provides that after denial of two extension requests, there is no further appeal periods without specific action by the movant. In practice, this leads courts to automatically extend a vesting, even on the denial of the first and second motion, as title cannot vest during an appeal period. 

Melcon asked the question “What happens when the court doesn’t?”

              In Melcon, judgment entered on August 29, 2022, with title to vest May 3, 2023 (after various delays). On May 1, 2023, defendants moved to extend, which the court denied that day; without extending the Law Days or issuing an articulation explaining its reasoning. After subsequent motion practice, the trial court took the position that the Law Days were tolled, and that while title did not vest on May 3, 2023, due to the appeal period from the denial, it later vested on May 24, 2023. In so doing, the trial court attempted to create a new way of handling denied Motions and to not need to specify the new Law Days. The trial court felt that, under a tolling theory, title had vested absolutely, that it was stripped of jurisdiction, and defendants had no further recourse. They appealed.

              The Appellate Court ordered further articulation from the trial court, which laid out the trial court’s novel tolling theory. Argument was held on January 15, 2025. Over the following eight months, the Appellate Court occasionally dropped the briefest mention in other decisions, using the word tolling (which to this point, was not part of Connecticut foreclosure jargon). Ultimately the decision was released on August 26, 2025, and the trial court was found to have erred.

              Central to the Appellate Court decision was the concept of notice. The Appellate Court was challenged by the idea of an automatic tolling resulting in parties, especially unsophisticated homeowners, not knowing the exact date of their Law Day and when vesting would occur. The Appellate Court left open the door for the possibility of later changes to the rules that permitted automatic reset with a footnote that “We observe that the Rules Committee of the Superior Court remains free to amend the text of the relevant rules as it deems appropriate” but focused most of its attention on the equitable nature of foreclosures and the need to ensure notice and transparency.

              Ultimately, the Appellate Court landed on the soundbite that “We cannot endorse any result that permits a law day to pass silently” and remanded the matter to the trial court for further proceedings. While this effectively killed the tolling theory as used by the trial court, it asked important procedural questions that will likely find foothold in other cases in the future.

              From a Connecticut practitioner perspective, the reliance on proper notice as the tipping point for the Appellate Court cannot be understated. For those trial courts that separate action on the motion and the new Law Days, or those courts where the notice of the new dates are delayed, Melcon presents a chilling warning. For those attorneys who see a judge deny a postponement request and choose not to set new dates, Melcon is a call to action to have a date set as soon as possible, and proper notice sent.

Copyright © 2025 USFN

USFNews - Dec. 17, 2025

* Denotes firm is a 2024 USFN Award of Excellence recipient

Brock & Scott, PLLC *

USFN Member (AL, CT, DC, FL, GA, KY, MA, MD, ME, MI, NC, NH, NJ, OH, PA, RI, SC, TN, VA, VT, WV)

On September 25, USFN hosted a webinar exploring how technology is reshaping the default mortgage servicing landscape. USFNgage: Tech-Driven Transformation: Innovations in the Default Mortgage Industry highlighted how artificial intelligence (“AI”), automation, cybersecurity, and workflow platforms are transforming compliance, operations, and borrower engagement across the industry.

The discussion was moderated by Ben Paden of Doyle & Fouty, P.C., and featured a panel of distinguished industry leaders: Amy Neumann, CMG Financial Inc.; Mike Merritt, BOK Financial; Brian Nicholas, McCalla Raymer Liebert Pierce LLP; and Erica Fujimoto, Affinity Consulting Group.

The discussion began with an overview and opening remarks from Paden. Attendees were then divided into four breakout rooms, each group tackling a distinct aspect of technological innovation in mortgage default servicing: Current Tech Landscape and Default Mortgage Servicing, Artificial Intelligence and Default Mortgage Operations, Cybersecurity and Data Protection in Default Servicing, and Productivity Tools and Workflow Optimization.

Following 30 minutes of group discussion in the breakout rooms, participants reconvened for a panel-led summary of key insights and takeaways from the respective sessions.

The Current Tech Landscape: Integration and Reinvention

Amy Neumann opened the post-breakout session by summarizing challenges with the current technology stack. She stated that many people are drowning in tools, from Teams to Outlook to proprietary case management systems, client systems, and many more.

The panel noted that while innovation continues to advance rapidly, many servicers and firms still struggle with fragmented systems and incompatible tools. Because of the numerous tools, many of which may not be adopted by an organization, Neumann explained that “[s]ometimes you have to go back to the beginning and rebuild from scratch to stay current,” emphasizing that integration remains a major obstacle.

Neumann pointed to AI-driven quality control as one of the most promising areas for improvement, offering a “second check” to catch compliance or process errors earlier. She also discussed legislative flexibility and technology gaps, urging servicers to be proactive in anticipating changes rather than reacting to them. Her summary of the discussion suggested that modernization offers many efficiencies and opportunities but often requires both technological and organizational reinvention to move forward.

Artificial Intelligence in Default Operations: Promise and Growing Pains

Mike Merritt reported that AI adoption has accelerated dramatically since 2024, noting that “most companies are now using AI in some form.” The breakout session discussed the question of vendor use — when and how third-party vendors can responsibly deploy AI tools on behalf of servicers. Merritt stressed that this depends heavily on risk management and regulatory oversight, both of which remain in the early stages at the state level. In the meantime, the use of AI tools depends on the client and their risk appetite.

He highlighted internal AI use cases, such as automated document generation, policy management, and data organization — tools that streamline processes without exposing sensitive borrower information. However, as adoption spreads, clear communication and explainability become increasingly difficult. Merritt explained that as usage increases, the messaging gets harder, noting that organizations must balance innovation with accountability. He also emphasized that protecting data and infrastructure is critical, and a servicer or vendor must know how its tools are built and how the respective AI models learn.

Cybersecurity and Data Protection: The Human Factor

Brian Nicholas, speaking for the cybersecurity breakout group, framed his discussion around a fundamental question: “Where is the data?” The group identified that one of the biggest threats lies not in external hacking but in unauthorized AI use and third-party vendor breaches. With new AI systems emerging constantly, firms must focus on employee education and vendor oversight to mitigate risks.

Nicholas emphasized that firms often have limited technical recourse after a breach, underscoring the need to reevaluate vendor relationships and data-sharing practices; for instance, questioning whether a full Social Security number is truly needed when a unique identifier could suffice. The session also discussed data retention policies, onshore vs. offshore storage, and evolving phishing techniques.

“The bad actors are using AI too,” Nicholas warned, highlighting that humans remain the weakest link in cybersecurity defenses.

Productivity and Workflow Optimization: The Human-Tech Balance

Closing out the session, Erica Fujimoto summarized her group’s discussion on workflow tools and productivity. She noted that most law firms and servicers rely heavily on Outlook and Microsoft Teams for communication and CRM management. While these tools are powerful, they can also become overwhelming. “Teams tends to get noisy, there’s a constant false sense of urgency,” she observed.

Fujimoto encouraged organizations to leverage AI assistants such as Copilot to help prioritize tasks and reduce digital clutter. Those tasks could include quoting fees and costs; calculating bidding instructions; automating document pulls for claims process; completing claims, etc. She recommended using Copilot to read emails and summarize the prior week.

Her group also discussed e-signature and automation opportunities, noting that many firms still rely on “wet ink” signatures and manual processes. The breakout participants also discussed using AI for KPI dashboards and real-time monitoring, noting that such systems could tell users in real time what’s on fire and making daily metrics easier to monitor.

This session’s discussion led to the conclusion that intentional technology adoption, driven by management buy-in and user comfort, is essential. Leadership must be comfortable with the tools, otherwise implementation will always lag.

The USFNgage webinar offered a timely reminder that while technology is transforming the default mortgage servicing industry, the key to success lies in strategic, informed adoption. From AI integration to cybersecurity vigilance and productivity optimization, each panelist stressed that innovation must be balanced with risk management, education, and adaptability. For mortgage servicers, lenders, and attorneys alike, that future is already taking shape, driven by data, guided by experience, and safeguarded by the weakest link: vigilant users.

Join the next USFNgage on Thursday, Dec. 4, for a peer-driven discussion on Leading through Change: Building Resilient Leadership that Inspires & Perseveres. To learn more or to register for the complimentary webinar, visit https://www.usfnevents.org/usfngage.html.

Copyright © 2025 USFN

USFNews - Dec. 2, 2025

BWW Law Group, LLC *

USFN Member (DC, MD, VA)

On September 16, 2025, USFN held an installment of its briefing series focusing on various emerging topics in the REO/Eviction sphere of the default industry. Both new and seasoned professionals gained valuable knowledge from the panel, which focused on national and state-based themes. The goal of the session, titled “REO/Eviction Refresher & Hot Topics Under a New Administration,” was to touch on the fundamentals of this practice area and enlighten attendees on current issues affecting post-sale processes nationwide.

Roy A. Diaz (Diaz | Anselmo) moderated the panel. He was joined by panelists Joe Hawk (Walentine O’Toole, LLP), Stuart Gordon (McCalla Raymer Leibert Pierce, LLP), and William R. Jarrell (Aldridge Pite, LLP). All of the panelists brought an abundance of knowledge and information to the virtual briefing space and created a plethora of opportunities for future in-depth discussions regarding the evolving post-sale landscape.

The panel kicked off with a discussion of legislative efforts aimed at squatters in REO properties. Legislatures across the country have passed new laws detailing expedited procedures for removing squatters from properties, which is welcome news when it comes to handling REO portfolios. Many of the new laws went into effect in July of 2025. Traditionally, laws throughout the nation have favored squatters. However, the presence of squatters blocks vacant properties from being marketed, sold, or rented in a timely fashion. Lawmakers have taken note of the delays that occur as a result of squatters, with worsening housing supply shortages in a constrained market bringing some of these issues to the forefront.

Vexatious Litigants are another area of recent legislative concern on which the panel focused. Repeated baseless filings by borrowers and related parties continue to delay closings and evictions in the months after a foreclosure sale. A handful of states have recently explored passing litigation to curb the problems brought on by such litigants, including the unnecessary delays and great expenses of handling lawsuits and counter-claims brought by these individuals. While only a few states have passed legislation so far, including California, Illinois, and Nevada, other legislatures are working through proposed legislation on this topic, which could serve to curb the frivolous motions, delays, and abusive tactics of vexatious litigants nationwide.

In order to effectively handle post-sale matters, the panel turned to a refresher of the REO and Eviction processes, focusing on post-pandemic trends and emerging compliance considerations under the new presidential administration. This discussion was well-tailored to professionals of varying experience levels, as the panel touched on the basics of what happens post-foreclosure sale and the myriad of issues that could arise at each step in the process, especially as there are lingering backlogs from pandemic and new tenant protection statutes that have been passed in many jurisdictions. The panel also addressed the evolving landscapes of the CFPB, HUD, Veterans Affairs, and the USDA, opining on what lies ahead for the agencies for the remainder of 2025 and into 2026.

Finally, the panel shed light on issues that arise with third party vendors assisting with REO properties and recommended best practices for their use. The panel highlighted the need for strong indemnity provisions and to ensure that vendors understand state specific limits – as a one-size-fits-all 50-state approach is often ineffective when it comes to post-sale matters.

As the panel noted, “[t]he REO and eviction space is being reshaped by policy, politics, and public sentiment.” Proactive strategies, good legal foresight, and staying well-informed of developments in this area of law are the keys to success in managing REO portfolios in the months and years to come. USFN continues to provide vital educational resources to help the industry meet these challenges. For more on upcoming briefings, compliance events, and digital tools—including the USFN Source platform—visit usfnevents.org or explore the member directory to connect with experts in this space.

“It is law firm members like HCA.LAW that exemplify the ideals of USFN, and we are excited to welcome them to the USFN family,” said Pamela L. Donahoo, CAE, USFN CEO. “Applying for membership is an extensive application process and it is those firms who demonstrate a commitment to excellence and best practices within the industry, that ultimately become members of USFN - America’s Mortgage Banking Attorneys.”

Honored to announce the firm’s acceptance as a member of USFN, Herschel C. Adcock, Jr., President and Owner of HCA.LAW, said, “Our firm has long respected the leadership and standards of excellence exemplified by USFN and looks forward to actively contributing to its mission of promoting best practices within the mortgage default servicing industry.”

Adcock added, “In discussions with our clients, their feedback was unanimous: USFN is regarded as an organization of exceptional integrity and professionalism. We are proud to join an association whose reputation aligns so closely with our own commitment to quality, compliance, and service, and we look forward to advancing the shared goals of the network and its members.”

USFN is dedicated to fostering industry collaboration, promoting best practices, and providing resources to its members and their network of service providers. USFN offers a platform for industry professionals to connect, share knowledge, and stay informed in an ever-changing landscape. As a USFN member, HCA.LAW will actively engage in discussions on emerging industry trends and contribute to the collective knowledge of the organization’s membership. USFN members stand among the industry’s most accomplished professionals, united by a shared commitment to excellence. Learn more about USFN’s newest member at HCA.LAW.

About USFN

USFN is a national, nonprofit trade association representing America’s leading mortgage banking attorneys for over 35 years. With its robust educational offerings and reference publications, along with stringent qualifications for membership, USFN remains the premier, go-to organization for creditors’ rights legal services providers serving the mortgage banking industry. Learn more about the organization at usfn.org.

USFNews - Nov. 5, 2025

McCalla Raymer LeibertPierce, LLP *

USFN Member (AL, CA, CT, FL, GA, IL, KY, MS, NJ, NV, NY, OH, OR, PA, TX, WA)

And Travis Menk, Esq.

Brock &Scott, PLLC *

USFN Member (AL, CT, DC, FL, GA, KY, MA, MD, ME, MI, NC, NH, NJ, OH, PA, RI, SC, TN, VA, VT, WV)

USFN submitted a formal comment in response to the Middle District of North Carolina’s proposed Model Chapter 13 Plan § 8.3 and Local Rule 4001-1(e). The proposed plan and rule if enacted could also expose mortgage servicers to significant legal risk both within North Carolina and across the country.

I. Legislative Overreach: A Challenge to Federal Law and Judicial Authority

At the heart of USFN’s concern is the improper expansion of local judicial authority. Under Federal Rule of Bankruptcy Procedure 9029, local courts may only establish rules governing “practice and procedure.” However, USFN argues that the Middle District’s proposals do much more: They effectively legislate new substantive rights and obligations for mortgage creditors, infringing upon the role of Congress and federal regulatory agencies such as the CFPB.

In support of its position, USFN points to In re Klemkowski, 664 B.R. 681 (Bankr. D. Md. 2024), in which the court declined to mandate that servicers provide online account access to debtors in Chapter 13. The court explicitly acknowledged that any requirement of that nature must come from Congress or a regulatory agency — not the judiciary.

Yet, Section 8.3(d) of the proposed model plan states:

“The Holder shall send to the Debtor a Periodic Monthly Statement, each month, either by mail or electronically as requested by the debtor.”

This requirement, USFN notes, directly conflicts with 12 C.F.R. § 1026.41 which grants servicers, not borrowers, the discretion to determine how periodic statements are delivered. The proposed mandate, according to USFN, exceeds the scope of permissible rulemaking and violates the Rules Enabling Act (28 U.S.C. § 2075), which prohibits the judiciary from modifying substantive rights via rule.

II. Operational Risks and National Impact for Creditors

Mortgage servicers operate on a national scale, often managing loans in multiple states and districts. The proposed plan and rule would impose local-specific obligations — such as providing online payment portals and continuing non-bankruptcy statement formats — that many servicers are not currently equipped to meet.

Implementing these changes would require extensive and costly overhauls to servicing systems, which are typically not designed to reflect individualized bankruptcy requirements across multiple jurisdictions. Moreover, applying different rules for just one of the 94 federal districts could inadvertently create systemic risks.

USFN references the CFPB’s 2024 enforcement action against VyStar Credit Union, where inadequate technical systems and mismanagement of borrower communications led to significant regulatory penalties. The lesson, according to USFN, is clear: When system demands exceed operational capacity, borrower harm and regulatory exposure follow.

While the model plan includes a sentence intended to shield creditors from liability in attempting to comply, USFN argues this protection is too limited and fails to cover the broader risks, especially for servicers operating outside the Middle District.

III. Lack of Uniformity and National Conflict

Article I, Section 8 of the U.S. Constitution gives Congress the exclusive power to establish “uniform Laws on the subject of Bankruptcies.” USFN warns that by enacting these provisions through a local rule and plan, the Middle District undermines this constitutional principle.

Furthermore, inconsistencies between the proposed plan language and the local rules create confusion. For example:

• Section 8.3 applies specifically to mortgage claims in Chapter 13, while Local Rule 4001-1(e) appears to extend requirements to all secured claims in all bankruptcy chapters, including automobile loans.
• The local rule mandates online access and statement delivery “in the same manner as existed prepetition,” whereas the model plan merely requires “online access to make payments.”
• The rule mandates delivery of non-bankruptcy customer statements, while the plan seems to reference periodic statements under TILA, which may not apply to all loan types (e.g., open-end credit lines like HELOCs).
  
  

This framework, USFN argues, not only complicates compliance but also increases the risk of unintended violations of federal law, particularly for national banks and servicers.

IV. The Need for a Deliberate, Collaborative Process

USFN emphasized that major changes to bankruptcy processes should be made through a deliberative legislative or national rulemaking process, not by a local rule or plan. Historically, significant reforms — like those to national plan forms or the Bankruptcy Code — undergo years of stakeholder consultation, public comments, and congressional or Supreme Court approval.

In contrast, the Middle District’s proposed changes represent a fundamental departure from established practices without adequate time for industry input or adjustment. This rapid implementation risks not only legal invalidity but also significant disruption to national servicing standards.

Conclusion and Call for Revisions

In its conclusion, USFN respectfully urged the Court and the Rulemaking Committee of the Middle District of North Carolina to revisit and revise Model Plan § 8.3 and Local Rule 4001-1(e). It called for a framework that aligns with existing federal law, preserves the constitutional separation of powers, and reflects the operational realities of mortgage servicers.

USFN encouraged ongoing dialogue to ensure that bankruptcy procedures remain fair, practical, and legally compliant.

Copyright © 2025 USFN

USFNews - Nov. 5, 2025

The formation of Foundation Legal Group (USFN Member – AR, MS, NC, SC, TN) unites the extensive experience and trusted reputations of two long-standing and highly respected USFN firms in the mortgage banking sector: Hutchens Law Firm and Wilson & Associates.

Foundation Legal Group will leverage the deep industry knowledge and proven track records of both firms to provide legal support to mortgage servicers across five states: Arkansas, Mississippi, North Carolina, South Carolina, and Tennessee. Current clients can expect a seamless transition and a continued commitment to the high-quality legal services they have come to rely on from Hutchens Law Firm and Wilson & Associates.

Associate Member a360inc, a leading provider of technology and outsourcing solutions for the legal and financial services industries, appoints Rob Pajon as Senior Vice President of Client Product Management. With more than two decades of leadership experience in mortgage technology, servicing, and SaaS growth, Pajon brings a unique blend of product vision, operational insight and marketing to this newly created role to lead a360inc’s product strategy.

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ProVest, a leading provider of process serving solutions, powered by Associate Member a360inc, has appointed Scott Wittosch as the Director of Credit Collections Business Development. With over a decade of experience in building relationships with collection litigators and a strong background in payment processing, Wittosch brings valuable expertise to drive growth in this critical sector.

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Brock & Scott, PLLC (USFN Member – AL, CT, DC, FL, GA, KY, ME, MD, MA, MI, NH, NJ, NC, OH, PA, RI, SC, TN, VT, VA, WV) announces the promotion of its newest Managing Partners: Amanda Driscole and Brennan Ferguson. Ferguson has been named managing partner of the Maryland/DC division and Driscole named managing partner of the Florida division. Their dedication, expertise, and leadership have been invaluable to the firm’s success, and Brock & Scott looks forward to their continued positive impact on the firm and the service provided to its clients.

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McCalla Raymer Leibert Pierce, LLP

1.      USFN member: Since 1988

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: Since its inception.

4.      Why is the AOE Award important to your firm?
We’re incredibly proud to be recognized with this honor. Beyond celebrating our team’s hard work and dedication, the AOE reflects how important industry involvement is to all of us at MRLP. It affirms and underscores our commitment to setting the highest standard of excellence for our clients and our industry.

5.     Why is USFN Membership important to your firm?
USFN membership keeps us connected to the pulse of the industry. It’s about having a seat at the table, building relationships, and creating opportunities. Membership opens doors to valuable networking, collaboration, and advocacy that help our firm stay ahead of the curve.

USFNews - Oct. 8

Powers Kirn, LLC

1.      USFN member: Since 1988

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: We have received the award for over 20 years

Tiffany & Bosco, P.A.

1. USFN member: Since 1988
2. First AOE recognition: No
3. How many AOE Awards has your firm won: Since its inception.
4. Why is the AOE Award important to your firm?
   The USFN Award of Excellence recognizes our Firm's commitment to excellence within the mortgage banking community. Tiffany & Bosco, P.A. prides itself on making significant contributions to the mortgage industry’s continuing education, staff development, and strengthening client relationships. This achievement is an acknowledgment of the importance of these contributions and always striving to be an industry leader.
5. Why is USFN Membership important to your firm?
   USFN is one of the nation’s oldest trade associations of law firms that focus on mortgage default and related mortgage banking legal services. Tiffany & Bosco, P.A. has been a USFN member since its beginning. We are proud to continue to be a member firm of an established, premier industry organization that emphasizes professionalism, industry participation in regular educational programs and discussion of industry issues, as well as philanthropic involvement in each of our communities.

BDFLaw Group

Kivell, Rayment & Francis, P.C.

Schneiderman & Sherman, PC

Brock & Scott, PLLC

1.      USFN member: 11 years

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: At least 8 years

4.      Why is the AOE Award important to your firm? Brock & Scott is honored to once again receive the USFN Award of Excellence. This award is and has been a testament to our firm's unwavering commitment to the mortgage banking industry. The Award of Excellence not only validates our consistent engagement and contributions to USFN's programs and publications, but it also reflects our dedication to upholding the rigorous standards of excellence that USFN has championed for over 30 years. It signifies our active participation in not only the industry but our local communities as well, reinforcing our reputation for quality education, active networking, thought leadership and strong partnerships. This award further signifies our dedication to best serving our clients through continuous improvement and unceasing commitment to not only meeting, but exceeding industry expectations, especially as it relates to meeting the needs of our clients

5.   Why is USFN Membership important to your firm? As a USFN member, we're part of an elite group of the most knowledgeable, reputable, and dedicated firms in the country. This affiliation provides our firm with access to outstanding educational resources, invaluable networking opportunities, and essential publications that keep us at the forefront of legal and regulatory compliance. Our active participation within USFN ensures that we're continuously enhancing our expertise and insights, directly benefiting our clients by enabling us to provide the most effective and efficient legal services for all their mortgage banking needs. The USFN's dedication to industry advocacy also enables us to lend an active hand in ensuring the industry, and our clients remain, not only viable, but best in class. Ultimately, our USFN membership is a testament to our commitment to excellence, continuous professional development, and our unwavering ability to provide comprehensive and cutting-edge legal counsel to financial institutions in the mortgage servicing industry.

Baer Timberlake, PC

1.      USFN member: 25 years

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: More than 20 years. We need a new shelf.

4.      Why is the AOE Award important to your firm? The excellence required in the various categories is a great motivator to keep everyone's attention focused throughout the year. As the award has become a significant point of pride within the firm, peer pressure among departments to excel has been a key driver of our success.

5.      Why is USFN Membership important to your firm?
Being affiliated with the best in the industry helps everyone within our organization recognize and focus on what it takes to be the very best.

McCabe, Weisberg & Conway, LLC

1.      USFN member: 3 years

2.      First AOE recognition: Yes

3.      Why is the AOE Award important to your firm? It is recognition from a peer group of our commitment to the industry, our colleagues and our clients.

4.      Why is USFN Membership important to your firm? Working with colleagues and clients to improve and protect our industry is a privilege that our firm values.

Orlans Law Group PLLC

1.      USFN member: Since 2007

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 16

4.      Why is the AOE Award important to your firm?
The Award of Excellence from USFN is significant for Orlans Law Group law firm for several reasons. First, the AOE award is like a badge of quality that demonstrates to our clients how we maintain high quality standards across multiple jurisdictions. For our industry it is akin to the Good Housekeeping seal of approval and enhances our firm’s reputation among clients, peers, and industry stakeholders. In addition, it creates trust with our clients and increases their confidence in our firm and attorneys. The AOE award can also lead to valuable connections and collaborations within the industry as well as giving us a competitive advantage by positioning it as a leader in our field. Overall, this award signifies quality, reliability, and professionalism which are crucial factors in any legal business.

5.      Why is USFN Membership important to your firm?
Membership in USFN is important to Orlans Law Group for several reasons. For starters, it demonstrates that we have been vetted for rigorous quality and performance standards. It signifies that we represent the very best in our industry. Membership also provides a platform to network with industry colleagues, lenders, servicers, and other professionals, helping build valuable relationships. OLG also gains from USFN advocacy efforts for policies beneficial to our industry and gives us a voice in these discussions. Plus, we obtain valuable access to industry best practices, educational resources, conferences which help us stay informed and compliant. Overall, USFN membership helps us demonstrate industry leadership, stay current, and build strategic relationships which ultimately leads to growth and success.

McCalla Raymer Leibert Pierce, LLP, (USFN Member – AL, CA, CT, FL, GA, IL, KY, MS, NV, NJ, NY, OH, OR, PA, TX, WA) is thrilled to announce the addition of Steven Sacks, Esq., as Deputy General Counsel, effective May 19, 2025. With 25 years of experience in the legal and mortgage servicing industries, Sacks brings a wealth of knowledge, strategic insight, and a proven track record of success that will further enhance MRLP’s commitment to providing best-in-class legal services to its clients.

Sacks spent a dozen years as litigation and compliance counsel for bank and non-bank clients before transitioning into senior leadership roles at PNC Bank, Fifth Third Bank, and USAA, where he led teams responsible for operational governance, compliance management, risk management, and business controls in both performing and default servicing environments. His perspective and experience in operations, risk and controls, change management, and vendor oversight will be instrumental as MRLP continues to adapt to the evolving needs of its clients.

USFN Report - Summer 2025

Trott Law, P.C.

1.      USFN member: 36 years

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 22

4.      Why is the AOE Award important to your firm?
The award recognizes that our firm is more than just a member of the USFN. It shows that we are thoughtful leaders and that we participate in education, training, and work to help solve industry challenges.

5.      Why is USFN Membership important to your firm?
USFN Membership establishes that a firm is among the best in our industry. USFN’s educational offerings are the standard of excellence, while its events allow us premier client development opportunities. This not only strengthens our relationships but also is often a reciprocal experience that leads to us being a better firm.

Diaz | Anselmo

1.      USFN member: 8 years

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 7

4.      Why is the AOE Award important to your firm?
The USFN Award of Excellence represents more than just recognition; it reflects a deep commitment to professionalism, innovation, and leadership within the mortgage servicing industry. For me, it serves as a benchmark of quality and collaboration — values that are essential to delivering the highest standard of service in a field that is constantly evolving.

5.      Why is USFN Membership important to your firm?
It demonstrates a shared dedication to ethical practices, continuous improvement, and meaningful contributions to the industry. It’s a symbol of trust and excellence that inspires our firm to stay actively engaged in shaping the future of our profession.

The Mortgage Law Firm

1.      USFN member: 8.

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 7

4.      Why is the AOE Award important to your firm?

  The USFN Award of Excellence is important to us because it recognizes the full picture, not just what we do, but how we do it. It reflects the strength of our firm across key areas like operations, performance, leadership, education, advocacy, industry involvement, and thought leadership. USFN sets a high bar. Being recognized by an organization known for its integrity and commitment to excellence is something we’re genuinely proud of. We work every day to meet that same standard—for our clients, our team, and the industry we’re proud to be part of. This award is both validation and motivation. It affirms that the work we’re doing matters, and it pushes us to keep showing up with purpose, professionalism, and pride.

5.      Why is USFN Membership important to your firm?

  USFN has always represented the highest standard in our industry, which is why being part of this organization matters to us. It’s more than a membership. It’s a commitment to leadership, growth, and staying connected to the bigger picture. We’re proud that our CEO, Sally Garrison, serves as USFN President, but our involvement goes far beyond that. We believe in showing up, sharing knowledge, and contributing to the conversations that shape our industry. USFN gives us the insight, relationships, and resources we need to stay informed, stay engaged, and continue leading with purpose.

Rosenberg & Associates, LLC

1.      USFN member: 9 years

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 8

4.      Why is the AOE Award important to your firm?
Our firm works hard to make an impact in our industry. The AOE Award recognizes our time and effort.

5.      Why is USFN Membership important to your firm?
USFN provides our firm with an environment to collaborate ideas, make significant contributions, and stand out as a leader within the default servicing field.

Diaz │ Anselmo*

USFN Member (FL, IL, IN, KY, OH, WI)

As part of its ongoing Briefing Series, USFN hosted an informative virtual session on May 13, 2025, spotlighting the complexities of HECM (Home Equity Conversion Mortgage) loans—commonly known as reverse mortgages. The session, titled "Enforcement, Foreclosure, and Key Differences from Conventional Loans," provided a comprehensive overview of the unique characteristics of HECM loans and the legal challenges servicers and practitioners encounter when managing these products.

The panel featured seasoned professionals including Caren Castle (The Mortgage Law Firm), Eric Rudolphy (Celink), Adam Gross (Gross Polowy, LLC), and Eileen Papariella (Single Source Property Solutions). Each brought a wealth of experience and insight to the session, contributing to a robust discussion on the nuances of reverse mortgage enforcement and asset management.

The panel began by revisiting the fundamentals. A HECM is a federally insured reverse mortgage product available to homeowners aged 62 or older. It allows borrowers to access the equity in their homes without the burden of monthly mortgage payments. As the panel highlighted, this structure creates a unique servicing and enforcement environment due to the fact there are no installment payments. Key loan features include borrower age, repayment triggers (typically upon death or move-out), and restrictions surrounding occupancy and property condition.

One of the most nuanced areas covered was enforcement. Unlike traditional mortgages, HECMs are generally non-recourse and become due and payable upon specific "triggering events," such as the borrower’s death, the home no longer being the principal residence, or failure to pay taxes and insurance.  These trigger events are unique to HECM loans, and based on the loan documents, a notice of default is potentially not needed to begin the foreclosure process.

Since the majority of defaults should result from the death of the borrower, it is important to determine whether a probate is necessary to foreclose a HECM loan.  The answer, as explained, depends on the state. In some jurisdictions, like Wisconsin, a probate is required in order to obtain a party to serve.  However, in other states, such as Florida, a probate should never be filed in order to commence foreclosure.  This lack of uniformity underscores the importance of understanding state-specific probate rights and dower laws when enforcing these loans.  It is also important not to ignore a probate when it is filed.  For example, in Ohio, there are land sales through probate may be required, while others do not mandate probate proceedings.

The panel explored how HECM foreclosures diverge from traditional foreclosure processes. For instance, a demand letter may not be necessary in every HECM foreclosure, particularly when the loan has automatically matured. However, property status—whether vacant or occupied—affects how and when foreclosure proceedings can commence.

Also discussed were standing challenges, which are treated differently for HECMs compared to conventional loans. In many states, such as Florida and New York, HECM loans potentially are non-negotiable, this means the Courts may not be able to rely on the endorsement to prove standing.

Another legal wrinkle is the statute of limitations. The panel explained that HECMs often follow a distinct limitations timeline, particularly when successive foreclosure actions or res judicata come into play. Practitioners are advised to tread carefully, ensuring accurate date tracking and analysis of prior enforcement efforts, and to look at the facts for each case.  There is potential case law stemming from 28 U.S.C. § 2415(c), that may allow the enforcement of a loan that is passed the statute of limitations.

Rounding out the discussion, the panel turned its focus to REO asset management—a critical, often overlooked component of post-foreclosure HECM handling.

Several best practices emerged:

• Partner with vendors who understand HECM timelines and regulatory pitfalls.
• Obtain the most accurate initial valuation to reduce the risk of appraisal-based claims (commonly referred to as ABCs).
• Use appraisers trained specifically on reverse mortgage products.
• Ensure quality control reviewers are highly experienced and trained in HUD protocol.

Choosing REO agents and vendors who are well-versed in HECM-specific compliance and financial analysis is important, particularly when weighing Asset-Based Claims (ABC) versus Servicer-Based Claims (SBC). The goal: maximize investor recovery while adhering to HUD’s stringent guidelines.

This USFN Briefing reinforced that HECM loans are not simply conventional loans in reverse—they come with their own ecosystem of legal, financial, and servicing requirements. From probate complexities to appraisal practices, the stakes are high for servicers and legal professionals navigating these waters.

USFN continues to provide vital educational resources to help the industry meet these challenges. For more on upcoming briefings, compliance events, and digital tools—including the new USFN Source platform—visit usfnevents.org or explore the member directory to connect with experts in this niche space.

Copyright © USFN 2025

USFNews_July 23

*Denotes firm is a 2024 USFN Award of Excellence recipient.

USFN would like to extend a heartfelt thank you to Rich Haber, Esq, and Brian Scibetta, Esq. of McCalla RaymerLeibert Pierce LLP for their exceptional work drafting on behalf of our organization. Their insight, precision, and commitment helped ensure our industry’s voice was clearly and powerfully represented. We’re proud to stand alongside such outstanding advocates.

Click here for a copy of the brief.

Doyle & Foutty, PC

1.      USFN member: 25+ years

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 16

4.      Why is the AOE Award important to your firm?
It demonstrates our devotion to this industry, this organization, our clients and their education, as well as excellent service to all.

5.      Why is USFN Membership important to your firm?
USFN is the premiere organization in our default industry that is focused on education and advocacy. The amount of work represented by all its members is unparalleled. Additionally, the membership is always willing to work together for the good of everyone and that sense of community is not duplicated elsewhere.

USFNews - July 9, 2025

Aldridge Pite, LLP

1.      USFN member: Since inception

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 16

4.      Why is the AOE Award important to your firm?
Receiving the USFN Award of Excellence is important to our firm because it shows our commitment to the industry, our clients, our community, our outstanding staff and attorneys, and the organization as a whole. This annual recognition from such a well-respected industry organization demonstrates that the hard work and dedication of our entire team is acknowledged.

5.      Why is USFN Membership important to your firm?
As one of the industry’s very first organizations dedicated to default related work, we have been fortunate to be part of the USFN since its inception. We appreciate the educational aspects of the organization as well as the networking opportunities and the industry advocacy that it provides.

USFNews - July 9, 2025

BWW Law Group, LLC

1.      USFN member: 19 Years; 2006

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 7 Awards; 2018 -2024

4.      Why is the AOE Award important to your firm?
The USFN is the premier trade organization in the mortgage industry. To receive the Award of Excellence is an honor and we appreciate the opportunity to contribute to such a renowned and prestigious organization.

5.      Why is USFN Membership important to your firm?
USFN provides an opportunity to congregate with the most talented and reputable attorneys and servicing professionals in the mortgage space. It is the epicenter for relevant educational content and its advocacy efforts help facilitate our shared desired objectives.

USFNews - July 9, 2025

Scott & Corley PA

1.      USFN member: Founding Member in 1988 and continuing thereafter.

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 15+

4.      Why is the AOE Award important to your firm?
Testament to our firm’s commitment to excellence in legal abilities and ethical standards as well as appropriate diversity/inclusion best practices. The Award complements nicely our peer and judicial rankings and selections for BEST LAWYERS IN AMERICA (c) and SUPER LAWYERS (c).

5.      Why is USFN Membership important to your firm?
Encourages and allows for member collegiality in helping our firm and especially our lawyers in our firm’s participation in professional development opportunities through the latest legal education courses as well as the opportunity to enjoy creating personal friendships.

USFNews - July 9, 2025

Wilford,Geske & Cook, P.A.

USFN Member (MN)

Minnesota passed foreclosure reform legislation in a combined omnibus bill on the last day of the 2025 legislative session, HF2432, Article 5. All 13 sections of the bill were signed into law and will become effective either on August 1, 2025 or January 1, 2026. Key provisions for the default servicing industry cover loss mitigation, postponements of judicial foreclosure sales, surplus funds, post-sale redemptions, and enhanced sheriff tools to thwart foreclosure speculators.

The timeline for handling loss mitigation applications under Minnesota law is now better (but not perfectly) aligned with federal law. In 2014, Minnesota enacted an ambiguous dual-tracking statute that conflicted with Regulation X procedures. The most problematic issue involved the addition of a single word “halt” to the state dual-tracking statute which in practice made it difficult for servicers to safely postpone a sheriff’s sale during loss mitigation.

It has long been permissible to postpone a foreclosure sale under RESPA while evaluating a loss mitigation application, provided the servicer does not “move for an order of foreclosure, seek a foreclosure judgment, or conduct a foreclosure sale… .” 12 C.F.R. §1024.41(g). Since 2014, the conservative response of some servicers in Minnesota entailed canceling scheduled foreclosure sales upon receipt of a partial application for fear of violating the state statute’s directive to “halt” the foreclosure proceedings. The term “halt” was left undefined and remains undefined by local courts. A Minnesota federal court commented with disapproval the fact that the servicer “continued to publish the notice of foreclosure sale after…” the homeowner submitted a loan modification application, stating that “halt” means “that all proceedings should be suspended or stopped pending an application review.” Hall v. The Bank of New York Mellon, et al, 2016 WL 2930917 (D.Minn. 2016).  As a result, publishing a postponement notice of a scheduled sheriff’s sale presented servicers with litigation risk and led to uneconomically canceling scheduled sales after incurring significant attorney fees and costs.

With the support of the Minnesota Legal Aid Society, which originally drafted Minnesota’s dual-tracking statute in the image of Regulation X in 2014, the term “halt” now explicitly allows a servicer to postpone or cancel a pending foreclosure proceeding while evaluating a loss mitigation application.  After August 1, 2025, servicers do not need to cancel and re-start pending foreclosures during loss mitigation, which made no economic sense for the servicer or borrower, and will no longer be faced with the dilemma of complying with state and federal dual-tracking statutes that conflict with one another. 

Some differences remain between Regulation X and Minnesota’s dual-tracking statute. For instance, a Minnesota homeowner retains the right to submit a loss mitigation application up until “midnight of the seventh business day before the foreclosure sale date” compared to the 37-day deadline under Regulation X. 12 C.F.R. §1024.41(g). However, now the servicer receiving an application at the eleventh hour may simply postpone the sheriff’s sale rather than cancel it and start over. 

The dual-tracking statute in Minnesota will now require a servicer to wait 60 days before conducting a sheriff’s sale after the occurrence of one of the following, whichever is applicable: (1) a loss mitigation denial letter, (2) the homeowner fails to timely accept a loss mitigation offer, or (3) the homeowner declines a loss mitigation offer in writing. As a practical matter, this eliminates the unseemly instance of removing a loss mitigation hold on a Monday and proceeding with a sheriff’s sale on Wednesday.

In a separate provision introduced by Legal Aid, judicial foreclosure sales may now be postponed at the request of the servicer for an unlimited number of times. Minn.Stat. § 580.07, subds. 1. In alignment with non-judicial foreclosures (the predominant method of foreclosure in Minnesota), the right to postpone a sheriff sale has been relied upon by servicers for many reasons including compliance, moratoriums, reviews, and to allow time for reinstatements and payoffs. Previously, no statutory basis existed in Minnesota to postpone a judicial sale, which led to re-doing all post judgment foreclosure activities if a judicial sale couldn’t move forward at the time of the scheduled sale. A homeowner’s one-time right to postpone a sheriff’s sale for five or 11 months, in exchange for reducing the homeowner’s redemption period to only five weeks, is also carried over to judicial foreclosures. Minn.Stat. § 580.07, subd. 2. The net effect on timelines of a “borrower postponement” is minimal in Minnesota and only extends the overall foreclosure timeline by one week.

The surplus statute, Minn.Stat. §580.10, is rewritten but retains most of the substantive rights. Consistent with case law, junior creditors hold priority ahead of owners to demand a surplus in the order of their recorded priority. Minn.Stat. §580.10, subd. 1.  Demands for a surplus by a junior lienholder must be in writing and now must be accompanied by an affidavit stating the amount unpaid and describing the lien interest creating a right to a surplus. A sheriff must now hold surplus funds for the entire redemption period, usually six or 12 months.  The sheriff must send a Notice of Surplus to the owner at the property address. An owner may request that the surplus be held and applied to a mortgagor redemption, which right is nontransferable from the mortgagor to a third party, such as a foreclosure speculator. A surplus of less than $100 can be automatically paid to the owner of the property. In the event of competing demands for a surplus, a sheriff may now apply to a court to resolve such claims.

Technical changes to the redemption statutes provide more transparency, accuracy, and time to complete redemptions. Junior creditor redemptions now take place during consecutive 14-day windows (instead of seven-day windows) following the mortgagor’s redemption period expiration date. Minn.Stat. § 580.24. The deadline for a junior creditor to record an Affidavit of Amount Due is now relaxed to “as soon as reasonably possible” instead of strictly within 24 hours. Minn.Stat. §580.25. Redemption affidavits must state the interest rate accruing on the lien and the date of payment of each cost incurred during the redemption period. A Certificate of Redemption must be issued in the name of the mortgagor if redemption occurs during mortgagor’s redemption period. Minn.Stat. §580.26.  The deadline to record a Certificate of Redemption is extended from four days to one week.  Minn.Stat. §580.26.

Sheriffs will have powers to thwart foreclosure speculators. For years, speculation has existed in Minnesota foreclosures and redemptions through schemes to artificially create redeemable interests in properties. Voluntarily paying property taxes for another, and thus having a lien for the taxes paid, was one example of creating a right of redemption in a foreclosure. The right to pay property taxes for another is limited to only those having a “legal or equitable” interest in the underlying property. Minn.Stat. § 272.45. Additional tactics such as forged deeds or fraudulent mechanics liens have been questioned by sheriffs in the past.  Now, sheriffs may commence an action to resolve a redemption dispute or question the validity of a redemption without issuing a Certificate of Redemption to a foreclosure speculator. Minn.Stat. § 580.24(d). The scope of legal challenges that may be raised under a statute intended to preserve redemption rights pending the legal challenge, is expanded to include surplus and redemption disputes. Minn.Stat. § 580.28.

In the end, the 2025 amendments will create more certainty, fairness, and predictability to the foreclosure, surplus, and redemption processes in Minnesota.

Copyright © USFN 2025

USFNews - July 9

As the federal government has rolled back protections for consumers and small businesses, this Act
seeks to fill the void left behind. The “Fostering Affordability and Integrity through Reasonable Business
Practices Act (“FAIR Business Practices Act”) seeks to strengthen New York’s consumer protection law,
to wit: General Business Law §349. The legislation proposes an expansion of GBL §349 to include not
only deceptive acts but those that are “unfair” and “abusive”. The Act also expands protection not only
to individual consumers but to businesses and nonprofits, reasoning that these entities are no better at
defending themselves from unfair, abusive and deceptive conduct than an individual consumer.

As such GBL §349 was amended to add definitions of both “unfair” acts or practices as well as “abusive”
acts or practices. Enforcement of unfair or abusive acts is limited strictly to the Attorney General if the
AG believes from satisfactory evidence, that any person, firm, corporation, company, partnership or
association or any agent or employee thereof, has engaged or is about to engage in any unfair,
deceptive or abusive acts or practices. Such action may be brought against any “person conducting any
business, trade or commerce or furnishing a service in New York State…” The Act seeks to eliminate the
limitation imposed by courts upon the AG’s power to enforce the statute to acts that are “consumer oriented” or that have an impact on the public at large. As such, private transactions by businesses
engaged in deceptive, unfair or abusive acts are susceptible to enforcement by the Attorney General.

Any person injured by reason of a deceptive act or practice may still bring a private right of action to
enjoin such practice or recover damages as has always been the law.

Some examples of the protections this legislation is designed to address include, but are not limited to,
deed theft, junk fees, data breaches, mortgage servicers who deceptively steer people into higher cost
loans and companies who take advantage of consumers with limited English proficiency and/or obscure
pricing information and fees.

View the legislation here.

USFN Member (AL, CA, CT, FL, GA, IL, KY, MS, NV, NJ, NY, OH, OR, PA, TX, WA)

In one of its first opinions discussing so-called Zombie Mortgages, Aspen Properties Group, LLC v. Roberts-Joachim, the Connecticut Appellate Court has ruled in favor of the foreclosing lender on a defense of abandonment brought by the borrower.

Plaintiff, Aspen, brought suit seeking foreclosure of a 2006 second mortgage stemming from a 2012 default, with the action not commenced until 2020. At the time, Connecticut did not have a Statute of Limitations for mortgage foreclosure actions[1]  and defendants in the state have attempted various defenses in efforts to prevent what they see to be inequitable or improper foreclosures.

In Roberts-Joachim, the borrower, through her counsel from the Connecticut Fair Housing Center, attempted to raise a defense of abandonment. She alleged that, as she had been the subject of a prior foreclosure action brought by her first mortgage holder, and as the second had not participated, it had abandoned its mortgage. That action, brought in 2013, went to judgment but was eventually resolved through a loan modification and the action was withdrawn. One of Aspen’s predecessors in interest was properly named in that action, but did not appear or participate.

Aspen eventually accelerated and brought its action, which proceeded to a trial on the sole contested issue of whether Aspen’s predecessor had abandoned the second mortgage by not participating in the first mortgage’s prior foreclosure. The trial court rendered judgment for the lender as it determined that simply not appearing did not evidence an intent to abandon the second mortgage as there was no equity at the time, and that the abandonment claim was not carried. No evidence was provided as to the predecessor lender at trial and the trial court declined to infer an intent to abandon.

Much of the following appeal turned on the specific facts as found by the trial court, with the appellate court finding no reason to disagree with any of the rulings of the trial court.  Most importantly, the appellate court adopted the trial court analysis of the distinction between the debt and the lien, which provides some insight as to available arguments in similar situations.

First, the court reasoned that the sporadic mailing of demand letters … did not necessarily constitute an intent to abandon the mortgage because PNC had decided to ‘‘charge off’’ the home equity line of credit on its books as an accounting measure. … Of course, PNC’s determination that the loan should be classified as a bad debt does not necessarily mean that it also abandoned the mortgage, which realistically was perhaps the only remaining means to recover the sums it had loaned to the defendant. In other words, the court concluded that there was a reasonable explanation for the dearth of demand letters other than an intent to abandon the mortgage altogether.

While certainly not controlling (abandonment being a very fact-based defense in Connecticut), the argument that acknowledging a bad debt does not necessarily mean abandoning a lien is a potentially compelling argument, and one that lenders encountering challenges to second mortgages may do well to heed. This is potentially useful in any judicial state where a foreclosing senior is required to name the junior, and the junior took no action because, at the time, there was no equity in the property to justify same.

While the appellate court did not create a blanket rule against abandonment defenses to zombie mortgage foreclosures, Aspen provides a solid roadmap for how to address such claims at the trial court level and have the decision survive appellate review. 

Rubin Lublin, LLC

1.      USFN member: 6 years

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 6

4.      Why is the AOE Award important to your firm?
The Award of Excellence has great meaning to our firm. It signifies the fact that we aren’t just members, but that we give back to the organization and our industry as a whole. To do that at the highest level, year after year, is something we are very proud of.

5.      Why is USFN Membership important to your firm?
USFN is the longest standing preeminent trade group in the mortgage default industry. The membership process at USFN is the most rigorous of all the industry trade groups. USFN brings together the very best default professionals and the educational and networking opportunities add tremendous value. We view the attainment of membership as one of the most notable achievements in our firm’s history.

USFNews - June 11, 2025

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Halliday, Watkins & Mann, P.C.

1.      USFN member: 25+

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 25+ (including mergers, acquisitions, etc.)

4.      Why is the AOE Award important to your firm?
The USFN Award of Excellence is important to Halliday, Watkins & Mann, P.C. because it recognizes the best of the best law firms in the mortgage default industry. It is an honor to be listed among the premier firms in the mortgage banking and default services industry, each of whom are dedicated to first-rate legal work, advocacy, education, and giving back to our local communities. HWM is proud of its attorneys and staff who go the extra mile on a daily basis to provide the excellent service to its clients that is required to receive this recognition.

5.      Why is USFN Membership important to your firm?
USFN Membership is critical to our firm's efforts to unite with other esteemed firms to advocate for our industry and educate others with respect to the mortgage default industry. HWM is grateful for the camaraderie with other excellent firms and the many education, advocacy, and marketing opportunities available to the Firm through USFN. Having a place at the table with USFN means that HWM will continue to remain a leader in the mortgage default industry and an influential voice among such law firms for years to come.

USFNews - June 11, 2025

SouthLaw, P.C.

1.      USFN member: Since inception - 1988

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: Every year except one

4.      Why is the AOE Award important to your firm?
SouthLaw, P.C. has attained the AOE every year except one, in the early 2000s when we received the Emerald (2nd tier) award. We committed at that time to pursuing the AOE each year as an objective metric of our overall firm performance, measuring the firm's expertise, sustained excellence, leadership and active participation in supporting the default legal industry.

5.      Why is USFN Membership important to your firm?
USFN provides unequaled value for education, leadership, and foresight for servicers and member firms. USFN is how we remain plugged in to our industry and can contribute to its sustained growth and success.

USFNews - June 11, 2025

Millsap & Singer, LLC

1.      USFN member: Over 25 Years!

2.      First AOE recognition: No

3.      How many AOE Awards has your firm won: 24

4.      Why is the AOE Award important to your firm?
It is important to our firm that we align with the high standards the USFN sets forth each year. This requires our firm to be present and active in the USFN and our industry as a whole. If we do not meet the standards of the AOE, the firm does not meet the standards of our clients.

5.      Why is USFN Membership important to your firm?
Being a member of USFN means we are among the top firms in our industry. Maintaining membership means being involved in this important organization and allows us to build on client connections throughout the year. This not only allows us to grow our business but build friendships in our industry.

USFNews - June 11, 2025

SouthLaw, P.C.*

USFN Member (IA, KS, MO, NE)

On April 1, 2025, the Bankruptcy Court for the District of Kansas Chief Bankruptcy Judge Dale L. Somers reaffirmed most creditor counsel’s understanding of Bankruptcy Rule 3002.1 in In re McGruder, 2025 Bankr. LEXIS 771 (Bankr. D. KS April 1, 2025), finding that Rule 3002.1 does not apply to secured creditor’s in a Chapter 13 case if the debtor’s plan fails to provide for contractual installment payments.

The opinion is of note because the debtor’s counsel argued that Bankruptcy Rule 3002.1 should be applicable because a portion of the equal monthly amount paid to the creditor pursuant to the Chapter 13 Plan included a monthly payment toward principal and interest identical to the amount in the note.

In this case, the basis of creditor’s claim was a note in the principal amount of $100,000.00 to be paid in monthly principal and interest payments in the amount of $599.55 at 6% interest and a final balloon payment to be paid upon the note’s maturity, which was originally August 15, 2017, and then extended to December 15, 2017.

Debtor’s Chapter 13 Plan filed contemporaneously with the case filing sought to pay in full the creditor’s lien against the debtor’s principal residence. The Chapter 13 Plan was confirmed providing for payments to the creditor in equal monthly amounts of $988.00 for the entirety of the Chapter 13 Plan, and a unique plan provision stated that the remainder of the lien would be paid in full through a refinance of the indebtedness upon plan completion.

Debtor’s original Chapter 13 Plan was then confirmed without objection.

Later, the creditor filed a Motion for Relief based upon the debtor’s failure to pay the post-petition taxes and assessments against the property. Creditor and debtor resolved the basis for the Motion for Relief in an Agreed Order. The Order provided for an increase in the monthly amount paid to creditor, increasing from $988.00 to $1,300.00 per month. The $1,300.00 monthly amount consisted of: $599.55 paid toward principal and interest, $303.00 paid toward ongoing property taxes, and $397.45 toward the post-petition escrow deficiency with the funds later being applied toward principal and interest after the post-petition escrow deficiency was cured.

Creditor’s Motion for Relief was subsequently denied three days after the entry of the Agreed Order.

Two years later the debtor obtained a pay-off quote from creditor during an attempt to refinance the property.  The pay-off quote from the creditor included post-petition creditor attorney’s fees of over $20,000.00.

Debtor then filed a Motion for Determination of Post-Petition Mortgage Fees, Expenses, and Charges pursuant to 3002.1 seeking to disallow the post-petition attorney’s fees included in the creditor’s payoff as Bankruptcy Rule 3002.1 Notices of Post-petition Fees, Expenses and Charges had not been filed in the case and a majority of the fees were incurred over 180 days prior. The debtor also argued that the total amount of the creditor’s attorney fees was unreasonable.

In debtor’s brief in support of the Motion, debtor’s counsel argued that Bankruptcy Rule 3002.1 should apply based upon the fact that the Agreed Order Confirming the debtor’s Amended Chapter 13 Plan provided that a portion of the monthly amount paid to creditor explicitly included a $599.55 payment toward principal and interest. As the $599.55 in the Order was identical to the ongoing principal and interest payment in the original note, the debtor asserted that the payment was in fact a contractual installment payment as referenced in Bankruptcy Rule 3002.1.

The Order, designated as an Opinion due to the novel argument, includes a robust analysis of Bankruptcy Rule 3002.1 and the term contractual installment payments. As neither the Bankruptcy Code nor Bankruptcy Rule 3002.1 defines contractual installment payments, the court turned to the Advisory Committee Notes from the 2016 amendment to Bankruptcy Rule 3002.1 which provide:

 " If… a secured creditor's claim is otherwise modified by the confirmed plan, the secured creditor is said to have lost the ‘benefit of its original contract negotiated with the debtor’ as the confirmed plan, pursuant to § 1327(a), becomes the modified contract between the debtor and creditor, and the plan payments to the creditor are not contractual installment payments as the original contract is no longer adhered to.”

12-13

The court determined that the Chapter 13 Plan created “a separate and distinct payment arrangement than the one contemplated by the underlying contract,” even though the $1,300.00 monthly amount to be paid to creditor did include $599.55 toward principal and interest identical to the principal and interest amount included in the original note.  Consequently, Bankruptcy Rule 3002.1 did not apply.

Although, the conclusion of the court may not be a surprise to USFN readers familiar with Bankruptcy Rule 3002.1, it reinforces the court’s reading of the term “contractual installment payments” in spite of debtor’s counsel’s attempted argument.

The court declined to address the reasonableness of creditor’s attorney fees and set the matter for a future status hearing.

Copyright © USFN 2025

USFNews - May 21, 2025

* Denotes firm is a 2024 USFN Award of Excellence recipient.

Cohn, Goldberg & Deutsch, LLC

1.      USFN member: 31 years

2.      First AOE recognition: No

3.      AOE Awards: 31

4.      Why is the AOE Award important to your firm?
Recognition of our contribution to the industry and the quality of work we perform.

5.      Why is USFN Membership important to your firm?
Educational sessions are unmatched, and the relationships formed are unparalleled.

USFNews - May 7, 2025

Wilson & Associates

1.      USFN member: Since its inception - 37 years

2.      First AOE recognition: No

3.     AOE Awards: 30+

4.      Why is the AOE Award important to your firm?
It recognizes the firm excellence among our peers.

5.      Why is USFN Membership important to your firm?
Collaboration and client access.

USFNews - May 7, 2025

Hutchens Law Firm LLP

1.      USFN member: Since its inception in 1988 - 37 years

2.      First AOE recognition: No

3.      AOE Awards: 17

4.      Why is the AOE Award important to your firm?
The AOE award is representative of the hard work our firm does each and every day. And is a reflection of the great staff we have and the care and concern we put into our firm's reputation.

5.      Why is USFN Membership important to your firm?
The USFN is the premier educational and representational association in the default industry. It helps keep our clients and other firms up to date on the latest issues, court rulings, and how to continue to grow within the industry and resolve issues but also highlights the great things that are being done to assist homeowners in remaining in their homes. The networking opportunities that are offered to servicers and law firms, and the excellence in educational forums are recognized as the leading go-to association in creditors’ rights, foreclosure, and bankruptcy.

USFNews - May 7, 2025

McCarthy & Holthus, LLP

1.      USFN member: Since 2016

2.      First AOE recognition: No

3.      AOE Awards: 8

4.      Why is the AOE Award important to your firm?
Our firm is discerning when it comes to the organizations that it is affiliated with and looks for those that share the same values. When we find such an organization, we are committed to meaningfully participating. To us, that involves contributing our time and expertise for the betterment of the organization. Our firm believes that the USFN membership is comprised of thought leaders who are deeply committed to the furtherance of our industry, and we are proud to be members. Our firm aspires to excellence in everything it does, and participation in USFN is no different. The acknowledgment by USFN that we are meeting that commitment to excellence is both meaningful and rewarding for our firm because it recognizes that we are committed to leadership, industry engagement, continued team development, and superior client relations.

5.      Why is USFN Membership important to your firm?
USFN provides first-in-class education, networking opportunities, and industry advocacy with a focus on legal and regulatory compliance. We believe it is the preeminent organization in the default servicing industry for law firms, and we are proud to be members. Our firm dedicates countless hours to the organization by volunteering for leadership positions on the board, numerous committees, sub-committees, and working groups. These commitments come with a great return on investment, and we are undoubtedly a better firm thanks to the many USFN offerings and collaboration with other firms across the country.

USFNews - May 7, 2025

Schneiderman and Sherman, PC (USFN Member – IN, KY, MI, MN, OH) announced its expansion into Ohio, Kentucky, and Indiana, bringing the total state operations to five, including Michigan and Minnesota. The expansion allows SSPC to provide default legal services in both non-judicial and judicial states and also supports its expanding collections practice. A new physical location for SSPC was established at 409 W 6th Street, Suite 311, Covington, KY, 41011.

In addition, SSPC welcomed Christopher (Cris) Phillips and Lindsay Niehaus Stuart, to its team of attorneys. Both will play pivotal roles in the firm’s newly established Judicial Division. Cris joins the firm as Senior Managing Attorney and Partner in the Judicial Division. Cris has been practicing law since 2001, after receiving his undergraduate degree in Political Science from the University of Toledo and his Juris Doctor from the Thomas Jefferson School of Law. Cris’ experience includes 20 years in mortgage default legal services and management including a diverse background in Litigation, Real Estate, Creditor’s Rights, and Bankruptcy. Lindsay joins the firm as the Foreclosure Managing Attorney and Partner in the Judicial Division. Lindsay is a graduate of Salmon P. Chase College of Law and holds an MBA from Northern Kentucky University. She is also a licensed Title Insurance Agent in Ohio and Indiana.

Melissa Prantzalos has also been appointed as the new Managing Attorney for SSPC’s Litigation and Asset Recovery departments. With 15 years of extensive experience in creditor’s rights, title and default servicing, foreclosures, asset recovery, and collections for both consumer and commercial cases, Prantzalos brings a wealth of expertise to Schneiderman and Sherman.

Rubin Lublin, LLC (USFN Member – AL, FL, GA, MS, TN) is excited to announce the expansion of its mortgage default practice to Florida, expanding the firm’s presence and ability to serve clients in the Southeast. In conjunction with this expansion, the firm is also pleased to announce that default industry veteran Michelle Garcia Gilbert will join the firm and serve as a Partner and Managing Attorney of the Florida office located in Tampa, FL. In addition, several attorneys and staff from the mortgage default group at Gilbert Garcia Group, P.A. will also be joining Rubin Lublin, LLC. Aside from Georgia and Florida, the firm also serves its clients in Tennessee, Mississippi, and Alabama.

Reimer Law Co.*

USFN Member (KY, OH, WV)

Ohio firms need to think twice before lumping all advances into one general request after a recent decision. In September 2024, the Ohio 8^th District Court of Appeals, in Lakeview Loan Servicing, LLC v. Soldat, 2024-Ohio-4676, clarified the process to recover reimbursement of condominium association dues advanced by a lender. By extension, the case would likely apply to recovery of homeowner association dues advances in Ohio. The case highlights the importance of specifically pleading the right to such reimbursements in foreclosure filings.

In Soldat, the mortgage included a condominium rider, which was incorporated into the mortgage and allowed for condominium dues and assessments to be paid by the lender, if not paid by the borrower. The rider called for such lender payments to become debt secured by the mortgage if a notice was sent to the borrower requesting payment and the borrower subsequently failed to make the payment.

Upon default under the terms of the loan, the loan servicer initiated a foreclosure action. The servicer successfully obtained a judgment and, having paid condominium dues and other advances, sought to be reimbursed by the sale proceeds for such advances. However, the servicer did not reference the condominium rider in the complaint, object to the magistrate’s decision, or appeal the final foreclosure decree, so none of these rulings specifically awarded reimbursement for the condominium dues advanced.

After the property sold, the servicer filed a motion to be reimbursed for all prior advances, including the condominium dues. It did so pursuant to the mortgage terms, which included the condominium rider, and R.C. 5301.233, which states:

In addition to any other debt or obligation, a mortgage may secure unpaid balances of advances made, with respect to the mortgaged premises, for the payment of taxes, assessments, insurance premiums, or costs incurred for the protection of the mortgaged premises, if such mortgage states that it shall secure such unpaid balances. A mortgage complying with this section is a lien on the premises described therein from the time such mortgage is delivered to the recorder for record for the full amount of the unpaid balances of such advances that are made under such mortgage, plus interest thereon, regardless of the time when such advances are made.

The trial court approved the servicer’s reimbursement for its other advances but denied the request for reimbursement of the payment of condominium association dues. The court’s order of confirmation followed, in which it reasoned in a footnote that neither the foreclosure decision in that case, nor Ohio law, provided for reimbursement of advances for condominium dues.

The Court of Appeals upheld the trial court’s decision, determining that reimbursement under Ohio law does not extend to condominium dues, citing R.C. 5311.18(B)(5), which only covers "common expenses" and not "dues."

The appellate court’s decision noted that the servicer failed to refer to the condominium rider in its complaint, and that the servicer should have objected to the magistrate’s recommendation or appealed the final judgment on the basis that neither ruling specifically called for the reimbursement of post-judgment association dues.

Applying the court’s reasoning to homeowner associations, it can be presumed that a court would rule the same way under similar facts, pursuant to R.C. 5312.12(C)(3), which also only covers an owner’s portion of the common expenses.

Therefore, for successful reimbursement of any condominium or homeowner association dues, language specifically including and pleading for such reimbursements must be included in Ohio foreclosure filings and corresponding judgments. Servicers and their counsel are cautioned against the one-lump-sum request for such advances. Instead, they must review legal documents, such as complaints, judgment motions, and proposed entries, to ensure compliance with this recent ruling. Firms are obtaining this information at referral, and servicers will freely provide more detailed information about their advances if needed, so partnering together to make this simple correction will be worthwhile.

There has been no subsequent appellate history.

USFN © 2025

USFNews - May 7,2025

* Denotes firm is a 2024 USFN Award of Excellence recipient.

The new loss mitigation rules under ML 2025-6 also made several changes including, but not limited to, requiring trial payment plans and limiting permanent loss mitigation options such as partial claims and loan modifications to once every 18 months (Note: COVID and disaster loss mitigation programs do not count toward this limit). The new ML moves the effective date to September 30, 2025. It also lengthens the prohibition period from 18 to 24 months. These changes could lead to more re-defaults moving to disposition options or foreclosure as borrowers would be prohibited from obtaining loan modification or partial claims for 24 months.

The new ML also states that HUD will review the entire permanent loss mitigation waterfall. While the new ML does not make any changes to the Payment Supplement Program, it specifically stated this program was under review. 

Ryan Bourgeois, Esq.

USFN Advocacy Committee Vice Chair

McCarthy & Holthus, LLP*

USFN Member (AZ, AR, CA, CO, ID, NV, NM, OR, TX, WA)

The real estate industry will soon be hit with yet another new requirement that, at the moment, will require significant additional work for handling certain residential property transactions.

As discussed at the USFN Briefing held on March 25, 2025, regarding the new Financial Crimes Enforcement Network (FinCEN) rule, panelists from law firms and Auction.com provided insight regarding the key provisions of this rule.

The new FinCEN rule, which will go into effect on December 1, 2025, is aimed at enhancing transparency by requiring reporting of extensive information related to the sales of United States residential properties to domestic and foreign third-party entities or trusts. The goal is to attempt to prevent these types of transactions from being a haven for money laundering, terrorist funding, and other illicit activities.

The requisite reporting includes the nature of the funds provided to purchase the properties. Sales subject to this rule must involve cash-related considerations such as cashier’s checks and money orders. Financed real property transactions were excluded from the reporting requirement given the existing safeguards involved.

The applicable residential properties currently include, but are not limited to, single-family homes, condominiums, townhomes, and mixed-use buildings. The rule also applies to vacant or unimproved land upon which the transferee intends to build up to four residential structures.  Determining such intent may be only one of many possible challenges with attempting to comply with this rule.

The rule requires the gathering of information about the sellers as well as the individuals associated with buying the property for the entity or trust. Such information includes names, addresses, and copies of forms of identification such as driver’s licenses and passports. If multiple individual buyers are involved, then the ones with a 25% or more interest or with a substantial ownership interest must be reported. Note that if an entity purchasing the property is a shell company—100% owned by another entity, then research must be conducted until there is identification of the actual beneficial owner for owners for reporting. The time and expense associated with this task will undoubtedly be significant.

In order to satisfy the reporting requirements a form must be completed. In its current state it has been estimated that the proposed form has no less than 111 data fields with up to 70 of those fields involving information that is not typical of real estate transactions. The time and expense that will be associated with gathering the required information may be another concern regarding the rule. For instance, some of the required information is confidential. Additionally, buyers or potential buyers may not be willing to provide such information. Further, issues could arise if the buyers do not cooperate with providing any or all of the required information.

In any event, the reporting requirements must be satisfied by the last day of the month of the real estate transaction or 30 days after the real estate transaction takes place, whichever is later. The collected information must be securely stored for five years. The ability to timely gather and/or store the required information may present another challenge to those required to report.

There are exceptions and exemptions to the reporting requirements related to legal entity and trust purchasers to whom the FinCEN rule does not apply. The rule does not apply to low-risk transfers due to death, divorce, easement transfers, and transfers to a bankruptcy estate. Also, the rule will likely be inapplicable to judicial foreclosures which have court oversight. Trusts for estate planning purposes are also not subject to the rule. Transactions that occur pursuant to section 1031 of the Internal Revenue Code which regards using funds from a sale to buy another property are also exempt. At the moment, there are no blanket exceptions for attorneys despite the attorney-client privilege.

Considering the enhanced responsibilities described thus far, it may beg the question, “Who is responsible for the required reporting?” Those handling the closing and settlement services of the applicable real estate transactions appear to be undisputed primary reporters. However, in the default servicing world regarding sales pursuant to the non-judicial foreclosure process, the responsible parties seem to be less clear. In general, it may be the party responsible for recording the deed. Assessment in this regard will require a review of the applicable state’s cascade since not all states have the same process. The importance of communication between the relevant, involved parties cannot be stressed enough so that the reporting requirement does not fall through the cracks due to a lack of agreement and understanding regarding who will conduct the reporting. An option that might be helpful for those to whom this rule applies is that a reporter may be designated; however, it must be on a transaction-by-transaction basis. The ability to obtain a blanket designation is not currently permitted.

It will be important to educate and train relevant staff in order to ensure compliance with this FinCEN rule. A failure to comply may result in a $5,000 fine for each day of the violation, up to five years of imprisonment, and/or additional fines for willful violations or patterns of negligent activity. As part of an effort to avoid consequences it may be worthwhile to always exercise good faith, and diligent efforts toward obtaining the required information in the event that there are obstacles such as a lack of buyer cooperation. Other challenges with compliance may occur in jurisdictions where the winning bidder differs from the vesting party; therefore, compliance to the extent possible might be helpful in avoiding negative consequences.

This rule is subject to ongoing changes which may provide hope for less burdensome requirements. For example, days before the USFN Briefing on this topic FinCEN changed another recently implemented rule regarding Beneficial Ownership Information (BOI) reporting to create an exemption for domestic reporting companies and their beneficial owners. Therefore, a similar change could be enacted with respect to the FinCEN rule discussed in this article. A change such as this one would provide welcome relief for the foreclosure realm. Time will tell so this rule should be closely monitored through its December 1, 2025, effective date.

Copyright © USFN 2025

USFNews - April 16, 2025

* Denotes firm is a 2024 USFN Award of Excellence recipient.

McPhail Sanchez, LLC

USFN Member (AL, MS, TN)

A recent change to the search parameters of the Public Access to Court Electronics Records (PACER) service has introduced substantial challenges for law firms nationwide. Any law firm engaged in the practice of mortgage default services, post-foreclosure possession litigation, or any other default-servicing litigation has, no doubt, felt the ripple effect in significant, excessive time and resource expenditures of this, relatively, minimal change.

The PACER service provides electronic access to federal court records. This includes individuals who have filed for bankruptcy in their respective state districts from the moment the case is filed. Timely and accurate bankruptcy searches are of the utmost importance in the world of default servicing. These searches should be performed multiple times throughout the life of the file because actions taken against an individual in an active bankruptcy can lead to severe consequences for the law firm as well as the mortgage servicer and/or lender.   

When an individual (or joint couple) files a Chapter 13 bankruptcy petition, an automatic stay is invoked which halts most collection actions against the debtor or the debtor’s property under 11 U.S.C. § 362. If a borrower files bankruptcy before the date of a foreclosure sale, all foreclosure proceedings must cease, which gives the borrower an opportunity to cure arrears in mortgage payments. If a foreclosure sale takes place while the borrower is in an active bankruptcy, the consequences for violating the automatic stay can be severe, including monetary sanctions, punitive damages, and rescission of the foreclosure sale.

In order to avoid being placed in this precarious situation, law firms will search PACER for active bankruptcies at multiple stages of the foreclosure proceedings. At a minimum, bankruptcy searches are conducted prior to the date of first publication, prior to the date of foreclosure sale, and on the morning of the date of foreclosure sale, which is especially important if a debtor or their attorney does not inform the law firm that the bankruptcy has been filed. A search of the national case locator previously required the debtor’s Social Security number or the debtor’s name, respectively, in order to locate a relevant case.

As of December 8, 2024, PACER initiated a system update requiring both a Social Security number and a last name. A search of a debtor’s Social Security number with an unknown or different last name will not reveal a bankruptcy case in the search results. The additional, mandatory requirement of a debtor’s last name at the time of filing in a national case locator search undermines the confidence in accurate searches. This is because changes in a debtor’s personal life between the date of the mortgage and the date of foreclosure proceedings have the potential to complicate search parameters. In short, Social Security numbers never change, but surnames can and do often change. Marriage and divorce are the obvious reasons for changes in surnames, but even a misplaced hyphen in a search will yield incomplete search results.

While a search of the national PACER case locator requires both a Social Security number and a last name, a PACER search of each state’s respective districts still only requires a Social Security number. Therefore, in order to safely determine if a debtor is in bankruptcy, a national PACER search should be followed by searches in each district of the state in which the subject property rests. If the file indicates that the debtor may have ties to another state, one should err on the side of caution and search each district in said additional state(s) as well.

Needless to say, these compulsory searches require extensive additional resources. Hours of extraneous time searching for potential bankruptcies detract from revenue-generating operations and cost mortgage servicers thousands in additional legal fees. Furthermore, this update to the PACER national case locator greatly enhances the potential for adversarial proceedings against creditors that should, otherwise, be completely avoidable.

While conversations between the law firm of McPhail Sanchez, LLC and administrative staff at the PACER Development Branch have shown that the solution is not as simple as a flip of the switch, it does appear that at the time of writing, the PACER Development Branch is taking measures to restore the previous search capabilities of the national case locator but with additional security features.

As of March 10, 2025, an update from PACER indicates that beginning April 13, 2025, users will again be able to search the national database by Social Security Number without the need for a last name, although the search will now use CAPTCHA technology as an added security measure.

In the interim, multiple searches of the various PACER districts will be required to avoid the potential risk for costly fallout from these changes.  

Copyright © USFN 2025

USFNews - March 19

Cynthia Kern Woolverton, a member with Millsap & Singer, LLC (USFN Member KS, KY, MO) will be inducted into the American College of Bankruptcy as a Fellow in its 36th Class of the College during its annual meeting in March 2025. The American College of Bankruptcy is an honorary public service association of insolvency professionals invited to join based on a proven record of the highest standards of expertise, leadership, integrity, professionalism, scholarship, and service to the insolvency practice and to their communities. Kern Woolverton joined the firm in 1998 and manages the firm’s practice. She frequently speaks on topics relating to foreclosure and bankruptcy practices and procedures for mortgage servicing and attorney organizations.

Gross Polowy LLC (USFN Member NJ, NY) expands it services into the state of Pennsylvania, offering the same suite of services that it currently provides in New York and New Jersey: handling residential foreclosures, contested actions, bankruptcy, evictions, title curative, REO closings, and related litigation for its clients. Jonathan M. Etkowicz will serve as the Supervising Attorney of the Pennsylvania practice. He has 14-plus years of default experience with specialties in the areas of foreclosure, litigation, eviction, legal research and writing, and real estate.

BDF Law Group (USFN Member AZ, CA, CO, GA, NV, TX) has announced its expansion into four new states: Alabama, Mississippi, Oklahoma, and Wyoming. The firm is now offering foreclosure, litigation, bankruptcy, evictions, and collections services across these states, along with Texas, Colorado, Georgia, California, Arizona, and Nevada. BDF has been a leading provider of legal services to the financial services industry for 35 years.

• Servicing Announcement SVC-2024-07
• Allowable Foreclosure Fees
• Allowable Bankruptcy Fees

Brock& Scott, PLLC *

USFN Member (AL, CT, FL, GA, KY, ME, MD, MA, MI, NH, NJ, NC, OH, PA, RI, SC, TN, VT, VA)

After this article was submitted for publication, the servicer appealed the bankruptcy court’s decision. Stay tuned for the outcome of the appeal and further developments in this case.

A recent decision from the U.S. Bankruptcy Court for the District of Maryland sheds light on a significant issue for mortgage servicers and bankruptcy practitioners: whether denying a debtor access to an online payment portal after a bankruptcy filing violates the automatic stay under 11 U.S.C. § 362. The ruling emphasizes the potential legal risks for servicers when discontinuing certain payment methods for borrowers who file bankruptcy cases.

In re Klemkowski, Bankr. D. Md. Case No. 22-10257-MMH (October 30, 2024), 2024 WL 4625644, a Chapter 13 debtor sought to compel her mortgage servicer, CitiMortgage, Inc., and its agent, Cenlar FSB, to restore her access to an online portal used to make mortgage payments. Prior to filing for bankruptcy, the debtor had relied on the portal to make her payments. However, once she filed her petition, the servicer blocked her access, citing its policy of restricting portal use for borrowers in bankruptcy. The debtor argued that this change created unnecessary barriers, increasing the likelihood of payment delays and defaults. The debtor argued that this caused her to miss payments and required her to defend a motion for relief from stay after falling behind. Meanwhile, the servicer claimed the restriction was necessary for compliance with bankruptcy protocols.

The bankruptcy court ruled that the servicer’s action violated the automatic stay. The court reasoned that access to the online portal was part of the debtor’s contractual relationship with the servicer before bankruptcy, based on the debtor’s right to use the online portal under the servicer’s Online Access Agreement. This right, as a prepetition contractual interest, became part of the bankruptcy estate under § 541(a). By unilaterally restricting access to the portal, the servicer effectively altered the debtor’s rights, thereby exercising control over estate property in violation of § 362(a)(3).

The servicer defended its policy by asserting that its systems were unable to differentiate between borrowers in bankruptcy and those who were not, making it “impossible” to allow portal access without risking errors or violations of the automatic stay. However, the court found this explanation insufficient, describing it as a business decision rather than a legitimate technical limitation. The court noted that the servicer’s witness, while professional and knowledgeable about internal procedures, was not a technical expert and did not provide evidence that these claimed limitations could not be fixed within the servicer’s system.

The court also highlighted the practical impact of the restriction on the debtor. Without portal access, the debtor faced considerable challenges in making timely payments. She testified about difficulties with alternative methods, including long delays when making phone payments, issues with mail reliability, the fact that she had no car, and limited access to branch offices. These barriers, the court noted, increased the risk of default under her Chapter 13 plan, potentially undermining her ability to complete the bankruptcy process successfully.

Judge Harner emphasized that bankruptcy is designed to give debtors a fair chance to rehabilitate their finances, not to create new hurdles that could jeopardize their repayment plans. The court noted that the servicer’s actions were contrary to the broader goals of bankruptcy law, which aim to make it easier—not harder—for debtors to comply with their obligations.

Although the court determined that the servicer’s actions violated the automatic stay, it did not award monetary damages. The debtor had not provided sufficient evidence to support a claim for damages under § 362(k). Notably, the debtor did not present the issue to the court as a stay violation, but under a motion to compel access to the online portal. The court noted that a case with different facts may warrant an award of damages under § 362(k).

The court explained that even though monetary damages were not warranted, the automatic stay issue remained. Namely, the servicer’s actions to effectively terminate the Online Access Agreement violated the automatic stay and were void ab initio. The court explained that “the primary way to abate this violation is for the Servicer to restore the status quo and the Debtor’s rights under the Online Access Agreement[,]” but could not determine whether that remedy was proper or available. Accordingly, the court is allowing the parties to offer further briefing on those issues.

While this decision may not gain traction outside of the District of Maryland, it highlights the need for mortgage servicers to carefully evaluate how their policies align with bankruptcy law. Many servicers restrict online payment access for borrowers in bankruptcy, which could result in those servicers inadvertently violating the automatic stay. The author intends to write on the outcome of the additional briefing and the court’s final ruling. In the meantime, servicers may want to consider reviewing their procedures to ensure that borrowers’ rights under prepetition contracts are protected during bankruptcy and reach out to their bankruptcy counsel to discuss.

Copyright © 2024 USFN

USFNews - Dec. 18

* Denotes firm is a 2023 Award of Excellence recipient

McCarthy & Holthus,LLP*

USFN Member (AZ, AR, CA, CO, ID, NV, NM, OR, TX, WA)

In Rose Court LLC v. Select Portfolio Servicing, Inc.,[1] the 9th Circuit Court of Appeals addressed an issue that is common in the default servicing world – a defaulted borrower who resorts to filing serial lawsuits aimed at stopping or delaying foreclosure. For borrowers who know how to play the game well, foreclosure and eviction proceedings can be delayed for many years while their lawsuits, bankruptcy filings, and other challenges are knocked down by the servicer, one-by-one. In Rose Court, the borrower’s loan was in default for a decade before foreclosure was finally completed, and litigation over the foreclosure continued for many years thereafter in state, federal, and bankruptcy courts.

In its published opinion issued in October 2024, the 9th Circuit affirmed the dismissal of one such suit, and in doing so, the Court provided valuable clarification on the applicability of one tool in the servicer’s arsenal for combatting serial filers: the two-dismissal rule of Federal Rule of Civil Procedure 41(a)(1)(B).

The proceeding at issue before the 9th Circuit was an adversary proceeding filed by the borrower in bankruptcy court shortly after the foreclosure sale was finally completed. The borrower raised wrongful foreclosure claims based on allegations that the trustee’s sale was not actually held and instead was postponed by the auctioneer. Ruling on motions to dismiss filed by the defendants, the bankruptcy court held the plaintiff’s allegations were contradicted by the very evidence submitted in support of the complaint, and accordingly the borrower’s claims were all dismissed. The borrower, however, requested leave to amend the complaint to assert new claims that had not been previously raised in the case regarding the beneficiary’s standing to foreclose.  The bankruptcy court dismissed the adversary complaint without leave to amend, finding that amendment would be futile because the borrower had previously asserted and voluntarily dismissed the “new” claims in prior state court litigation, and accordingly the claims were barred by the two-dismissal rule.

Generally, a plaintiff is entitled to voluntarily dismiss its own complaint without prejudice to re-filing. But Rule 41(a)(1)(B) contains a notable exception: “[I]f the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits.” The two-dismissal rule is similar to common law rules of res judicata and collateral estoppel, except that for res judicata principles to apply, the plaintiff’s claim must have been decided on its merits in the prior litigation in order for the claim to be barred in a new suit. The two-dismissal rule, on the other hand, treats a second dismissal as being equivalent to an adjudication on the merits, even though the case never resulted in a decision by the court.

For the two-dismissal rule to apply, four elements must be present: “(1) the plaintiff voluntarily dismissed an action in either state or federal court, (2) thereafter the plaintiff voluntarily dismissed a second action pending in federal court, (3) the two dismissals concerned the same claim, and (4) the plaintiff seeks to raise the twice-dismissed claim again in federal court.”[2] In Rose Court, the Court noted that neither the 9th Circuit nor the U.S. Supreme Court had previously addressed the meaning of the “same claim” element, although other courts including the 2nd and 10th Circuits had done so.

In those Circuits that have considered the question, the courts held that the “same claim” element for application of the two-dismissal rule should be analyzed under the same standards as the “same claim” element in a res judicata analysis. Under that framework, two claims will be deemed to be the “same claim” when “the two suits arise out of the same transactional nucleus of facts.”[3] In its published opinion in Rose Court, the 9th Circuit adopted the same standard for cases within its jurisdiction. The Court further confirmed that the “same claim” analysis is based on the federal standard rather than the res judicata standards of the state law where prior cases had been filed, because the two-dismissal rule of Rule 41 implicates federal interests in limiting a plaintiff’s right to repeatedly dismiss the same claims.

Applying these standards to the claims raised by Rose Court, the 9th Circuit found the borrower’s “new” claims it sought to raise in an amended adversary complaint were not new and were instead the same claims previously raised in at least two prior state court actions the borrower had brought against the same defendants and voluntarily dismissed. In each prior action, the borrower had challenged the validity of the deed of trust and claimed the original promissory note was never transferred to the foreclosing beneficiary. Because the borrower had twice dismissed claims based on the beneficiary’s alleged lack of standing to foreclose, the two-dismissal rule precluded the borrower from raising those claims a third time in the adversary action. As such, the Court affirmed the lower court’s denial of leave to amend.

Unfortunately for the parties involved, the saga of Rose Court may not be over. The borrower attempted to raise a new wrongful foreclosure theory on appeal, based on allegations that the servicer had interfered with her attempt to reinstate the loan, and she sought leave to file an amended adversary complaint asserting that new claim.  The 9th Circuit declined to consider the request because the Court generally will not consider new arguments on appeal that were not raised in the lower court. Thus, although a borrower is precluded from re-asserting wrongful foreclosure theories based on the “same claims” that were previously raised and dismissed, a truly “new” claim arising out of a different “transactional nucleus of facts” would not necessarily be barred under either Rule 41’s two-dismissal rule or common law principles of res judicata.

Copyright © 2024 USFN

USFNews - Dec. 4

Wilson & Associates, PLLC (USFN Member – AR, MS, TN) is pleased to announce that Shannon Dilday has been promoted to assistant manager of the foreclosure department. Dilday previously served as supervisor of the firm’s Tennessee non-judicial foreclosure team, and has been with the firm since 2015. In addition, the firm also promoted Matt Robins to senior judicial legal assistant.

Associate Member a360inc, a leading technology solutions provider to law firms, title agencies, mortgage lenders and investors, announced the acquisition of Associate Member ProVest, a market-leading service of process and litigation information services provider to the creditors’ rights legal industry. As part of the transaction, investment funds managed by Morgan Stanley Investment Management (MSIM), Knox Capital, and Nonantum Capital Partners made a strategic investment in a360inc. The combination is a milestone for both a360inc and ProVest and represents innovation for the creditors’ rights industry, setting new standards for productivity through the proper implementation and utilization of technology-driven solutions for creditors’ rights law firms, mortgage lenders and servicers, and the business partner community that supports them.

FHA has posted a draft Mortgagee Letter in response to the Show Me decision. The members of the USFN Advocacy Committee are, like most of you, digesting all the implications. The committee will be meeting in the coming weeks and preparing comments. If you have any comments you would like considered for our response, please email Advocacy Committee chair, Katie Jo Keeling.

Brock & Scott, PLLC *

USFN Member (CT, NC, RI, AL, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN,   VT, VA)

During USFN’s Sept. 10 Briefing, New Loss Mitigation Options and Bankruptcy Impacts, a discussion featuring four Creditors’ attorneys and a servicer internal legal counsel highlighted the new last chance waterfall options recently implemented by the VA, FHA, and the USDA, and each program’s respective impacts on debtors and creditors in bankruptcy. Each of these programs, while created with the intent to assist borrowers with new options in light of the high-interest rate environment, opens the door to a host of potential issues in the realm of bankruptcy. This Briefing gave a basic educational overview of each of the three programs and detailed the considerations and impacts on current bankruptcy processes and forms that will need concentrated attention by debtors, creditors, and trustees alike to eliminate potential challenges throughout the bankruptcy process.

The Veteran’s Affairs Servicing Purchase Program – U.S. Department of Veterans Affairs

Marcy J. Ford, Partner at Trott Law, began the presentation with an overview of the VA’s last chance waterfall option known as VASP. This program provides for a loan modification significantly below market interest rate with a 30-to-40-year term option and may require a three-month trial period. Ford noted that if the debtor is involved in an active Chapter 13 case, VASP will not be considered while the case is pending unless the Chapter 13 was filed during a trial period, in which case court approval is required to finalize the modification. It was noted that in jurisdictions which do not typically require court approval, this court approval would likely still be necessary based on the specific VA requirement in this situation. Ford also noted that if the borrower is in an active Chapter 7 case and applies for loss mitigation, VASP will not be an option until the case is closed. However, it was noted that if the debtor files for bankruptcy during the trial period, VASP finalization goes on hold until the bankruptcy case is closed.  Emphasis was placed on the case having to be closed and that having stay relief or the trustee filing a report of no distribution would be insufficient. Ford also noted that caution should be given about advising debtors to dismiss their cases based on the potential to get VASP eligibility.  A question asked of the panel was how to proceed with VASP as it relates to bankruptcy court mortgage modification/mediation orders, and it was surmised that these bankruptcy court modification/mediation programs could not supersede the rules set by the VA, and, as such, the court would be unable to force VASP as an option during the case.

The FHA Partial Claim + Payment Supplement Program – U.S. Federal Housing Administration

Maria Tsagaris, Partner at MRLP, continued the presentation with an outline of FHA’s last chance waterfall option known as the FHA Partial Claim + Payment Supplement program. Servicers must implement this program by January 1, 2025. Tsagaris detailed that borrowers will be eligible for an amount up to 30% of the outstanding balance of the loan for a combination of a partial claim to bring the account current with the remaining available balance divided over 36 months to act as reduction to the monthly payment amount up to 25% of the payment. The remaining balance after the partial claim piece is given to the creditor to bring the account current is to be held by the servicer as a separate custodial account that cannot be comingled with any other funds. The creditor is permitted to take funds out of the custodial payment supplement account and apply them to the account when the debtor pays the creditor the reduced monthly payment amount. The partial claim plus the payment supplement amounts will become an interest free second lien on the property pursuant to the recorded security instrument, which will come due when the first mortgage is paid or refinanced or upon the sale of the property.

Tsagaris mentioned that for the debtor to be eligible for this program, they had to indicate that they could maintain the payment and had to sign a note, security instrument, and payment supplement agreement. In addition to an annual accounting to both HUD and the borrower, 60 to 90 days prior to the end of the 36-month period, the creditor would need to provide a detailed annual report as to the status of the payment supplement account. It was also noted that at 36 months and 1 day, the program will automatically terminate, and any remaining payment supplement funds had to be refunded to HUD. The program would also terminate in the following scenarios: request of the borrower, modification, foreclosure, short sale, or deed in lieu. 

Tsagaris noted a couple of the mechanics set forward by the program. The program requires 30-day default reports on each of these accounts but failure to make an ongoing payment does not terminate the program. The program also sets forth detailed instructions for the requirements and responsibilities of servicers regarding the transfers of loans that are involved in the program. Finally, Tsagaris also noted that servicers will receive a $1,750 payment supplement incentive for completion of the program. Full details of the program can be found in Mortgagee Letter 2024-02.

Alice Whitten, Internal Legal Counsel for Wells Fargo, when asked, stated that the incentive of $1,750 likely did not cover the cost to fully implement this program, as it has been described as one of the most complex programs to implement at the servicer level. A discussion among the panelists then ensued about whether industry members were getting too concerned about the impacts of these programs given that these were last chance waterfall options only available if all other waterfall options failed. The discussion focused on the fact that if interest rates remain high, precluding other loss mitigation waterfall options from being viable, these three programs and their impacts would likely be seen more often than naught. Given that thought process, the Briefing turned to the bankruptcy impacts of the FHA Partial Claim + Payment Supplement Program. 

Patrick Hruby, Senior Associate at Brock & Scott, PLLC, highlighted these impacts and many of the best practices that creditors, creditor’s attorneys, and trustees have been working together on to facilitate integration of this program into bankruptcy. Hruby presented a proposed 410A with disclosures regarding the debtor being in the program, the effects of the program on the ongoing payment, and the expiration date of the program for the debtor. He also noted suggested revisions to Part 3 of the 410A of the proof of claim for missed payments and corresponding unreceived monthly principal reductions. He also suggested revisions to Part 4 to account for the reduced ongoing payment amount due to the monthly principal reduction. Hruby also noted that for jurisdictions utilizing GAP Payments or administrative arrears, the payment supplement portion is going to want to be shown in Part 3. Hruby also noted that post bankruptcy entrance into the FHA Partial Claim + Payment Supplement Program would necessitate an amended proof of claim and a payment change notice. Also, payment change notices will need to be carefully drafted to note the full payment amount and the amount due from the borrower due to the payment supplement.  

The payment change notice information issue brought to the forefront that communication needs to be as clear as possible on all documents in bankruptcy with respect to this program in order to avoid any unintended consequences and potential inquiries from the trustees and U.S. Trustees/Bankruptcy Administrators. At the end of the 36-month payment supplement period or if the program is terminated, it was noted that a payment change notice will have to be filed to show the elimination of the monthly payment supplement. On the topic of program termination, it was noted that if the debtor modifies the loan, the program will be terminated. As a result, it was noted that creditor’s counsel will need to look closely at the plan for modifications or cramdowns that would terminate the program and object appropriately. Consequently, debtor’s attorneys should also be aware if their debtor client is in one of these programs and to shape the debtor’s plan accordingly so as not to inadvertently terminate the program. Finally, it was also noted that the handling of annualized payments in Chapter 12 cases would present some interesting and unique situations with respect to default reporting and payment supplement distribution.

Lance Olsen, Partner at McCarthy Holthus, LLP, continued the discussion of the impacts of this program in bankruptcy focusing on payoff statements, motions for relief, and consent orders. As an initial note, Olsen mentioned that relief would, in theory, be needed to record the second mortgage even though he had not seen a ton of referrals for relief to record other standard partial claim mortgages, unlike creditor’s attorneys in other parts of the country. Olsen continued by noting that under the program, if the creditor is asked for a payoff involving a loan in the partial claim + payments supplement program, the creditor will have to give a payoff for both the original loan and the second position lien partial claim + payment supplement balance. A discussion among the panelists explored whether these two payoffs should be done in two separate payoff quote letters or combined into one letter with the two separate payoffs included.  In addition, Olsen noted that creditors with motions for relief and in consent orders need to make sure to be very detailed and clear with additional disclosures and information in those motions and consent orders including, but not necessarily limited to, the total amounts owed, the reduced payment amounts owed, and the payment supplement amounts owed to the creditor as a result of the debtor failing to make the reduced payments to the creditor.

The Payment Supplement Account Program – U.S. Department of Agriculture

Ford finished up the Briefing by giving details on USDA’s last waterfall option, the USDA Payment Supplement Account Program. Ford stated that while this program is similar to FHA’s Partial Claim + Payment Supplement program, the programs differ in that this program utilizes an advance from the servicer and not a partial claim. As such, a second lien is not placed on the property and an additional note and mortgage are not signed. This program became effective July 24, 2024, with a goal to achieve an ongoing payment reduction of 25% for up to three years and would require three trial payments. Ford noted that no bankruptcy guidance has been presented by the USDA and so, as a result, it does not appear that an active bankruptcy would interfere with the implementation of this program.

The Briefing generated a significant number of audience questions. One question related to the timing of the recording of the partial claim. It was noted that the FHA instructions required the partial claim to be recorded in five days, which the bankruptcy practitioners noted would be difficult given motion timeframes in bankruptcy court, and, as a result, the motions may need to be filed as soon as the partial claim + payment supplement option is offered to attempt to comply with this requirement. Another question raised was whether any of the participants had faced any issues with a Trustee in a Chapter 7 bankruptcy saying the partial claim cannot be executed or recorded by the debtor, as the property is not part of the bankruptcy estate. Hruby indicated that he had courts in Ohio which have refused to approve partial claims, as they felt it interfered with the reaffirmation process, but none of the other panelists indicated they had any similar issues.

Each of these three programs are complex, with numerous details and nuances that will present challenges for debtors, creditors, courts, trustees, and counsels to navigate within the tides and winds of the bankruptcy process. Each bankruptcy practitioner and creditor should familiarize themselves with these programs and the impacts on bankruptcy in order to best insulate themselves from potential problems that could result if details are not thoroughly thought through.

Watch a recording of this Briefing and be sure to register for USFN’s next complimentary Briefing – Show Me, Insurability & The Road Ahead for REO Properties – on Oct. 15 at https://www.usfnevents.org/briefings.html.

Copyright © 2024 USFN

USFNews - Oct. 2, 2024

* Denotes firm is a 2023 USFN Award of Excellence recipient

Liebo, Weingarden, Dobie & Barbee, PLLP
USFN Member (MN)

Just over a year ago, the 8^th Circuit Court of Appeals ruled that a subordinate lien held by the U.S. cannot be extinguished by a non-judicial foreclosure sale in its Show Me State Premium Homes v. McDonnell decision, citing 28 U.S.C. § 2410(c).  However, that same statutory framework also gives U.S. agencies the authority to release their liens.

In a highly anticipated development, HUD issued Mortgagee Letter 2024-17 providing for a work around following the Show Me State decision. HUD, recognizing the adverse impacts of proceeding with judicial foreclosures in states where non-judicial foreclosures are the preferred method of foreclosure, has now established a process where mortgagees can seek releases of subordinate Secretary-held liens.  Specifically, HUD established an optional, interim procedure where mortgagees may request releases of subordinate Secretary-held liens, but only in those instances where the nonjudicial foreclosure sale resulted in no surplus funds. HUD defines surplus funds as any amount included in the winning bid in excess of the amount required to complete the foreclosure sale, before additional proceeds are applied to any subordinate lien.

Mortgage servicers must utilize HUD’s SMART Integrated Portal to request these releases. The releases are available for multiple, subordinate HUD mortgages beyond just partial claim mortgages.

The USDA previously went further than HUD by issuing an announcement in July encouraging servicers to use the less expensive non-judicial foreclosure method where available. It also put in place a process for mortgage servicers to obtain releases regardless of whether there are surplus funds after the foreclosure sale. Hopefully, HUD will soon follow the USDA by also allowing releases in cases where there are surplus funds in its final procedures for non-judicial foreclosures with Secretary-held liens.

Regardless, this change by HUD is a step in the right direction to help mortgage servicers avoid the significant time and expense associated with judicial foreclosures in those states where non-judicial foreclosures are otherwise available. USFN’s advocacy committee had been in communication with FHA about these concerns in the wake of Show Me and are pleased to see this guidance in the matter.

Copyright © 2024 USFN

USFNews - Sept. 4

Associate Member SGP Advisors is hosting an open house from 5 to 7 pm EST, Thursday, August 29, at its Tampa, Florida office, 501 E. Kennedy Blvd., Suite 1000, Tampa, FL 33602. Join them for drinks and hors d’oeuvres.

Scott & Corley, P.A. (USFN Member -  SC) is pleased to announce that Reginald “Reggie” P. Corley has been selected as one of eight South Carolina lawyers for the South Carolina Lawyers Weekly’s Commercial and Consumer Litigation Power List 2024.

Schneiderman & Sherman, PC (USFN Member – MI, MN) is excited to welcome Indra Pandiyaraj to our team of attorneys. She joins the firm as an associate attorney and will play a crucial part in managing a caseload of complex litigation matters while overseeing the attorney group to ensure efficient case distribution and workload management.

Brittany Ivy has joined Affinity Consulting (USFN Associate Member) as a consultant, specializing in NetDocuments implementations for law firms and corporate legal departments, visual reporting, and supporting default services firms with CaseMax Case Management System. Ivy holds a B.A. in Business Administration and Management from the University of Arkansas at Little Rock and a certificate in Data Science with SQL and Tableau from Cornell University. With more than 15 years of experience in the accounting, legal, and technology fields, Ivy brings expertise in process management, training, software implementations, impactful outcomes, and innovative solutions to Affinity Consulting.

The Mortgage Law Firm (USFN Member – AZ, CA, HI, OK, OR, WA) is excited to announce that Caren Castle has joined the firm as Managing Attorney of its California office. With over 35 years of experience and leadership in the mortgage servicing industry, Castle brings a wealth of knowledge and expertise to TMLF and its clients. Castle’s addition to the TMLF team and her commitment to excellence will bring immense value to TMLF’s clients and further strengthen the representation and service delivered across all states TMLF serves.

McPhail Sanchez, LLC (USFN Member – AL, MS, TN) is proud to announce the celebration of the firm’s 30^th anniversary. Over the past three decades, what began as a small creditors’ rights firm founded by two attorneys in Mobile, has grown into a multi-state practice with six attorneys, a staff of 33, and a national reputation in the default servicing industry. The firm was founded in 1994 and has expanded its services and presence in the Southeast while maintaining its cornerstone values of quality, integrity, and mutual respect.

McCabe, Weisberg & Conway, LLC (USFN Member – MD, DC, DE, FL, NY, PA, VA) is proud to announce the promotion of Carie Anne Deal to Chief Operating Officer. Throughout her 13 years with the firm, Deal has spearheaded the firm’s technological innovations to improve our case management system, reporting, invoicing, and overall performance. As COO, Deal will provide firm-wide governance and vision, as she helps guide McCabe, Weisberg & Conway in the execution of growth focused strategies. Additionally, McCabe, Weisberg & Conway is pleased to announce the election of Jamie Krapf, Joseph Foley, and Jose Hasbun to shareholder status. Together they join a team of dedicated and talented attorneys.

As USFN has previously written, this final rule allows servicers to utilize electronic and other remote communication tools, among other things, to conduct interviews to satisfy the early intervention requirements. This final rule, which will become effective on January 1, 2025, updates HUD’s current regulation (24 CFR 203.604) that requires mortgagees to meet in person with borrowers who are in default on their mortgage payments.

HUD’s updated regulation will align with advances in electronic communication technology and borrower engagement preferences while preserving necessary consumer protections. This final rule takes into consideration public comments received in response to the proposed rule [Docket No. FR-6353- P-01], published on July 31, 2023, as USFN reported in the August 9, 2023 USFNews. 

On August 14, the Federal Housing Administration (FHA) posted a draft Mortgagee Letter (ML), Modernization of Engagement with Borrowers in Default, on its Single Family Housing Drafting Table (Drafting Table) for review and feedback. The draft ML proposes policy that would align with the provisions outlined in the final rule, Modernization of Engagement with Mortgagors in Default published in the Federal Register [FR-6353-F-02] on August 2, 2024. Interested stakeholders are encouraged to review the draft ML and provide feedback through September 13, 2024. Instructions for viewing the draft ML and providing feedback are available on the FHA Single Family Drafting Table. As a reminder, this draft ML is not official departmental policy and cannot be used in connection with any FHA-insured mortgage until finalized. FHA’s existing policies remain in effect until amended.  

The waivers permitting mortgagees to use electronic and remote means of communication during the COVID-19 pandemic remain in effect and were extended through January 1, 2025, unless the final rule amending 24 CFR § 203.604 and a ML or Single Family Housing Policy Handbook 4000.1 (Handbook 4000.1) update amending Section III.A.2.h.xii. become effective prior to that date.  

Scott & Corley, P.A. *

USFN Member (SC)

On June 28, 2024, the Supreme Court of the United States, entered its decision in Loper Bright Enters. v. Raimondo[1], which overturned the longstanding precedent set by Chevron U.S.A., Inc. v. Natural Resources Defense Council[2]. This legal development is likely to have a significant impact on the regulatory landscape in the mortgage industry surrounding federal agencies’ constitutional authority to enact federal regulations.

The longstanding Chevron doctrine held that if a federal question had not been directly addressed by Congress, a federal regulatory body could interpret the relevant statute(s), offer an official stance on the issue, and so long as the guideline set by the regulatory body was reasonable, it would be upheld. In other words, the Chevron doctrine, allowed broad deference to federal administrative agencies’ reasonable interpretation of ambiguous federal statutes. When the United States Supreme Court first issued the Chevron decision, over 40years ago, the decision was not necessarily regarded as a particularly consequential one.[3] However, since its inception. the Chevron decision has become prolific and is one of the most important rulings on federal administrative law, cited by federal courts more than 18,000 times.[4]

The Court’s recent decision under Loper Bright is based entirely on Section 7 of the Administrative Procedure Act (the “APA”).[5] Section 7 specifies that courts, not agencies, will decide “all relevant questions of law” arising on review of an agency regulation. The Court elaborated in the opinion as follows:

Section 706 directs that ‘[t]o the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.’ 5 U.S.C. Section 706. It further requires courts to hold ‘unlawful and set aside agency action, findings, and conclusions found to be …not in accordance with law.’ Section 706(2(A).

The APA thus codifies for agency cases the unremarkable, yet elemental proposition, dating back to Marbury: that courts, not agencies, will decide ‘all relevant questions of law” arising on review of agency action…even those involving ambiguous laws — and set aside any such action inconsistent with the law as they interpret it. And it prescribes no deferential standard for courts to employ in answering those legal questions. That omission is telling, because section 706 does mandate that judicial review of agency policymaking and fact finding be deferential. See Section 706(2)(A) (agency action to be set aside if “arbitrary, capricious, [or] an abuse of discretion); Section 706(2)(E) (agency fact finding in formal proceedings to be set aside if ‘unsupported by substantial evidence’).[6]

In the Loper Bright case, the Court described the Chevron opinion as being at odds with the congressionally authorized language in the Administrative Procedure Act (the federal law that sets out the procedures that federal agencies must follow, as well as the instructions for courts to review actions by those agencies).[7] The Court highlighted that the Administrative Procedure Act directs courts to, “decide legal questions by applying their own judgment” thereby “mak[ing] clear that agency interpretations of statutes — like agency interpretations of the Constitution — are not entitled to deference. . .”[8] The Court further stated that “it thus remains the responsibility of the court to decide whether the law means what the agency says.”  Emphasis added.[9] Additionally, the Court criticized the Chevron doctrine, noting that the doctrine allowed federal agencies “to change course even when Congress has given them no power to do so.”[10]

In practice, The Chevron doctrine utilized a two-stage approach. First, the court would determine whether a particular statute was clear and unambiguous regarding an issue.[11] If the statute was clear, then the court would follow it.[12] If, however, the court found the statute was ambiguous, or silent on the issue, then the court would proceed to step two.[13] At this step, the court would determine whether a federal agency’s interpretation was a permissible or reasonable construction of the statute.[14] If so, the court would uphold the agency’s interpretation.[15] This framework required courts to defer to an agency's interpretation of laws passed by Congress, if its interpretation is reasonable.[16] A major rationale behind this framework was that agencies were thought more likely to have the specific knowledge and expertise required to interpret complex laws and issues above and beyond the court’s ability.[17] The Court stated in Loper Bright that, “Perhaps most fundamentally, Chevron’s presumption is misguided because [federal] agencies have no special competence in resolving statutory ambiguities . . .[c]ourts do. The Framers, [] anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment.”[18]

The legal framework set by Chevron may have significant implications on the mortgage industry regulatory bodies, such as the Consumer Financial Protection Bureau (“CFPB”), the Federal Housing Finance Agency (“FHFA”), the Department of Housing and Urban Development (“HUD”), the Office of the Comptroller of the Currency (“OCC”), and their constitutional authority to enact federal regulations.

Before Loper Bright, the CFPB relied on the Chevron doctrine to mandate federal regulations, not prescribed by Congress, in an effort to police the mortgage industry. Per the CFPB’s official website, the CFPB is “a U.S. government agency dedicated to making sure you are treated fairly by banks, lenders and other financial institutions.”[19] Again, per the CFPB’s website the CFPB “provides different forms of guidance and compliance resources to help you understand and comply with our rules and the statutes we implement.” Emphasis added. Notably, under the CFPB’s language on their website, the CFPB admittedly provides its own statutes and rules. Likewise, the FHFA states on its website that the organization, “is responsible for the effective supervision, regulation, and housing mission oversight.”[20] The website further describes the banks that the FHFA will regulate and details how it regulates those banks.[21]

This new precedent may also have an impact on HUD’s use of the Fair Housing Act, which is a broad statute, to gain much of its authority. HUD, like the FHFA and CFPB, has traditionally been given substantial discretion, where it has taken great liberties, in setting guidance and taking enforcement actions against those who are not in strict compliance.[22] Similarly, the OCC states openly on their website that “[b]y maintaining a strong local presence, honing a unique national and international perspective, and seeking stakeholder feedback when setting policy, we can secure clear benefits for OCC-chartered banks and lead on bank supervision.” Emphasis added.[23] The public statements above show a clear understanding of the regulatory authority these organizations perceive to hold under the Chevron doctrine.

Although not yet argued under the recent precedent set by Loper Bright, the statutes and rules implemented by the mortgage industry’s regulatory bodies, using the Chevron doctrine framework, may no longer be upheld by federal courts. They, like all other federal agencies, are now facing a similar and significant dilemma regarding rules and regulations they may implement regarding the authority and power they may or may not have following this new United States Supreme Court decision.

Copyright © 2024 USFN

USFNews - August 7, 2024

*Denotes firm is a 2023 Award of Excellence recipient

Barrett Daffin FrappierTurner & Engel, LLP *

USFN Member (TX, AZ, CA, CO, GA, NV)

The Texas Supreme Court recently addressed the 5th Circuit’s certified question regarding whether simultaneous rescission and reacceleration can reset the limitations period under Texas law. It concluded that "a rescission that complies with the statute [Tex. Civil Practice and Remedies Code Section 16.038] resets limitations even if it is combined with a notice of reacceleration” (Moore v. Wells Fargo Bank, N.A., 683 S.W.3d 843, 845 (Tex. 2024)).

Acceleration and Rescission Under Texas Law

Texas law holds a four-year limitations period applies to both judicial and non-judicial foreclosures, starting the day after the cause of action accrues (Tex. Civ. Prac. & Rem. Code § 16.035(a), (b), (d)). Typically, this accrual date is the loan's maturity date. However, if the loan includes an acceleration clause, the statute of limitations starts at the time of acceleration (Tex. Civ. Prac. & Rem. Code § 16.035(e); Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566, Tex. 2001).

To accelerate a loan, the debtor must receive clear notices of both the intent to accelerate and the actual acceleration (Ogden v. Gibralter Sav. Ass’n, 640 S.W.2d 232 (1982)). The four-year clock starts when these notices are sent.

Circumstances such as loss mitigation or servicer changes can occur while the limitations clock is running. To reset the clock and prevent foreclosure bars, lienholders may choose to rescind acceleration. Tex. Civ. Prac. & Rem. Code §16.038, effective June 2015, allows lenders to unilaterally rescind acceleration via written notice.

Per this statute, if the lienholder, servicer, or their attorney sends a written notice of rescission or waiver of acceleration to each debtor via first class or certified mail before the limitations period expires, the acceleration is considered rescinded (Tex. Civ. Prac. & Rem. Code § 16.038). This does not affect the lienholder's right to accelerate the loan again in the future or waive past defaults (§16.038(d)).

Background

In Moore v. Wells Fargo Bank, N.A., the Moores secured a note with a deed of trust in 2004. They subsequently defaulted and, by October 2015, received a notice of intent to accelerate, followed by an acceleration notice in February 2016. In August 2020, the Moores filed a lawsuit in state court for a declaratory judgment alleging that the limitations period had expired four years after the February 2016 acceleration. After removing the case to Federal Court, the servicer and mortgagee argued for an effective rescission of acceleration under Tex. Civ. Prac. & Rem. Code § 16.038, leading to summary judgment in their favor, which the Moores appealed to the 5th Circuit Court of Appeals of the United States (“5th Circuit”).

The 5th Circuit queried the Texas Supreme Court on whether a lender could rescind a prior acceleration and re-accelerate the loan simultaneously under Tex. Civ. Prac. & Rem. Code § 16.038. The Texas Supreme Court affirmed this possibility, thus negating the need to answer whether such an attempt voids both rescission and reacceleration.

In October 2016, the mortgage servicer issued a notice rescinding the previous acceleration and re-accelerating the loan, specifying that such rescission did not waive any rights or claims. Subsequent notices in 2016 and 2017 updated the Moores on their debt and the opportunity to cure defaults.

A final notice in March 2019 confirmed rescission per Tex. Prac. & Rem. Code §16.038, prompting the Texas Supreme Court to determine if such notices, combining rescission and reacceleration, were valid under the statute.

Texas Supreme Court’s Interpretation

The Court ruled that Tex. Civ. Prac. & Rem. Code § 16.038(d) does not mandate a waiting period between rescission and reacceleration, thus allowing them to occur in the same notice (Moore, 683 S.W.3d 843, 847). The decision emphasized that this reset does not harm the borrower, as it restores the original loan terms and offers another chance to cure defaults.

Implications for Mortgage Servicers

While the Court upheld the validity of a single notice for rescission and reacceleration under Tex. Civ. Prac. & Rem. Code § 16.038, it did not address the proper reacceleration notice requirements. The opinion expressly states the holding remains consistent with Wilmington Trust v. Rob, 891 F.3d 174, 177 (5th Cir. 2018), which suggests separate notices for intent to accelerate and acceleration might be necessary.

Thus, lenders should ensure compliance with proper notice requirements for acceleration, as specific determinations on validity may be fact-dependent, particularly when express waivers of notice are involved (Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893–94, Tex. 1991).

Copyright © USFN 2024

USFNews - July 24, 2024

* Denotes firm is a 2023 Award of Excellence recipient.

Doyle & Foutty, PC *

USFN Member (IN, KY)

In May, USFN held a discussion on Artificial Intelligence (AI), and I was thrilled to serve as the moderator, which, for my part, involves not being an expert and asking questions when something is mentioned that I do not fully understand. A perfect position for me that fit like a glove! Our experts included Michael Merritt at BOK Financial, Sally Garrison with The Mortgage Law Firm, Zack Glaser with Lawyerist, and Brian Nicholas with McCalla Raymer Leibert Pierce, LLC. I extend my sincere thanks to them for their expertise and for leading interactive breakout sessions on this important topic.

I learned that Artificial Intelligence, besides being Spielberg’s worst movie (don’t @ me), is already prevalent in our industry. If you are as I was, you may have thought that there was still time to prepare for “the future” and that we would be able to slowly implement AI processes with carefully prepared and tested safety measures to protect ourselves. However, the reality is that it is already here and we may be very late to the party. So this discussion was not only eye opening, but also crucial to understanding what AI is, what it is not, how to use it properly in our jobs, and what its future use may look like.

Based on the USFNgage conversations had, let us clarify what Artificial Intelligence is and is not. AI is fundamentally technology that enables computer software to mimic human intelligence and problem-solving abilities. However, right now, we are mostly seeing what is called generative AI, machine learning and natural language processing specifically designed to create things, identify patterns, and interact with prompts. Generative AI is mostly affecting music, art, and writing at this moment. Machine learning appears in number crunching businesses, email filtering, medicine, and prepping that Amazon product for shipment once you have put it in your cart because it knows you need toilet paper and new tennis shoes just as well as you do, so why fight it? Natural language processing are your chatbots, your Clippy in Word (man, I miss Clippy), and your “Stephanie” with Visa who wants to understand why you’re calling today, but you don’t want to talk to “Stephanie,” you want a “REP-RE-SENT-ATIVE!!!”

AI is not Skynet, HAL 9000, or one of those evil robot overlords seen in a Hollywood blockbuster. At least not yet… It is more a highly sophisticated series of programs that piece together portions of the hodge-podge of humanity’s existence up until this point in order to fulfill a prompt or interaction it is given. Generative AI, for example, is solely based on material and content we have already created. It and other programs “learn” based on what we provide it. AI can draft a paper on ‘The Great Gatsby’ or generate a novel reminiscent of it, but it cannot produce wholly original creations. Moreover, it lacks true cognitive abilities – like thinking, feeling, or loving.

Having finally obtained an understanding of what AI is, I was ready to learn how it is being deployed in our workspace. We have already seen lawyers get in trouble for using generative AI in brief writing as the program “hallucinated” or made-up source material, so there are definitely misuses we need to be aware of. The consensus of the four breakout groups seemed to point to AI being used to assist in work, but requiring constant human oversight, interaction, and quality control of the outgoing product. For example, using AI to help write summarizations of large amounts of material to point an individual in the right direction for research, having AI generate a good starting point for a policy or procedure that staff then complete, or allowing AI to make simple decisions on situations to help downstream processes for employees would all be suitable uses for AI in the workplace.

You can use AI to take something you have written and rewrite the material differently, more eloquently, or more simply. I am often a terrible writer (see this article for examples), so I probably should have used AI to help me write this to make it easier and more enjoyable to read. You can have AI add an authoritative tone or, if you are too authoritative, make your writing less abrasive. AI can also be used to discover patterns or inefficiencies and reveal strengths or flaws within your own work processes. Someone can employ AI to help with audits, audit prep, or reporting. The options are almost literally limitless.

However, the danger for us still looms. Any product or procedure put in place will still be our responsibility. No one will accept the excuse of “the computer did it,” whether that is the boss, a judge, an investor, or an oversight body. It will still be our fault. Moreover, turning our thoughts outside of ourselves, it opens the door for an incredible amount of bad acting in our industry and others. Everyone has access to this technology. Fraud attempts will improve. Pro se litigant filings may be more on point and harder to dismiss or strike. Cybersecurity traffic will increase and intensify, and phishing schemes may become more successful.

Lastly, we come to the future. Here is where we envision mushroom clouds and humans living underground – a barren wasteland and bleak existences. Right? Or do we see a Star Trek-like future of blindingly fast calculations, space exploration, and elevated human existence? I am ever an optimist, so I at least hope for the latter. Generative AI, machine learning, and natural language processing programs can all be incredibly helpful, and I am not sure I necessarily see a reason to stop using them.

We do, however, need to be very careful about their oversight. The human quality control previously mentioned must continue and become even more robust. Additionally, the use of AI should be limited to non-mission-critical tasks. Money will have to be spent on staff and technology guardrails to properly utilize this kind of software. What AI is “fed” or trained on has to be carefully curated and monitored. And tested. Lots and lots of testing.

We believe we will see new roles created within companies for AI Trainers and AI Quality Control Testers, as well as some companies employing a Mathematician or Data Scientist to help control these processes. Regulations will also begin to include AI oversight, so we will have to be prepared to answer those questions. We will also probably have to train some of the regulators, as they do not always fully understand the things they regulate. Not that we have ever experienced that, right? We will have to incorporate AI oversight of our vendors, too. Just because you might not utilize AI yourself does not mean your vendors do not, and we’ll have to be aware of that as we move forward. And privacy! What to do about privacy?! An AI model can’t exactly “unlearn” something, so what do we do about data it gets hold of that we did not intend? How do we solve for an AI model that obtains PII for example?

While we could not solve for all the problems presented, I think a great job was done and the level of interest and interaction on this topic was incredible. I look forward to continuing the discussion as we move forward, both as individual companies and together as an industry. If you missed this discussion, I hope this article helped catch you up. I highly recommend being part of the next one. Be on the lookout for more USFNgage events on this and other topics in the future. It is a fantastic opportunity to come together and have an interactive discussion on a specific topic. And don’t worry, the USFNgage series is not recorded, so there’s no proof that I had no idea what I was talking about or what I was asking, which also means you too can participate freely. Thanks and we hope to see you next time!

Copyright © 2024 USFN

USFNews - July 10, 2024

* Denotes firm is a 2023 USFN Award of Excellence recipient.

Liebo, Weingarden, Dobie & Barbee, PLLP

USFN Member (MN)

With the rise in home prices in the past several years, many servicers and investors have begun foreclosing junior mortgages. Some of these mortgages were charged off, sold, or left for dead many years ago, and borrowers are often surprised when the mortgage rises from the ashes and a servicer or investor mails a default letter or files a foreclosure action. The Consumer Financial Protection Bureau issued an advisory opinion on these loans in April 2023 highlighting issues surrounding “zombie” mortgages, and lately, news organizations and foreclosure defense attorneys have also taken an interest in these “zombie” mortgage loans. A recent court of appeals decision in Minnesota highlights a few issues to avoid liability in enforcing a so-called zombie mortgage.

In the recent case, Reed v. Westgate Investments, the Minnesota Court of Appeals determined that the state’s 15-year statute of limitations to foreclose a mortgage was not extended by the mortgagors’ prior bankruptcy filing. 2024 WL 2716034, __ N.W.3d __ (Minn. App. 2024). The Reeds filed bankruptcy in 2005 and obtained a discharge in 2010. The loan matured in 2006. The servicer sent pre-foreclosure collection letters and commenced a non-judicial foreclosure in 2022, 16 years after the maturity date. Meanwhile, the Reed’s loan balance ballooned from $19,735 to over $62,000. The Reeds filed a lawsuit to stop the foreclosure and argued that the foreclosure was time-barred by the 15-year statute of limitations. At the district court, the servicer successfully argued that a Minnesota tolling statute extended the limitations period for five years because of the bankruptcy filing.

The Court of Appeals reversed and held that the statute of limitations was not tolled as a result of the automatic stay in the Reeds’ bankruptcy case. More specifically, the Minnesota statute of limitations provides that no action to foreclose a mortgage shall be maintained unless commenced within 15 years from the maturity date and this limitation shall not be extended by “reason of any disability of any party interested in the mortgage.” Minn. Stat. § 541.03 subd. 1. The Court of Appeals explained that this “disability” language in the statute specifically applied to the servicer’s bankruptcy tolling argument and that the 15-year statute of limitations was not extended by the automatic stay in the Reeds’ bankruptcy case.[1]

The obvious take-away is that servicers and their counsel must closely review the maturity date in the mortgage to ensure that any foreclosure activity is not prohibited by the 15-year statute of limitations. In Minnesota, it is not enough, however, to simply look at the maturity date in your system of record or on the promissory note and add 15 years to the maturity date. In Minnesota, the maturity date must be listed on the recorded mortgage. If the maturity date is not listed in the recorded mortgage,[2] the 15-year statute of limitations begins to run on the date of the origination of the loan. Minn. Stat. § 541.03 subd. 2. The maturity date or a statement that the term is, for example, 30 years is sufficient. A reference to the term listed in the promissory note is not sufficient because the promissory note is not part of the recorded document.

Foreclosure defense attorneys are now focused on the statute of limitations issue and have recently filed a number of class action cases in Minnesota targeting servicers and counsel who run afoul of the statute. This most often arises where a promissory note has a 30-year repayment term, but for whatever reason, the mortgage template used by the originating lender did not include a place to list the maturity date or the term. In those situations, if the maturity date is not listed or cannot be easily ascertained from the recorded mortgage, the mortgage can become unenforceable before the maturity date listed in the promissory note.

Because many of these older loans are secured by second mortgages that were charged off, servicers of charged off loans must also heed caution when adding interest and other charges. After a loan is charged off, a servicer may stop sending monthly statements. 12 C.F.R. § 1026.41(e)(6). A servicer may not, however, add interest or other charges to a charged-off loan unless the servicer resumes sending monthly statements. And even if the mortgage remains enforceable under the statute of limitations, a servicer may not retroactively assess fees or interest on the account for the period of time during which the loan was charged off. 12 C.F.R. § 1026.41(e)(6)(ii)(B). In other words, the servicer must foreclose using the balance at the time the loan was charged off.

As a practice pointer, servicers and their counsel should take care to review the mortgage document itself for these Minnesota-specific issues regarding the 15-year statute of limitations as well as the allowable interest and charges the servicer may recover when enforcing a charged-off “zombie” mortgage that has risen from the dead.

SouthLaw, PC *

USFN Member (IA, KS, MO, NE)

Recently, there has been an effort to address concerns with the lack of mortgage lending in and around Native American tribal lands along with a rise in referrals for loans subject to the regulations of the Section 184 Indian Housing Loan Guarantee (“Section 184”) program. As a brief history, Section 184 is designed to increase opportunity and access for certain Native American families to achieve home ownership.  Per HUD’s website:

The Section 184 Indian Home Loan Guarantee Program is a home mortgage product specifically designed for American Indian and Alaska Native families, Alaska villages, tribes, or tribally designated housing entities. Congress established this program in 1992 to facilitate homeownership and increase access to capital in Native American Communities.

With Section 184 financing borrowers can get into a home with a low down payment and flexible underwriting. Section 184 loans can be used, both on and off native lands, for new construction, rehabilitation, purchase of an existing home, or refinance.

Section 184 is synonymous with home ownership in Indian Country.

See https://www.hud.gov/section184.

            While expanding,  there are currently 38 states in which a Section 184 loan can be used, and since 2012, there have been over 15,000 loans totaling over $2.4 billion (https://www.1tribal.com/section-184-home-loan-explanation/). A full list of participating tribes and the associated state(s) is also available on HUD’s website.

An important pre-foreclosure consideration when reviewing Section 184 loans is whether the property sits on tribal or allotted land or whether it is fee simple property. Generally speaking, foreclosure and sale of fee simple properties can follow the standard procedure per the terms of the loan documents and pursuant to state guidelines.

            For trust or allotted land, the leasehold interest will need to be incorporated to collateralize the loan, which brings along additional regulations. The two primary considerations involve the potential sale of the property via the foreclosure action and may include a right of first refusal to an eligible tribal member, the tribe itself, or the Indian Housing Authority serving the tribe. There are also limitations on who may purchase the property in the event of foreclosure.

            Section 184 has a rich history of supporting Native American and Alaskan Native housing initiatives. Its regulations on rights upon default aim to provide a framework for addressing defaults in a manner that balances the interests of borrowers and lenders while promoting access to affordable housing in Native American communities. The distinction with how the property is held and where the property sits is paramount to proceedings involving Section 184 loans, and there are many resources online to help guide lenders, servicers, and attorneys in these situations.

Copyright © 2024 USFN

USFNews - June 12, 2024

* Denotes firm is a 2023 USFN Award of Excellence recipient

Diaz Anselmo & Associates, PA (USFN Member – FL, IL, IN, KY, OH, WI) welcomes Gina N. Daya to the firm as director of client services. Her primary focus will be on ensuring exceptional service delivery to our servicer and investor clients. With over a decade of experience that includes both servicing and legal, she brings a wealth of knowledge, expertise, and a unique perspective and understanding to the firm. Daya will be based in the firm’s Naperville office.

Spring 2024 USFN Report

Schneiderman & Sherman, PC (USFN Member – MI, MN) announced the opening of their newest office in Minnesota, located at 1602 Selby Ave., # 8, St. Paul, MN 55104. The Minnesota location supports their expanding regional market presence and marks the firm’s first law office outside of the State of Michigan.

Spring 2024 USFN Report

Halliday, Watkins & Mann, P.C. (USFN Member – UT, AL, AK, CO, ID, MN, MS, MT, NE, ND, SD, WY) recently merged with Eric H. Lindquist, P.C., L.L.O., a prominent Nebraska-based law firm specializing in mortgage default cases. The strategic merger brings together two powerhouse firms with over 70 years of combined experience assisting mortgage default clients across 12 states.

Spring 2024 USFN Report

Gross Polowy LLC (USFN Member – NJ, NY) is pleased to announce the promotions of two of its Senior and Supervising Attorneys.

Douglas Weinert was promoted to Managing Attorney of Risk Management. Weinert began his tenure with Gross Polowy from the beginning in January 2012 and most recently served as a Senior Attorney. Within his scope as Managing Attorney, he will continue to oversee firm and client Risk Management, as well as the Attorneys in the First Legal, Motions and Title Curative departments.

Brian Goldberg was promoted to Managing Attorney of Trials & Loss Mitigation. Goldberg also joined Gross Polowy in January 2012 and most recently served as a Supervising Attorney. As Managing Attorney, he will continue to oversee Trials, Court Appearances, Settlement Conferences and Home Retention while also managing the attorneys in those departments.

Spring 2024 USFN Report

Wilson & Associates, PLLC (USFN Member – AR, MS, TN) is excited to announce attorneys Courtney McGahhey and Nicole Murray were sworn into the Mississippi Bar recently.

McGahhey is a partner in the Foreclosure Department focusing on non-judicial foreclosures. She received her education from the University of Arkansas (B.A. 2005) and the University of Arkansas at Little Rock William H. Bowen School of Law (J.D. 2008, High Honors). She was admitted to the Arkansas Bar in 2008, the Texas Bar in 2009, the Tennessee Bar in 2016, and the Mississippi Bar in 2024.

Murray is an associate partner in the Foreclosure Department. She earned her B.A. in Educational Studies at Warner University (2010, Magna Cum Laude), and earned her J.D. from the University of Arkansas at Little Rock William H. Bowen School of Law (2017, Suma Cum Laude). She was admitted to the Arkansas Bar in 2017, the Mississippi Bar in 2024, and is a member of the American Bar Association and the Arkansas Bar Association.

Spring 2024 USFN Report

In Wilmington Sav. Fund Soc'y v. Campbell, 2021 Kan. App. Unpub. LEXIS 330, the Kansas Court of Appeals issued a ruling that provides a bright line rule under K.S.A. §60-241. 

60-241. Dismissal of actions. (a) Voluntary dismissal.

(1) By the plaintiff. 

(A) Without a court order. Subject to subsection (e) of K.S.A. §60-223, K.S.A. §60-223a and K.S.A. §60-223b, the plaintiff may dismiss an action without a court order by filing:

(i) A notice of dismissal before the opposing party serves either an answer or a motion for summary judgment; or

(ii) a stipulation of dismissal signed by all parties who have appeared. When the dismissal is by stipulation, the clerk of the court must enter an order of dismissal as a matter of course.

(B) Effect. Unless the notice or stipulation states otherwise, the dismissal is without prejudice. But if the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits.

That bright line or “two-dismissal” rule is: “[I]f a plaintiff has once dismissed an action, a dismissal by notice of a second action based on or including the same claim, amounts to an adjudication on the merits.  As such, the second dismissal effectively creates a res judicata bar to a third action.”  Campbell at 6.

In this case, the Appellate Court stated that the district court relied upon “judicial magic” in concluding the second foreclosure case, which was dismissed by a Court Order, was legally equivalent to a notice of dismissal. Given this false equivalency relied upon by the district court and given the procedural disposition of the case at dismissal which would prevent dismissal by notice, “the dismissal of that [second] action must have been by court order, obviating the application of the two-dismissal rule.”  Campbell at 11.

While it may be arguable that certain circumstances leading to the dismissal of a pending foreclosure action, e.g., reinstatement or a loan modification, may create a new cause of action with new or distinguishable grounds for foreclosure, the mere act of filing a second Notice of Dismissal on the same loan against the same borrowers may create grounds for those borrowers to argue that any subsequent foreclosure is precluded under the statute cited above.

To avoid the risk of protracted litigation associated with this issue, the best practice for dismissing subsequent foreclosure cases against the same loan and borrower(s) is to seek leave to dismiss via a Motion and Order to Dismiss, ultimately reviewed and approved by the presiding judge. Obtaining an Order of Dismissal significantly reduces the risk of a res judicata bar to foreclosing, as the Campbell case makes clear, “. . . the [dismissal by notice] rule comes into play only if the second dismissal is by notice.”  At 8 (emphasis in original). Seeking an Order of Dismissal may include additional filing and attorney fees; however, those fees will be significantly less than litigating this issue and potentially losing the right to foreclose.

Copyright © 2024 USFN
USFNews - May 15, 2024

* Denotes firm is a 2023 USFN Award of Excellence recipient

By Adam Diaz, Esq.

Diaz, Anselmo & Associates, PA *

USFN Member (FL, IL, IN, KY, OH, WI)

The 4th District Court of Appeals reversed its opinion in Desbrunes v. U.S. Bank, N.A., as Trustee, which held that a Personal Representative is a necessary party to a foreclosure on homestead property.  The new ruling correctly held that when a borrower passes away the property transfers to heirs without the need of a probate proceeding. 

The Court specifically found that since “[p]ersonal representatives have no jurisdiction over nor title to homestead . . . .” the property would not be an asset to the estate and subject to administration.  The Court noted in a footnote that it was unaware of the status of the property when it issued the initial decision, but after review of the Rehearing, and Amicus Briefing, this issue can be fully addressed.  The Court did not make a distinction regarding foreclosure proceedings being in rem or how the rules would apply to non-homestead property which leaves a potential grey area in the law.  However, the briefings do go into depth on how probate law would address non-homestead property.

The Court’s shift is significant for the Mortgage Industry, as it no longer requires a Lender in Florida to initiate a probate proceeding in order to obtain clear title when foreclosing.  The original ruling put an unnecessary burden on Lenders which would have caused significant delay in expense to the foreclosure process.

USFN participated in an Amicus Brief in March 2024 in the Desbrunes v. U.S. Bank, N.A., as Trustee petition to the 4th DCA. Kudos to Adam Diaz with Diaz and Associations for their outstanding work on this brief.  

Advocacy Advisory - May 8, 2024
USFNews - May 15, 2024

* Denotes firm as a 2023 USFN Award of Excellence recipient

Wilson & Associates, PLLC *

USFN Member (AR, MS, TN)

Most attorneys practicing in non-judicial foreclosure states are well aware of the United States Supreme Court decision in Obduskey v. McCarthy & Holthus, LLP, 139 S. Ct. 1029 (2019). In Obduskey¸ the Court held that a law firm that only sends communications to debtors to enforce a security instrument in non-judicial foreclosure proceedings is not a “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”), provided that the notices sent are antecedent steps required under state law to enforce a security instrument.  Id. at 1039.

Recently, the United States District Court for the Western District of Arkansas weighed in on the topic in Reppy v. Cenlar FSB, Inc., No. 5:23-cv-05227, 2024 U.S. Dist. LEXIS 40574 (W.D. Ark. 2024). In this case, the court allowed the plaintiff’s FDCPA claims to survive a motion to dismiss filed by the foreclosing law firm, despite the foreclosing law firm’s arguments in reliance on Obduskey.

Plaintiffs John and Karen Reppy filed suit in November 2023 in state circuit court in Benton County, Arkansas, against Cenlar FSB Inc., Citimortgage, Inc. and Mickel Law Firm, P.A.  The claims against Mickel Law Firm (“Mickel”) were for alleged violations of the Arkansas Statutory Foreclosure Act, the Arkansas Fair Debt Collections Practices Act, and the FDCPA.  With regard to the FDCPA, plaintiffs alleged that the FDCPA notice mailed by Mickel violated the FDCPA. Plaintiffs argued that the mailed notice falsely identified the owner of the debt, falsely identified the successor creditor, falsely identified the deadline for plaintiffs to dispute the debt, and overshadowed the plaintiff’s right to dispute the debt. Plaintiffs also argued the FDCPA notice failed to provide an itemization date; amount of the debt on the itemization date; an itemization of the current amount of the debt reflecting interest, fees, payments, and credits since itemization; and the current amount of the debt.  Reppy v. Cenlar FSB, Inc., No. 04CV-2023-3100 (2023 Ark. Cir.).

The case was subsequently removed to federal court, and in December 2023, Mickel filed a motion to dismiss all claims against it.  Among the arguments made by Mickel included an argument that it was not a debt collector as defined by the FDCPA and therefore not liable to the plaintiffs. Mickel relied upon the ruling in Obduskey, arguing to the court that that it was engaged in no more than non-judicial foreclosure proceedings, and thus not a debt collector under the FDCPA.  However, Mickel also stated in its brief that it sends FDCPA notices “out of an abundance of caution, and because its clients request Mickel to do so, but it is not required to do so…”.

A couple of points are worth noting here. One is that the mailing of a FDCPA notice is not required by the Arkansas Statutory Foreclosure Act. Ark. Code Ann. §§ 18-30-101 to 117. Second, is that Mickel’s brief in support of its motion to dismiss did not include an argument that it should be afforded the safe harbor protections provided by 12 CFR Section 1006.34(d)(2). Collectors can receive a safe harbor for compliance with the validation information content and format requirements contained within the CFPB’s model validation notice found at 12 CFR § 1006 Appendix B.  No argument was made by Mickel that its FDCPA notice was substantially similar to the CFPB’s model notice.

The court in its Memorandum Opinion and Order made note that the ruling in Obduskey does not extend to a law firm who sends communications not required by the Arkansas non-judicial foreclosure law required to be sent to debtors.  The court pointed to Mickel’s own statement that it mailed the FDCPA letter “out of an abundance of caution.”  The court further found that several aspects of Mickel’s FDCPA letter demonstrated an “animating purpose” of inducing payment by the plaintiffs.  Under the animating purpose test, for a communication to be in connection with the collection of a debt, an animating purpose of the communication must be to induce payment by the debtor. Heinz v.  Carrington Mortgage Servs., LLC, 3 F 4^th 1107, 1112 (2021).  The court referenced the fact that the letter explicitly stated “THIS IS A COMMUNICATION FROM A DEBT COLLECTOR. THIS IS AN ATTEMPT TO COLLECT A DEBT AND ANY INFORMATION OBTAINED MAY BE USED FOR THAT PURPOSE.”  The court went on to point out that the letter described ways the plaintiffs could make payments to Mickel in satisfaction of the debt, and that the letter offered the debtor certain check-the-box options, including one stating, “I enclosed this amount: $__________.”

Ultimately, the court found the plaintiffs plausibly alleged that the animating purpose of the FDCPA letter was to induce payment of a debt.  Thus, the plaintiff’s FDCPA claim survived Mickel’s motion to dismiss.  This case is still pending before the U.S. District Court for the Western District of Arkansas, and we recommend closely monitoring the case.

Copyright © 2024 USFN

USFNews - April 17, 2024

* Denotes firm is a 2023 USFN Award of Excellence recipient

By Adam Diaz, Esq.

Diaz Anselmo & Associates, PA*

USFN Member (FL, IL, IN, KY, OH, WI)

Florida’s 4th Appellate District reversed a foreclosure judgment for a lender with a groundbreaking decision creating new required steps to foreclose the interest of a deceased party. The Court’s decision in Desbrunes v. US Bank Nat’l Ass’n, as Tr. for Structured Asset Sec. Corp. Mortgage Pass-Through Certificates, Series 2006-AM1, 2024 WL 591432, at *1 (Fla. 4th DCA Feb. 14, 2024) represents a detrimental break in Florida jurisprudence that has governed foreclosure proceedings for decades.

The facts of Desbrunes are like many typical foreclosure proceedings involving a deceased party. US Bank National Association, as Trustee for Structured Asset Securities Corp. Mortgage Pass Through Certificates, Series 2006-AM1 (“Plaintiff”) filed a one count action for foreclosure naming Francois Desbrunes as a defendant. Desbrunes actively litigated the case, but ultimately passed away before the entry of the judgment, wherein his counsel filed a suggestion of death.

The plaintiff sought to Amend the Complaint. The purpose of the amendment was to drop Desbrunes as a party, add known and unknown heirs, as well as appoint a Guardian Ad Litem. This is the standard process in Florida.

However, Desbrunes’ counsel, who was no longer representing any party, filed a Motion to Abate pursuant Fla. R. Civ. P. 1.260(a), requesting the Court require the plaintiff to administer a probate in order to continue the action. The Trial Court denied the motion because Desbrunes’ counsel was not a party to the case, but did not rule on whether a probate is a required task to obtain a valid judgment.

The Trial Court granted judgment in favor of the plaintiff, and an heir, Ronald Desbrunes, appealed the ruling. The heir argued on appeal the denial of the Motion to Abate should have been granted. The 4th District Court of Appeal only considered the arguments regarding 1.260. The Court held that the plaintiff improperly substituted Desbrunes with the heirs pursuant to Rule 1.260(a) despite the fact the plaintiff never moved for substitution under the Rule. The 4th held that only an estate can be substituted in for a deceased party citing non-foreclosure cases involving money judgments.

The 4th went further to find any judgment where a probate was not opened would be a “nullity.” This language causes the most concern as it would open completed cases to attack. Due to the severity of this ruling a rehearing was filed.

The opinion failed to account for Florida Probate law which governs the transfer of title upon a title holder’s death. Under Florida Law when a property is homestead, the property will pass entirely outside of the estate. See Buettner v. Fass, 21 So. 3d 14, (Fla. 4^th DCA 2009). This transfer is codified within Florida Statutes s. 732.401, 731.102, 732.103. Therefore, a deceased borrower’s estate never holds title and would not be a necessary party to the foreclosure. See Citibank, N.A. v. Villanueva, 174 So. 3d 612, 613 (Fla. 4th DCA 2015) (“The fee simple title holder is an indispensable party in an action to foreclose a mortgage on property.”) (citations omitted)

The Firm, on behalf of USFN, also filed an Amicus Curie brief, along with ALFN and Legal League. The purpose of the Amici was to bring to the attention of the Court that if the opinion is not revised, or reversed, it will significantly impact the mortgage industry, and cause severe consequences this Court may not have anticipated or intended.

Currently, the rehearing is under review with the Court.

Copyright © 2024 USFN

USFNews - April 3

* Denotes firm is a 2023 USFN Award of Excellence recipient.

Frenkel Lambert Weiss Weisman & Gordon, LLP*

USFN Member (NY, FL, NJ)

Governor Phil Murphy signed into law New Jersey Assembly Bill 5664, the “Community Wealth Preservation Program,” on January 12, 2024. The bill, which became effective immediately, amends and supplements N.J.S.A. 2A:50-64 and N.J.S.A. 22A:4-8 and affects most aspects of sheriff’s sales. The main gist of the statute is that it provides specific parties with certain advantages over other potential bidders. Foreclosed upon defendants, next of kin of the foreclosed upon defendants, tenants, or nonprofit community development corporations (hereinafter collectively referred to as “Preferred Purchasers”) are given a first and second right of refusal to purchase the property for an “upset price.” Preferred Purchasers, plus any individuals who intend to occupy the property, are also given advantages, including reduced deposit requirements and extended time to complete the sale.      

Foreclosing plaintiffs are now required to provide an upset price, which is defined as “the minimum amount that a foreclosed upon property shall be sold for in a sheriff’s sale as determined by the foreclosing plaintiff.” The upset price must first be provided at least four weeks prior to the scheduled sale date and then again on the day of the sale. The upset price may change between the initial notice and the day of sale, but it shall not increase by more than three percent absent certain defined circumstances. 

             The upset price is now a key component of the sheriff’s sale process, as the Preferred Purchasers, if certain requirements are met, have the opportunity to purchase the subject property at the upset price prior to the sheriff opening the bidding. If that right is exercised, the Preferred Purchaser is only required to provide a 3.5 percent deposit and will be given 90 business days to pay the balance of the upset price to the sheriff. 

            If a Preferred Purchaser does not exercise their right to purchase, the sheriff will conduct an auction for the property. If the successful bidder at the auction is an individual who intends to occupy the property for 84 months, they will also enjoy the benefit of only having to pay a 3.5 percent deposit and will likewise have 90 business days to pay the balance of their bid to the sheriff. If the property is purchased in this matter, the bidder will be required to occupy the property for at least 84 months. 

For any bidder who is not a Preferred Purchaser or does not intend to occupy the property for 84 months, they will be required to pay a 20 percent deposit with the balance due pursuant to the sheriff’s conditions of sale, which is generally 30 calendar days.

            The upset price and revised bidding rules are not the only changes to the sale process. The law also adds new requirements and responsibilities for foreclosing plaintiffs and their counsel. Foreclosing plaintiffs are now required to send the notice of sale to the defendant as well as to the subject property, and the notice must be mailed in an envelope which “plainly states on its exterior that the envelope is a notice for the sale of the foreclosed upon residential property.” The plaintiff is also required to disclose the occupancy of the property, and if vacant, provide access to the property to the successful bidder.

            These sweeping changes leave many questions unanswered.   

Who is responsible for the property during the 90 business days that a purchaser has to complete the sale? Not only will this extended timeframe increase foreclosure timelines, but tax, utility, and insurance bills will continue to come due, and the property will continue to need maintenance. If the foreclosing plaintiff continues to pay these amounts, there is no mechanism in the statute for recoupment if the purchase is completed. On the other hand, if the purchase is not completed, an election to not pay the reoccurring costs would leave the plaintiff open to potential tax sales, maintenance violations. and possible damage to a now uninsured property.  These potential costs and risks are new factors that must be considered by lenders.      

Is the requirement to add additional language to the outside of the envelope compatible with the Fair Debt Collection Practices Act (“FDCPA”)? The FDCPA not only prohibits communication with unauthorized third parties, 15 U.S.C.§ 1692(c)(b), but also prohibits using language on the outside of the envelope when communicating with the consumer, 15 U.S.C.§ 1692f (8). If the laws do conflict, federal preemption will require compliance with the FDCPA over that of the state law.

What happens to junior mortgages if a Preferred Purchaser exercises their right to purchase at the upset price? The law is silent as to junior liens and how they may be affected. If no sale was held, it would follow that the junior mortgages would remain as valid liens on the property. Additionally, pursuant to 28 U.S.C. §2140, the United States requires a judicial sale in actions where it is named as a defendant. Therefore, liens held by the United States, which include mortgages held by the Secretary of Housing and Urban Development, would remain attached to the property. Thus, junior mortgage holders will need to be vigilant in monitoring how senior foreclosure matters are resolved as their liens may survive the action.

Inquiries have been made to members of the New Jersey legislature and there has been indication that further amendments may be forthcoming to address some of the aforementioned concerns. However, no new legislation has been introduced as of the date of this article and any clarification may first come through the courtroom. 

Copyright © USFN 2024

USFNews - March 20

* Denotes firm is a 2023 USFN Award of Excellence recipient.

by HillaryR. McCormack, Esq.

Halliday,Watkins & Mann, P.C.*

USFN Member (UT, AK, AL, CO, ID, MN, MS, MT, ND, NE, SD, WY)

Utah Code § 57-1-34 requires anyone seeking to foreclose an obligation secured by a deed of trust by either commencing a judicial foreclosure action or initiating a nonjudicial foreclosure by recording a notice of default, within the “period prescribed by law.” The “period prescribed by law” is found in Utah Code § 70A-3-118(1), which prescribes a six-year statute of limitations running from the due date or dates stated in the note, or if a due date is accelerated, within six years after an accelerated due date. However, in Lewis v. U.S. Bank Trust, N.A., as Trustee for LSF9 Master Participation Trust, --- P.3d ---, 2024 WL 57521, 2024 UT App 3, the Utah Court of Appeals clarified that when notices of default are canceled, the statute of limitations is effectively paused, thus preserving a beneficiary’s right to foreclose at a later date. Prolific litigants should also be wary of claim preclusion barring future suits when they could have and should have brought those claims in a prior suit.

Brian Lewis (“Lewis”) purchased property in Mona, Utah in August 2014. However, when Lewis bought the property, it was already encumbered by a 2008 deed of trust in favor of U.S. Bank Trust, N.A., as Trustee for LSF9 Master Participation Trust (the “Trust”), which was in default. A notice of default had been recorded in April 2010, but then canceled on May 1, 2014. That same day, a new notice of default was recorded before eventually being canceled on April 30, 2020.

When Lewis learned of a pending foreclosure sale to be held in September 2016, he filed suit in state court against the foreclosing parties seeking to quiet title and prevent any future foreclosure, arguing the statute of limitations to foreclose had expired. The case was removed to the United States District Court for the District of Utah. See Lewis v. Caliber Home Loans, Inc., No. 2:16-cv-01252, 2018 WL 485967 (D. Utah Jan. 18, 2018). The federal district court granted summary judgment in favor of the foreclosing parties, holding that the statute of limitations began when the newest notice of default recorded on May 1, 2014, and had not expired when a foreclosure sale was scheduled in September 2016. Lewis appealed to the 10th Circuit Court of Appeals, but his appeal was dismissed for lack of prosecution. See Lewis v. Caliber Home Loans, Inc., No. 18-4020, 2018 WL 3996494, at *1 (10th Cir. May 3, 2018).

Continuing a tortured litigation history, days after his appeal’s dismissal, Lewis filed a new complaint in state court against the Trust, again seeking to quiet title in his favor and enjoin the Trust from claiming any interest in the property. The Trust removed the case to federal court, to which Lewis objected and amended his complaint in state court. The state court determined it did not have jurisdiction due to removal, but the federal court eventually remanded the case to state court based on lack of diversity jurisdiction.

After further maneuvering, including motions to dismiss, another amendment to the complaint to include claims for quiet title based on laches and unjust enrichment, an interlocutory appeal, and the Trust electing to pursue a judicial rather than nonjudicial foreclosure which was then consolidated into the already pending case, the Trust filed two separate motions for summary judgment and a Notice of Errata to address a watermark inadvertently filed with one of the motions. The Trust’s first motion argued that Lewis’ quiet title and unjust enrichment claims were barred by res judicata. The second motion argued the Trust was entitled to a foreclosure judgment and order of sale, and the statute of limitations had not expired. Lewis, through counsel, only responded to the quiet title motion, leaving the judicial foreclosure motion unopposed. Lewis’ counsel argued she had not realized there were two separate motions, but the court rejected the contention and granted both the Trust’s motions. The court entered judgment, and later declined to set it aside after Lewis filed a motion under Rule 60(b)(1) of Utah’s Rules of Civil Procedure. Lewis appealed.

On appeal, the Court of Appeals held the claim preclusion branch of res judicata barred Lewis from recovery on his quiet title and unjust enrichment claims. Lewis’ quiet title claim involved the same property and was a continuation of his yearslong efforts to avoid foreclosure. Although the legal theory behind his quiet title claim in the most recent suit was new (laches), the underlying claim and those in previous litigation arose from the same transaction. Similarly, his unjust enrichment claim, premised on the idea that his maintenance and improvement of the property benefited the Trust since he began improving the property in 2015, could have been raised in his prior 2016 suit. So, because the quiet title and unjust enrichment claims could have been raised in previous litigation, res judicata barred them in the current suit.

Lewis also argued on appeal that the district court incorrectly concluded the statute of limitations to foreclose had not run. Lewis contended that the default occurred when payments were missed in 2009, but foreclosure was not initiated until 2016, when he learned of a scheduled trustee’s sale. However, the Court of Appeals relied on its precedent in Deleeuw v. Nationstar Mortgage LLC, 2018 UT App 59, 424 P.3d 1075 holding that the “period prescribed by law” for commencing a foreclosure as required by Utah Code section 57-1-34 was the six-year statute of limitations found in Utah Code section 70A-3-118(1). This six-year statute of limitations runs from the due date or dates stated in the note, or if a due date is accelerated, from the accelerated due date. The Court of Appeals also cited its precedent in Daniels v. Deutsche Bank Nat’l Trust, 2021 UT App 105, ¶ 3, 500 P.3d 891 and Johnson v. Nationstar Mortgage LLC, 2020 UT App 127, ¶ 21, 475 P.3d 946 (Utah 2021) in holding that recording a notice of default is an act of acceleration, causing the statute of limitations to begin running. However, the Court of Appeals clarified that canceling a notice of default halts the statute of limitations, whereas recording a new notice re-accelerates the due date and thus restarts the limitations period. The 2010 notice of default recorded against the property was canceled on May 1, 2014, and a new notice recorded that same day before that new notice was itself canceled on April 30, 2020. Each cancellation halted the limitations period, whereas each notice recording started the period anew. Therefore, the limitations period had not run when the Trust filed its judicial foreclosure. Lewis also argued on appeal that the Trust’s judicial foreclosure claim was a compulsory counterclaim in his 2016 suit, which has yet to be addressed in Utah. However, the Court of Appeals declined to consider the argument because it was unpreserved, leaving the issue unsettled.

The Court of Appeals also rejected Lewis’ contention that it was an abuse of discretion for the lower court to have denied his Rule 60(b) motion because his counsel failed to understand there were two pending summary judgment motions requiring response. The Court of Appeals held that Lewis failed to establish the requisite due diligence necessary for relief from the judgment due to mistake or inadvertence under 60(b), because failing to read documents in full was unreasonable and made him ineligible for relief. Therefore, the lower court did not abuse its discretion in denying the 60(b) motion when there was no proper basis for relief from the judgment.

Going forward, mortgagees may feel more confident in foreclosures where there has been no acceleration, and that they may effectively pause the statute of limitations by canceling a notice of default. However, because the Court of Appeals declined to address whether judicial foreclosure was a compulsory counterclaim to earlier, borrower-initiated litigation, mortgagees and their counsel will want to keep a close eye on whether a Utah appellate court revisits and weighs in on this issue in a future case.

Copyright © USFN 2024

USFNews - March 6

* Denotes firm is a 2023 USFN Award of Excellence recipient

McCalla Raymer Leibert Pierce, LLC (USFN Member – CT, FL, GA, IL, AL, CA, KY, MS, NV, NJ, NY, OH, OR, PA, TX, WA) announced that it has expanded into Pennsylvania. The firm is now offering residential and commercial foreclosure, litigation, bankruptcy, eviction and REO services across the state. Additionally, Lisa Lee and Judi Romano have joined the firm. Lee will serve as the Chief Marketing Officer for the firm and will continue her term as USFN President. Romano has joined as a partner in the Pennsylvania foreclosure group. Both industry veterans will be based in the firm’s new Philadelphia office and will be integral in the oversight of the Pennsylvania practice.

2024 USFN Winter Report

Carlisle Law (USFN Member – OH, IN, KY) has opened offices in Indiana and Kentucky. Carlisle Law Principal Jerry Higgins is in the Indiana office, and practices in both Indiana and Kentucky. The Firm is also proud to announce it has added the following attorneys who work in the Indiana and Kentucky offices: Marsha Dailey (IN and KY); Derek Harvey (IN and KY); Terra Meek (KY and the United States Bankruptcy Courts for ED and WD of KY and ND and SD of IN) and Samantha Nix (KY).   

2024 USFN Winter Report

Rosenberg & Associates, LLC (USFN Member – DC, MD, VA) welcomed Bernice Saka as a new associate attorney. Saka holds a Bachelor of Arts in English Literature and a Bachelor of Arts in Art History from Roanoke College (2019, cum laude) and received her Juris Doctor from Mississippi College School of Law (2023). She is a member of the Academic Honor Society, Phi Beta Kappa, and the English Honor Society, Sigma Tau Delta. Saka is licensed to practice law in the District of Columbia and works out of the firm’s Bethesda, Maryland office, practicing real estate law with a focus on foreclosure.

2024 USFN Winter Report

NetDirector

USFN Associate Member

With the latest generation of phishing and social engineering assisted by the newest AI technologies, information security is more important than ever for small businesses. According to the Acronis Cyberthreats Report, H2 2023, AI-enhanced phishing attacks affected over 90% of organizations surveyed and resulted in a 222% increase in email attacks in 2023 when compared to the same time period in 2022.

This risk is especially great for any business dealing in PII (Personally Identifiable Information), financial data, or legal – for the default servicing industry, this is the triple threat that makes security a high priority across the organization. One of the best strategies to ensure data security is data segregation.

The goal is to ensure that only the individuals who are authorized to view certain data sets have access to them – and that while that access is secure, it remains easy and convenient for the team members who need the data to do their job.

It’s easiest to envision a complete data segregation strategy by visualizing the way a layered, segmented security protocol works on physical documents. The familiar layers of security are present for most hard copies of documents in the physical world. An example:

·         a property gateway (potentially with a security guard) exists, verifying access to the property.

·         the building entrance uses a badge reader or biometric scan, and a secondary badge entrance would provide further segregated access to a particular wing.

·         within the wing, even fewer key cards would grant access to certain hallways or individual rooms.

·         a certain key is required to unlock a particular cabinet full of sensitive files.

In this example, there are up to six layers of security present between the “outside world” and the sensitive information, each of which limits access in steps. Could an outside unknown malicious actor get access to a document in the file cabinet (without the use of “Hollywood writers”)? The short answer is no. In this scenario, the only people who could do harm are a very limited number of internal employees, restricted by the many layers of access and significantly narrowing down potential threats.

What if one of those layers is compromised, like the lock on the cabinet? Even with one or two less layers of security, the documents themselves are still secure from outside access. Risk probability decreases exponentially after each layer of security in place.

An equivalent layered segregation process is the best approach to ensure a secure environment for digital data. For example:

·         A VPN gateway functions as the property access, with as many as eight factors of verification in this “frontline” defense: a username and password, with multifactor authentication (MFA) tokens matching the PC/Device, IP Address/location, a one-time PIN from Authenticator, mobile device registration for authenticating devices, and FaceID on the authenticated device.

·         Firewall/security rules work as the building key card: after VPN connection is established, the VPN client with an Endpoint Security Profile can determine what access is allowed based on the user’s account and group membership; denying or granting specific IP/port access.

·         Application authentication represents key card access to specific rooms and hallways, and is separately managed in a similar way to the VPN (factors include Internal WebUIs, File Shares, RDP, SSH, and a different username/password requiring a new MFA)

·         Finally, the file cabinet lock is represented by specific application access. After authentication in the previous steps, what data is available to that authenticated user in the specific application? This is the final step to ensuring the right data is readily available to users who need it, and can also determine read/write permissions, modification availability, etc.

Final questions to consider around data segregation include:

Q: How many layers does our company need?

A: One layer, even with MFA, is no longer enough. Companies should have at minimum two layers each with their own multifactor authentication before classified/protected information can be reached.

Q: Which technologies are most important to secure?

A: Endpoint security for physical devices (laptops, phones, etc.) through which employees can access classified information is most important. Authentication and file transfers for Unified Messaging technologies (email, IM, phone, online conference, voicemail) is second most important. Web based interfaces, applications, and connections would be third on the list. These are the big three that absolutely need their own layers of security, including MFA.

Copyright © 2024 USFN

USFNews - Feb. 21

Brock & Scott, PLLC *

USFN Member (CT, NC, RI, AL, FL, GA, KY, MA, MD, ME, MI, NH, NJ, OH, PA, SC, TN, VA, VT)

USFN kicked off the new year with a Briefing on one of the industry’s most timely and critical topics for today and the foreseeable future – Cyberattacks & How to Respond. On January 23, a panel of industry leaders, including attorneys, fintech leaders, and insurance experts, provided attendees key insight into the state of cyberattacks and what we can do now to prevent and prepare.

Cyberattack prevention as the first line of defense should be at the forefront of everyone’s efforts. Ronny Loew, ProCirrus Technologies, Inc., and Jan Duke, a360inc, shared the top elements of a prevention plan which includes a three-prong approach of user education, using application controls, and increasing awareness throughout an organization. Loew reminded attendees, “Eighty-two percent of the issues that are occurring are due to the human element.” Security training and simple, yet effective, controls such as multifactor authentication can help prevent many attacks. Just as important is email security, patching and updating of anything connected to the network or internet, and cybersecurity services such as endpoint monitoring. Duke suggested to ensure that phishing training campaigns in organizations are relevant to users, “so it’s something that really will try to appeal” to employees. She encourages organizations to have town hall meetings to discuss the dangers and “make it real” to employees, so they hear it from the top of how important this is.

Wendy Lee, of Sagent, covered highlights of communication plans once an incident has unfortunately occurred. She stressed the importance of pre-planning a crisis communication plan and how the onslaught of communication will be handled. Most critical is understanding federal law, state breach notification laws, contractual obligations, as well as executive buy-in and control. Lee shared a story about a recent settlement related to failure to disclose timely to victims of a cyberattack and stressed how critical it is to meet the notification requirements. Federal requirements, such as the Securities and Exchange Commission’s (SEC) four-day time limit, may not directly impact your business, but it could impact a company you do business with if they are a publicly traded company. Customers may require reporting in one day due to the SEC’s requirement for reporting events “that could have a material impact.” Evaluating materiality in a 24-hour window may be almost impossible, which means potentially reporting an incident whether it’s known yet if there is a material impact. Big companies today are making the required filing regardless of potential material impact to ensure adherence to the law.

Key points to include in a crisis communication plan include:

·         Understanding who to notify – victims, state Attorneys General, or other government entities

·         Knowing when to notify the above

·         Adhering to specific requirements about the notice contents

·         Following any state specific form of requirement – in writing, electronic, or by phone

Perhaps even before, or at minimum at the same time, as sending any other notices, Harrison Tropp of SGP Advisors, recommended immediately notifying your cyber insurance carrier or broker. Carriers have designated claims hotlines through which you are assigned an adjuster who will begin assembling the claim team. This may include the insurance adjuster and broker, a legal expert, a data security firm, and law enforcement. They will help a company figure out next steps. In cases of ransomware, this will almost always include immediately paying the ransom so companies can regain access to systems as expeditiously as possible. Tropp notes it’s critical to have draft communication ready to go should an event happen. It is also important to have an action plan in place and test it regularly. He also highlighted how the underwriting process, “especially in the default space has gotten increasingly more difficult.” During the underwriting process, insurance companies may run certain tests on a company’s systems and if they don’t meet the requirements they will refuse to underwrite.

Brian Nicholas, Esq., McCalla Raymer Leibert, Pierce, LLC, stressed the importance of running a test of a company’s action plan and key questions to ask. First response type questions may include, “How do you know if the attack is real?” and “Who should you contact first?,” among others. Second to answering those questions is knowing what your cyber insurance policy covers, how it helps, and how to activate coverage. In today’s online world, Nicholas recommends having a hard copy of your policy and response plan available to key members of your organization. Finally, Nicholas posed the question of how we reduce the risk of Personally Identifiable Information (PII) exposure. “The biggest risk is loss of that confidential information.” Understanding how companies keep or expunge that data, especially when considering, for many, adhering to state bar guidelines.

Nate Braun, of NetDirector, provided pointers on risk reduction with data segregation and segmentation. Network segmentation, which is the grouping and isolation of information systems by function and classification through use of controls, virtual environments, and disk encryption, are just a few steps an organization can take to protect data. Braun cleverly compared network security to being akin to physical security and showed how the multiple check points needed to access a physical file in a cabinet are analogous to the multifactor authentication steps needed when accessing data on a network.

The briefing was concluded by moderator Elizabeth DeSilva, Esq., and Brian Nicholas discussing what it really means to run a “table-top” drill. Nicholas explained it is just like your disaster recovery drills, where you run through the steps as if it had been a real event. It’s important to throw a few “curveballs” into the drill as well. What happens if your CIO is on vacation? If your email is down, do you have a secondary system or plan in place to communicate with employees and clients?

USFN is committed to helping the industry combat cybersecurity issues and will continue to bring members together to learn and share experiences and expertise surrounding this critical topic.

In the meantime, bookmark USFNevents.org and plan to join us for these upcoming virtual programs: 

• March 12: USFN Briefing: Show Me the Judicial Foreclosure
• May 7: USFNgage: Artificial Intelligence

Copyright © 2024 USFN

USFNews - Feb. 21

* Denotes Member is a 2023 USFN Award of Excellence Recipient

Brock & Scott, PLLC *

USFN Member (CT, NC, RI, AL, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN, VT, VA)

The Maine Law Court has issued its long-awaited decision in the case of JP Morgan Acquisition Corp. v. Camille J. Moulton (2024 ME 13). This decision comes on the heels of Charles D. Finch v. U.S. Bank (see USFN article here) and it is one in which USFN, among other industry participants, filed an amicus brief in support of the lender’s position.

This case involves the foreclosure of a residential mortgage in which the trial court found that the foreclosing plaintiff’s demand letter did not comply with 14 MRSA §6111 (Maine’s demand letter statute). In Maine, until the decision of the Finch case, proceeding to foreclosure with a demand letter that did not strictly comply with each and every requirement of 14 MRSA §6111 would result in a judgment in favor of the borrower, which was deemed an adjudication on the merits of the case. Such an adjudication, pursuant to the prior cases of Pushard v. Bank of America, N.A., 2017 ME 230 and Fed. Nat’l Mortg. Ass’n v. Deschaine, 2017 ME 190, and on res judicata principals, resulted in a “free house” for the borrower and an inability of the mortgagee to collect any sums on the note or enforce the mortgage.

As previously written by USFN, the Finch case represented a sea change in Maine foreclosure law, holding that res judicata did not apply where a non-compliant notice was the basis for the adverse result because, according to the language of the statute, a compliant notice is a condition precedent to enforcement of the mortgage and acceleration of the debt. After the decision in Finch, a judgment in favor of a borrower based upon a defective notice is no longer an adjudication on the merits of the case.  Thus, res judicata does not operate to preclude future claims.

Although the Finch decision was argued prior to this case, the Maine Law Court, having both cases pending before it at the same time, solicited amicus curie briefs on the questions of whether the Court should reconsider its precedent that a failure to comply with 14 MRSA §6111 renders the note and mortgage unenforceable as well as whether the Deschaine and Pushard cases should be overruled. In response, several amicus curiae briefs were submitted, and partially on the basis of those briefs, both decisions in Finch and Moulton were decided.

In this case, the notice of default was deemed non-compliant with the statute because there was a sum of money being held in suspense as a partial payment that was not accounted for on the demand, which resulted in the amount to cure in the notice being listed as higher than it really was. The trial court entered judgment in favor of the borrowers and further ordered that Moulton “holds title to the real property at issue, unencumbered by the mortgage and the promissory note.” The court also awarded her reasonable attorneys’ fees and costs. Although the Law Court did not take issue with, or disturb the trial court’s ruling that the notice of default was not compliant with 14 MRSA §6111 or the award of reasonable attorneys’ fees, the Law Court vacated the portion of the judgment that declared that Moulton holds title to the real property at issue free of the note and mortgage. In doing so, the Court held that such a judgment does not preclude the lender from bringing a future foreclosure claim based on a future default, nor does it discharge the entire mortgage or effect a transfer of title.

Although this case, coupled with the Finch opinion, represents a step away from the severe foreclosure climate in Maine for lenders as well as the “court as a casino” effect that the Deschaine and Pushard cases created, it will not end strict scrutiny on notices of default and could even result in an increase in trial courts finding that notices are defective.

Failure to comply with § 6111 still may have drastic consequences. Not only does the lender need to recommence a foreclosure, starting with a new demand letter and be subject to an award of reasonable attorneys’ fees and costs, the second foreclosure case can only proceed as to future defaults. Unless the first foreclosure case also contained a separate count for breach of contract (suit on the note), which is often not an option due to bankruptcies and statutes of limitation, a lender must waive the prior unaccelerated amounts past due.

The takeaways from Moulton are that foreclosure complaints should include a separate count for amounts due under the note, when possible, and that § 6111 remains a strict compliance statute.

We do recommend consulting with local counsel to confirm the validity of notices of default.  Certain cases should also be evaluated upon referral for a possible contract claim.

Copyright © USFN 2024

USFNews - February 7

* Denotes firm is a 2023 USFN Award of Excellence recipient

Brock &Scott, PLLC *

USFN Member (CT, NC, RI, AL, FL, GA, KY, MA, MD, ME, MI, NH, NJ, OH, PA, SC, TN, VA, VT)

In Finch v. U.S. Bank, N.A., 2024 ME 2; ____ A.3d ____, the Maine Law Court issued a 4-3 decision on January 11, 2024, overruling its prior “draconian” holding in Pushard v. Bank of Am., N.A. (2017 ME 230, 175 A.3d 103), which required a lender to discharge its mortgage following a foreclosure judgment in favor of the defendant mortgagor predicated on a faulty 14 M.R.S. § 6111 notice of default. Id. at ¶6. Under Pushard, if a judgment was entered in favor of the mortgagor because the lender made an error in its notice of default, the mortgagor would be entitled to a “free house” under res judicata principles. The mortgagee would thereafter be precluded from any subsequent foreclosure action and the mortgage would be unenforceable. The Law Court in Finch concluded, however, that a mortgagor is not automatically entitled to a discharge of the mortgage when a lender fails to comply with a necessary element to the foreclosure, namely, a demand letter that strictly complies with 14 M.R.S. § 6111.

The Law Court now properly recognizes the issuance of a conforming demand letter to be a condition precedent to the foreclosure action. If the notice was non-confirming, acceleration of the debt is a legal impossibility. In a well-written and well-reasoned majority opinion, the Law Court now acknowledges it was incorrect in Pushard insofar as it held that the mortgagee had accelerated the note, “despite the plain statutory prohibition on acceleration without compliance.” Finch at ¶2. Finch now makes it clear that “a failure to meet a precondition to the commencement of a suit does not have claim-preclusive effect.” Finch at ¶49.

As background, in Pushard, the plaintiff initiated a foreclosure action against the borrowers and lost. Pushard at 107; ¶4. As was the case in Finch, the trial court in Pushard concluded that the bank failed to meet its burden on critical elements of foreclosure. Id. The Court therefore entered a foreclosure judgment in favor of the defendants. Id. One of the elements the Bank failed to satisfy was the requirement of a notice of default that strictly complies with statutory requirements under 14 M.R.S. § 6111. Id. Citing the borrower-friendly line of foreclosure precedent since § 6111 was revamped in 2009, the Law Court in Pushard ruled that strict compliance with § 6111 is required and that failing to comply results in a judgment for the defendant. Such a judgment invokes res judicata principles and precludes the mortgagee from later enforcing the note and the mortgage in a subsequent foreclosure action. The Pushard Court further held that a discharge of the mortgage is required, because the “note and mortgage are unenforceable and [the borrowers] hold title to their property free and clear of the Bank’s mortgage encumbrance.” Id. at 115–16; ¶36 (citing Federal National Mortgage Association v. Deschaine, 170 A.3d 230, 236 (Me. 2017)). The result was extremely harsh, in that even a small typographical error or other de minimis mistake in the demand letter resulted in a free home for borrowers, notwithstanding the borrowers’ (often long-standing) default on the loan and an otherwise informative notice of default and right to cure.

After winning in the foreclosure action, the Pushards, like Finch, subsequently initiated an action against the bank seeking (among other things): “(1) a discharge of the mortgage and (2) an order enjoining the Bank from enforcing the note and mortgage and compelling the Bank to record a release of the mortgage.” Pushard at 108; ¶5. Both parties filed motions for summary judgment. The trial court found for Bank of America, correctly holding that the foreclosure judgment does not preclude a subsequent foreclosure claim because the bank did not accelerate the payments on the note. Pushard at 106; ¶1. The Law Court, however, in what now is being declared an error, reversed the trial court’s decision in Pushard and required that Bank of America discharge the Pushards’ mortgage. Id.

For over seven years, the Pushard rule has been the law in Maine, putting lenders, servicers, and law firms in a position of extreme risk in the event of any errors, even minor or inconsequential ones, in the demand letter, despite substantial compliance and providing the borrowers with the necessary information (in other words, complying with the spirit and intent of § 6111, as amended in 2009). At long last, the Finch decision strikes a balance of equities between the parties with respect to the effects of a prior judgment against the mortgagee, while still requiring strict compliance with § 6111.

The procedural posture in Finch was much like that of Pushard. In 2015, U.S. Bank’s foreclosure action against Chares D. Finch resulted in a judgment in Finch’s favor, on the grounds that the bank’s demand letter failed to strictly comply with § 6111. Finch at ¶3. Relying on res judicata and “free and clear title” principles outlined in Pushard, Finch then filed a complaint for a declaratory judgment in Superior Court in an attempt to force U.S. Bank to discharge its mortgage, given the judgment in Finch’s favor. Id. The Superior Court entered judgment in Finch’s favor, and U.S. Bank appealed. Id.

The Law Court vacated the Superior Court’s declaratory judgment in favor of Finch and remanded the case for an entry in favor of U.S. Bank. U.S. Bank’s mortgage remains enforceable. Finch at ¶52. In overruling aspects of Pushard through Finch, the Law Court relied on the clear language of § 6111: “the mortgagee may not accelerate maturity of the unpaid balance of the obligation or otherwise enforce the mortgage because of a default consisting of the mortgagor's failure to make any required payment … until at least 35 days after the date that written notice … is given by the mortgagee.” Finch at ¶2; 6 (citing 14 M.R.S. § 6111). Based on the precondition to acceleration set forth in § 6111, for “claim preclusion purposes, the fact that the Bank could not accelerate the note balance or enforce the mortgage means that the Bank’s claim for the full amount due on the note and for foreclosure of the mortgage was not and could not have been litigated.” Finch at ¶7. If no justiciable litigation on the note or the mortgage is allowed due to failure of a condition precedent set forth in § 6111, no claim preclusion can occur.

The Finch Court noted that it erred with its premise in Pushard that acceleration can be “triggered” by a foreclosure action being filed without the lender having any right to do so under the statute: “Our premise that a lender’s filing of a foreclosure action automatically accelerates the note cannot be squared with the plain language of § 6111.” Finch at ¶25-27. The Finch Court also noted that it erred in not distinguishing Pushard from Johnson v. Samson Constr. Corp.,1997 ME 220, 704 A.2d 866, which is distinguishable in at least two material ways. Finch at ¶26. In Johnson, the foreclosure was dismissed with prejudice as a sanction. Whether or not the lender ever had the right to accelerate the note was not an issue in Johnson. Id. Further, Johnson involved a business loan on a non-residence such that the non-acceleration language and condition precedent set forth in § 6111 did not apply. Id. Therefore, the lender in Johnson was not prohibited from acceleration, such that the amount due was not only accelerated but the note and mortgage were also litigated. Id.

Despite the heavy-handed dissenting opinion, lamenting that principles of stare decisis are being eviscerated and that the Finch decision is a “retreat from the principles of judicial restraint,” (Finch at ¶90), the majority thoroughly reconciled its Finch decision with stare decisis principles, including consistency, anomaly, workability, reliance, and policy. It noted for example, that Johnson is still good law in its holding that a dismissal with prejudice in one foreclosure action, as a sanction for misconduct, barred a second foreclosure. Finch at ¶26. The Law Court further held that this decision was not a departure from current Maine jurisprudence, but a re-alignment to return Maine law back to consistency with prior rulings and with every other jurisdiction in the country.

            In addition, strict compliance with § 6111 is only one element required to be proven for a foreclosure judgment to be issued to a mortgagee. There remain eight essential elements:

1.     The existence of the mortgage, including the book and page number of the mortgage, and an adequate description of the mortgaged premises, including the street address, if any;

2.     Properly presented proof of ownership of the mortgage note and the mortgage, including all assignments and endorsements of the note and the mortgage;

3.     A breach of condition in the mortgage;

4.     The amount due on the mortgage note, including any reasonable attorney fees and court costs;

5.     The order of priority and any amounts that may be due to other parties in interest, including any public utility easements;

6.     Evidence of properly served notice of default and mortgagor's right to cure in compliance with statutory requirements;

7.     Proof of default of or completion of mediation; and

8.     If the homeowner has not appeared in the proceeding, a statement, with a supporting affidavit, of whether or not the defendant is in military service in accordance with the Servicemembers Civil Relief Act.

Chase Home Finance, LLC v. Higgins, 2009 ME 136, ¶11, 985 A.2d 508, 510-511. If a mortgagee fails to prove the foreclosure case due to failure of any of the other elements, where the note was accelerated, there might still be a res judicata impact on any subsequent foreclosure.  

            Much remains to be seen in this line of jurisprudence. Foremost, J.P. Morgan Mortgage Acquisition Corp. v. Moulton , Law Court Dkt. No. Oxf-21-412 (argued Nov. 1, 2022) remains pending before the Law Court. Like Finch, the Moulton case also involves a demand letter that failed to comply with the strict requirements of § 6111 and resulted in judgment for the defendant, again holding that the note and mortgage were unenforceable. The Finch case will undoubtedly be further discussed and analyzed in the highly anticipated Moulton decision. Even if Moulton retains the strict compliance component in interpreting § 6111, the Law Court should provide guidance on what constitutes strict compliance. For example, what level of itemization of the amounts due will be required? Might § 6111 interpretation provide room for de minimis errors, where the notice of default substantially complies and addresses the spirit of the statute? It also remains to be seen what impact Finch (and soon-to-be Moulton) will have on the body of foreclosure case law in Maine going forward. What is certain is that Finch represents a long overdue shift in Maine foreclosure law and a course-correction by our Law Court and marks a victory for lenders in what has historically been a borrower-friendly foreclosure environment in Maine courts.

Copyright © USFN 2024

USFNews - January 24

* Denotes firm is a 2023 USFN Award of Excellence recipient

Baer & Timberlake,P.C.*

USFN Member (OK)

USFN’s most recent Diversity, Equity, and Inclusion Briefing Series on December 12, 2023, focused on The DEI Outlook for 2024 and Forward: How to Navigate the Changing Climates. The three panelists presenting were Greg Campbell, a partner at Aldridge Pite, LLP, who spoke about the current state of DEI; Emily Bartekoske, a Senior Partner at SouthLaw, P.C., who addressed lesser-known DEI categories; and Marisa Myers Cohen, shareholder at McCabe, Weisberg & Conway, LLC, who presented DEI recruiting tips and tricks. All in all, while there have been some recent setbacks to corporate DEI initiatives, it is still a priority for employees and employers. Here’s a brief recap of what our panelists shared during the Briefing.

Current State of DEI

Greg Campbell began by acknowledging slowing DEI momentum over the past year, in contrast to the 2020 surge of companies implementing DEI policies and departments. One reason for the 2020 wave was the death of George Floyd and the attention it brought to DEI. Another reason was pandemic legislation, like the CARES Act, which made money available to fund DEI programs. From July 2020 to July 2021, job postings with DEI in the title jumped 92%.

However, since last July, DEI job postings dropped by 38%. What could account for the shift? Financial factors, such as the end of the CARES Act, recession, slower growth, and higher interest rates. The bottom line remains a major consideration for businesses, along with attracting the best talent, fostering innovation, and employee retention. Legal pressure is another factor. The Supreme Court ruling in Students for Fair Admissions v. Harvard held that the policies at Harvard and the University of North Carolina violated the Equal Protection Clause by considering race in admissions. While this ruling only affected universities, many businesses and law firms believed that they might be targeted next, and they were correct. American Alliance of Equal Rights sent threatening letters to seven top law firms demanding that they halt their diversity fellowship programs, saying they exclude qualified white and Asian students. Additionally, at least five state Attorneys General have sent letters to the top 100 law firms in the country demanding a reevaluation of DEI policies. Many companies have started ditching their DEI programs to avoid potential legal trouble or are laying off their DEI-focused positions in these challenging economic times.

Companies who rescind their DEI programs may lose talent, as employees question if the company ever really intended to be inclusive or if they just wanted to appear that way when it was socially beneficial.

Campbell then switched gears to address why some are hesitant to speak out about DEI issues. Reasons include a fear of doing or saying the wrong thing or a fear of negative repercussions from co-workers. He also addressed “reverse belonging,” when a person does not feel like they can join a group or event if they are not in an underrepresented category. He stressed that anyone who is an ally is welcome in USFN DEI events and programs, and he urged those interested in DEI to continue to engage and learn, read articles in USFN publications, and attend webinars like this one.

Lesser-known DEI Categories

Emily Bartekoske began this presentation by acknowledging the widespread action on categories like sex, sexual orientation, gender identity, race, ethnicity, or religion before noting that DEI is also applicable to lesser-known categories. These can include cognitive diversity, age, education, language, physical ability, class diversity, invisible disabilities, geographical location, socioeconomic status, and family status.

The first focus was on age. We typically think about discrimination against older workers but we also need to avoid making hurtful generalizations about younger generations. We often look at this issue through a defensive lens, to avoid a lawsuit, but this presentation encouraged us to instead use a lens of inclusion. We can and should actively celebrate and encourage the unique skill sets that differing age groups bring.

How can firms and servicers implement this suggestion and create a welcoming and inclusive environment for all employees? First, by updating company policies and by providing anti-bias training that doesn’t promote stereotypes. They can also encourage multigenerational collaboration on projects, and mentoring programs which go in both directions: older workers mentoring younger workers, and vice versa.

Physical ability was also addressed. Again, firms should look through the lens of inclusivity. Ask employees if they are facing any challenges in this area at work. Consider that many physical challenges are not visible. A person may have trouble lifting or standing. They may suffer from chronic pain or an autoimmune disorder. Think about these challenges when planning events. A golf outing as a reward is fun for some, but it can also exclude some members from participating. Businesses can also offer nontraditional accommodation, like extended breaks or flexible schedules.

Cognitive Diversity is defined as the variety of ways in which people think, process information, problem-solve, and make decisions. Neurodiversity includes ADHD, autism spectrum disorder, or dyslexia. Fifteen to twenty percent of people are neurodivergent. Businesses want to make employees feel welcome and included, and to maximize their learning and productivity. To accomplish this, they must identify the learning styles of employees and accommodate them in training and communication. They should also review their hiring process to remove unnecessary steps that can cause stress for many. Consider providing interview questions ahead of time to reduce anxiety and allow for better preparation. Providing nontraditional accommodations like quiet workspaces, headphones, or low-sensory areas where an overwhelmed person can go to self-regulate, can greatly benefit neurodivergent employees. Finally, check in regularly to make sure employees are not headed toward burnout. Acceptance of diversity should be promoted from the top down to eliminate stigma.

DEI Recruiting Tips and Tricks

Companies that maintain a sustained commitment to DEI will reap the rewards and intangible benefits by attracting high-quality job seekers. Businesses should collect employee data and then compare the statistics to those demographics in your state or county to know how they are doing on DEI.

Companies should make sure that they are looking both at the current employees and those who will be hired. Job descriptions should be free from targeting certain ages and free from exclusionary language. Recognize bias in the hiring process and advertising of jobs.

Ask yourself and your team questions such as does this position really need a college degree or a lot of work experience?

Make sure interviewers are not asking improper questions about age, national origin, sexual orientation, or family status. If possible, have a diverse team of interviewers, ideally including other employees and not just management or top-level executives. Using an interview script can help to eliminate both implicit and affinity bias. Implicit bias is a negative attitude, of which one is not consciously aware, against a specific social group. Affinity bias is the tendency to act favorably toward people who have grown up in a similar manner as the interviewer. Avoid questions like “Do you golf?” While this question might create a connection between the interviewer and interviewee, it may also have the reverse effect due to affinity bias.

In summary, businesses should capture the appropriate data, look at it through the various lenses, and remember that a commitment to DEI will help them both hire and retain talent, and provide an inclusive and welcoming workspace.

Save the Date: NEW USFNgage Series

The Four Pillars of Diversity, Equity, and Inclusion

Tuesday, Feb. 13, 1-2:30 pm CT

In these brand-new virtual webinar programs, USFNgage sessions will be set up as a Zoom meeting format where speakers will engage directly with participants face-to-face. Participants should come prepared to enable their video, unmute themselves, and to engage with our speakers and fellow participants through group conversations and smaller breakout discussions. Registration for this event will open soon.

Copyright © USFN 2024

USFNews - January, 10, 2024

* Denotes firm is a 2023 Award of Excellence recipient

CaseMax (USFN Associate Member) and Provana (USFN Associate Member) announce a new partnership to provide an automated solution for bankruptcy e-filing, designed to minimize errors and accelerate submission times. This collaboration has yielded a powerful workflow, reducing document errors typically associated with the routine task of e-filing for bankruptcy proceedings.

Scott & Corley, PA (USFN Member – SC) is proud to announce that Reginald "Reggie" P. Corley, and Ronald “Ron” C. Scott, have been recognized in the 2024 edition of BEST LAWYERS in AMERICA® (Woodard-White Inc.) for the State of South Carolina. This year marks Reggie Corley's seventh consecutive year as a selection for Mortgage Banking Foreclosure Law, and for Ron Scott, it marks his 15th consecutive year from his inaugural selection in the category which was initially created by BEST LAWYERS in 2010.  

Wilson & Associates, PLLC (USFN Member – AR, MS, TN) is proud of the recognition and accomplishments received by several of its attorneys. Nakisha Miller was recently promoted to Associate Partner. Aaron Squyres received the Arkansas Bar Association’s Presidential Award of Excellence in June. Jennifer Wilson-Harvey was named one of Arkansas’ Best Lawyers in AY Magazine in the category of real estate law and was also recognized in the 2024 edition of Best Lawyers © for Mortgage Banking Foreclosure Law.

Additionally, Wilson & Associates held its fourth annual CLE Program in September with almost 50 attorneys in attendance. This is an innovative program designed to provide firm attorneys as well as any other attorneys with their CLE hours, while also benefiting the local legal community. Proceeds from registration fees are donated to the Arkansas Bar Association.

The Michigan Court of Appeals recently issued an opinion offering some finality to the evolving process for claiming surplus proceeds from a tax sale. In its “for publication” opinion In re Petition of Muskegon County Treasurer for Foreclosure, the Court upheld the statutory framework that was enacted to effectuate constitutional compliance under the Michigan General Property Tax Act (“GPTA”). This does not directly impact servicers in the typical sense. However, it is significant in that it clearly sets a firm timeline should it be necessary to try to recover losses from a property inadvertently lost to tax sale.

It is important to understand what brought about the current process. Prior to 2020, the GPTA did not provide a mechanism by which former property owners could recover surplus proceeds after a property was foreclosed for delinquent taxes and subsequently sold at auction to a third party, for an amount exceeding the tax delinquency. Instead, the surplus, if any, was retained by the Foreclosing Governmental Unit (“FGU”).

There were numerous challenges to the pre-2020 practice under the GPTA provisions, largely focusing on it consisting of an unconstitutional taking, among other things. The Michigan Supreme Court issued its opinion in one such case, Rafaeli, LLC v. Oakland County on July 17, 2020. The Rafaeli case confirmed the ability of the FGU to foreclose for delinquent taxes and take title to the property. However, the opinion further held that there was no right to retain surplus proceeds after selling the property to satisfy the outstanding taxes, interest, penalties, and fees. The surplus proceeds were required to go to the prior owner since to do otherwise constitutes a government taking under the Michigan Constitution entitling plaintiffs to just compensation.

After the decision in Rafaeli, the Michigan Legislature amended the GPTA to include section 78t, codifying certain rights as recognized by the Michigan Supreme Court in Rafaeli. In its most simplistic terms, this amendment created a statutory process for former holders of a legal interest in a property at the time of tax foreclosure to seek any remaining proceeds from the sale of the property at auction after having satisfied the delinquent property taxes. The statutory process imposes many deadlines for certain filings, one of which is a bit odd in its timing.

Foreclosure for delinquent taxes occurs in March, with the redemption on the tax foreclosure judgment generally expiring on March 31, vesting title into the name of the FGU. The property is then auctioned for sale in July, September, and November. It is this post-foreclosure auction sale that may generate recoverable surplus proceeds. One unique and somewhat troubling issue in the statutory scheme is the requirement for an interested owner to submit a claim via Form 5743 by July 1 immediately following the effective date of the tax foreclosure of the property. The process therefore requires an interested party to file a claim before it is even known whether there will be surplus proceeds from the property auction.

In re Petition of Muskegon County Treasurer, the interested property owners owned properties that were foreclosed for taxes on March 31, 2021. All properties subsequently sold at auction for significantly more than the tax amounts owed. None of the owners filed claim forms by July 1, 2021. The FGU opposed the various motions due to the late claim filings. The trial court ruled that the statutory timeline was clear and unambiguous and had to be enforced as written.

On appeal, the interested prior owners made many, largely constitutionally based arguments. The most significant of which, as it pertains to the mortgage servicing industry from a practical perspective, was that the statutory scheme was not the sole remedy and that the annual July 1 deadline for filing a notice of intent was unenforceable.

The Court ruled that the language of Section 78t is unambiguous and that it “is the exclusive mechanism for a claimant to claim and receive any applicable remaining proceeds.” Further, the Court noted that, “although the Takings Clause is self-executing, it must be read within the context of statutory protections available to a property owner.” The Court determined that the GPTA imposes a reasonable, minimal burden on former owners to advise the FGU of their intent to exercise their right to claim any remaining proceeds. So long as the statutory scheme adopted by the legislature comports with due process, which it does, whether such a scheme makes sense or not, or whether a “better” scheme could be devised, are policy questions for the Legislature, not legal ones for the Judiciary.

While there may still be challenges on different aspects of the statutory scheme in the future, one thing is now certain:  If an interested party intends to pursue possible surplus proceeds from a tax sale auction, it must file a claim Form 5743 prior to the July 1 deadline. Given this, it is recommended that clients carefully review all tax notices. Portfolios should also be reviewed annually to determine whether any properties were lost to tax sale. If any properties are identified, it may be worthwhile to file the claim by the July 1 deadline to preserve any interest in possible surplus proceeds from the future sale.

Copyright © USFN 2023

USFNews - December 6, 2023

*Denotes firm is a 2023 USFN Award of Excellence recipient.

Baer & Timberlake, P.C.*

USFN Member (OK)

The Oklahoma Legislature has amended its statute regarding alien ownership of land. Effective November 1, 2023, no deed may be recorded in Oklahoma unless it is accompanied by an affidavit from the grantee attesting that the grantee is taking title in compliance with the state laws on foreign ownership of land.

The Oklahoma Constitution and 60 Okla. Stat. §§121-123 have historically provided that a person who is not a citizen of the United States or a bona fide resident of Oklahoma may not hold title to real property in the state, and they must dispose of the property within five years of acquiring title or the property will be forfeited to the State. Title 60 Okla.Stat. §121 was recently amended to add the requirement that any deed recorded with the county clerk must be accompanied by an affidavit that the grantee “is obtaining the land in compliance with the requirements of this section and that no funding source is being used in the sale or transfer in violation of this section or any other state or federal law. A county clerk shall not accept and record any deed without an affidavit as required by this section. The Attorney General shall promulgate a separate affidavit form for individuals and for business entities or trusts to comply with the requirements of this section, with the exception of those deeds which the Attorney General deems necessary when promulgating the affidavit form.” (Emphasis added.)

The Oklahoma Attorney General has provided the forms, which may not be altered in any way. Those forms may be located at the attorney general’s website at https://www.oag.ok.gob/public-forms.

Foreclosure attorneys will immediately be faced with a dilemma when recording a deed to a government agency. The forms are for individuals and business entities only, and cannot be revised to accommodate HUD, VA, FNMA, FHLMC, or any other government or tribal entity.

Upon inquiry, the Attorney General’s office indicated that they would be issuing an opinion exempting governmental and tribal entities from the affidavit requirement. However, as of the date of this article, the office has not yet published that opinion. Until they do so, no deed may be recorded to these entities.

Copyright © USFN 2023

USFNews - December 6, 2023

* Denotes firm is a 2023 USFN Award of Excellence recipient.

We have since shared with VA and ALTA

We greatly appreciated the opportunity to discuss USFN’s concerns related to the Show Me State Premium Homes case. As promised, this letter will serve to provide a brief description of the issue, and some proposed resolutions that we ask HUD to consider.

Issue:   

In July 2023, the U.S. Court of Appeals for the 8^th Circuit issued an order affirming a Missouri federal court decision in Show Me State Premium Homes v. McDonnell, 2022 WL 970890 (E.D. Mo. Mar. 31, 2022) affirmed 74 F.4th 911 (8th Cir. 2023). Many in our industry have taken that order to hold that a subordinate lien (other than a federal tax lien) held by the United States must be foreclosed by judicial action. Prior to Show Me, servicers, insurers, and foreclosure counsel had relied on the holding in U.S. v. Brosnan, 363 U.S. 237 (1960), a U.S. Supreme Court decision that explained that nonjudicial foreclosures eliminate junior federal liens using whatever state process is available. The Show Me court did not discuss Brosnan, which seems to leave room to argue that Brosnan is still the operative authority in the nonjudicial foreclosure context. In the interest of brevity, we have not included a full legal analysis of the opinion here but are happy to do so upon request.

While we believe there are legal arguments that can be made to counter the effects of this decision (and maybe to overturn it altogether), the decision has begun to have practical, negative consequences that lead us to ask that HUD take immediate action to provide stability and clarity to all stakeholders.

Effects and Potential Effects of the Decision:

• In some cases and jurisdictions (even beyond Missouri and the 8^th Circuit), title insurers and U.S. Attorneys are calling prior practices involving the foreclosure and removal of government liens in nonjudicial states into question, and are taking the position that if the United States has a junior lien (e.g., HUD/USDA/VA second mortgage, HUD HECM second mortgages, etc.), that 28 U.S.C. 2410(c) requires the senior lienholder to name the United States as a defendant, foreclose by judicial action, and seek a judicial foreclosure sale to eliminate the junior federal lien.
  
• Because of the above interpretation and its fallout, some servicers and their counsel are making the decision to foreclose properties with junior federal liens by judicial process. In some instances, pending REO and sheriff’s sales have been canceled in favor of the decision to restart using a judicial process.
  

• The switch from a non-judicial to a judicial process will inevitably result in higher fees and costs, longer timelines (in some cases as much as a year longer), potential curtailment losses, and higher HUD claim amounts in states where the non-judicial process had been the norm. In at least one affected state (Tennessee), a judicial foreclosure process does not even exist, causing even greater uncertainty. The resultant higher costs and longer timelines associated with the  judicial process and redemption periods will necessarily have negative effects on borrowers (in particular those seeking to cure or payoff and facing higher fees and costs in the process), servicers, and HUD, with little to no corresponding benefit to HUD.

• There is the possibility that the effects of the decision could expand to include already completed and insured foreclosures. It remains to be seen how title insurers will deal with any potential insurability issues, and who will bear the cost of corrective action, if needed.

Proposed Resolutions:

1. The most practical solution would be for HUD to consider this ruling an opportunity to confirm and clarify by Mortgagee Letter that it is and has been HUD’s policy to consider junior liens in their favor to have been divested if the mortgaged property was properly foreclosed in accordance with state and local law in the jurisdiction where the property is located, whether by judicial or non-judicial process. This solution would be the most cost effective for all involved and would provide certainty for all stakeholders, including borrowers, servicers and their counsel, title insurers, and past and future third-party buyers of foreclosed properties.

2. In the alternative, HUD should develop a streamlined waiver process to reduce the cost and risks of foreclosure-related losses. This approach is supported by law, specifically 28 U.S.C. § 2410(e), which contemplates a method by which a release of a government lien may be requested. Clear, consistent, and centralized procedures for either requesting a release of lien or granting permission to proceed nonjudicially where a junior lien in favor HUD exists would resolve many of the issues and would provide a relatively cost-effective solution for all interested parties.

As a corollary to the above, USFN also proposes that HUD confirm to servicers that it will waive curtailments related to restarts or protracted timelines that were caused by the uncertainty and effect of this decision. 

We greatly appreciate HUD’s willingness to discuss this matter with USFN, and stand ready to provide any additional information that you may need to fully consider the proposed resolutions.

Sincerely,

Jeffrey Weisserman                                                                 Pamela  Donahoo

Chair, USFN Advocacy Committee                                          CEO, USFN

Wilson & Associates, PLLC*

USFN Member (AR, MS, TN)

               On August 28, 2023, the Tennessee Court of Appeals issued an opinion of first impression in Clarence Mitchell, et al. vs. Rushmore Loan Management Services, et al W2022-00621-COA-R3-CV, which significantly impacts borrower litigation against mortgage servicers in Tennessee.  In summary, the court found that a borrower cannot prevail on a breach of contract claim against a mortgage servicer if there is no privity of contract between a borrower and a mortgage servicer.

               The facts surrounding the Mitchell foreclosure are commonplace. They fell behind on their mortgage indebtedness, received a Notice of Default and Right to Cure from their servicer, and were offered a series of loss mitigation requests, all of which were denied.  When the servicer initiated foreclosure proceedings, the Mitchells filed suit against Select Portfolio Services (the prior servicer), Rushmore (the current servicer), U.S. Bank as the Trustee of the securitized trust that owned the Mitchell loan, and the law firm conducting the foreclosure. The law firm was subsequently dismissed as a party.

               Motions for Summary Judgment were filed by Select Portfolio Services (SPS), Rushmore, and U.S. Bank. The trial court granted summary judgment to U.S. Bank and initially denied summary judgment to SPS and Rushmore. SPS and Rushmore then renewed their Motions for Summary Judgment. The Mitchells did not contest the Rushmore Motion, and it was granted, leaving SPS as the remaining party.

               The trial court ultimately granted the SPS Motion for Summary Judgment. It declined to grant summary judgment on the first argument, i.e. SPS cannot be liable for breach of contract as SPS was not a party or a signatory to the Deed of Trust, and therefore was never in privity of contract with the Mitchells. The trial court did grant summary judgment on the second claim, i.e., the plaintiffs failed to produce evidence that SPS had breached any term of the contract. The Mitchells appealed.

               The Tennessee Court of Appeals acknowledged the Mitchells’ argument that no Tennessee state appellate court had addressed the question of whether a mortgage servicer can be held liable for breach of contract in the absence of privity, but it correctly noted that multiple courts in various jurisdictions had considered that precise question. It found that courts have consistently found that there is no contractual privity between a borrower and loan servicer, and therefore it ruled that the Mitchells cannot prevail against SPS on a breach of contract claim and affirmed the trial court.

Copyright ©2023 USFN

USFNews - Nov. 15, 2023

* Denotes firm is a 2023 USFN Award of Excellence recipient

Scott &Corley, PA

USFN Member (SC)

On August 9, 2023, the South Carolina Supreme Court filed its opinion in Deutsche Bank v. Houck. The issue that came before the Supreme Court was whether a bank’s subsequent foreclosure claim was barred because the bank did not assert this claim as a counterclaim in prior litigation between the parties.

The prior litigation between the parties (for which the bank prevailed in full) was for conversion, violations of the South Carolina Attorney Preference Statute, and violations of the South Carolina Unfair Trade Practices Act. The Master-in-Equity found that the bank failed to assert the foreclosure counterclaim in the prior litigation; and, as a result, ruled in favor of the defendant and ordered the bank to record a satisfaction of the mortgage. The court of appeals reversed the Master’s decision.

Ultimately, the Supreme Court affirmed the result reached by the Court of Appeals, relying on the “logical relationship test;” however, the Supreme Court held that in cases commenced on or after the effective date of this opinion (August 9, 2023), the question of whether a counterclaim is compulsory is governed by the plain language of Rule 13(a) of the South Carolina Rules of Civil Procedure, abolishing the logical relationship test.

Rule 13(a), SCRCP plainly provides that a counterclaim is compulsory “if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.”   The Supreme Court concluded its opinion stating, “[j]udges and lawyers are well-equipped to determine whether a claim is compulsory under the plain language of this rule.”

See the below link to read the full case cited above:

https://www.sccourts.org/opinions/HTMLFiles/SC/28169.pdf

Copyright © USFN 2023

USFN e-Update - October

Brock & Scott, PLLC *

USFN Member (CT, NC, RI, AL, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN, VT, VA)

Florida attorneys who handle litigated matters, including mortgage foreclosures and related actions, should be very familiar with Florida’s fee-shifting statute, Fla. Stat. § 57.105(7). That statute provides, in pertinent part:

If a contract contains a provision allowing attorney’s fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails in any action, whether as a plaintiff or defendant, with respect to the contract.

In mortgage-related cases, several Florida state courts and federal courts applying Florida law have awarded the prevailing defendant attorney’s fees in various scenarios. The Florida Supreme Court recently awarded fees to the defendant in a mortgage foreclosure case where the creditor failed to prove standing on the day the suit was filed. Page v. Deutsche Bank Tr. Co. Americas, 308 So. 3d 953, 960 (Fla. 2020). The United States District Court for the Middle District of Florida affirmed the bankruptcy court, which awarded a prevailing defendant attorney’s fees for successfully defending a motion to dismiss the debtor’s bankruptcy case. In re Nabavi, 514 B.R. 895 (M.D. Fla. 2014).

In another example, the United States District Court for the Southern District of Florida awarded fees to a prevailing defendant for various claims relating to a mortgage loan modification, including breach of contract, fraudulent misrepresentation, and negligent misrepresentation, among others. Dorval v. Nationstar Mortgage LLC, No. 17-23193-CIV, 2021 WL 2210980 (S.D. Fla. Apr. 26, 2021).

In July, the United States Bankruptcy Court for the Southern District of Florida was presented with a question of first impression, “whether Fla. Stat. § 57.105(7) applies in an adversary proceeding brought solely under 11 U.S.C. § 727(a) for denial of discharge.” Valley Nat’l Bank v. Gleiber (In re Gleiber), --- B.R. ---, 2023 WL 5529650 (Bankr. S.D. Fla. 2023). Valley National Bank (“Valley”) held several loans on which the debtor, defendant Michael A. Gleiber (“debtor”), gave personal guarantees. After debtor’s Chapter 11 case converted to a Chapter 7 case, Valley filed a complaint objecting to debtor’s discharge. Id. at *1. The debtor filed an answer and affirmative defenses in which he made a demand for fees and costs under Fla. Stat. § 57.105(7). Id.

The bankruptcy court granted summary judgment in favor of the debtor. Id. Subsequently, the debtor filed a motion for fees. Id.

Ultimately, the bankruptcy court awarded fees under Fla. Stat. § 57.105(7) to the debtor as the prevailing party. In doing so, it reviewed the guarantees and the language of the statute. Each guaranty contained a section titled “Attorneys’ Fees; Expenses,” which stated:

Guarantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may hire or pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings…

Id. The court explained the guarantees permitted Valley to unilaterally recover fees and expenses from the debtor “incurred in connection with the [guarantees].” The court further noted the complaint was an attempt to enforce the guarantees. Also, it did not matter that the complaint, if successful, would benefit other creditors. Finally, the court explained it did not matter that Valley did not seek fees in its complaint, because it could have under the guarantees. Id. As such, the Court found the first prong of § 57.105(7) was satisfied. Id. at *2.

            The court then considered whether the debtor had the right to legal fees under § 57.105(7). To make that decision, the court explained it needed to determine whether the adversary proceeding was an “action … with respect to the [guarantees]” and whether the debtor prevailed in the adversary proceeding. Id.

            The court noted that the Florida Supreme Court construes the phrase “action with respect to the contract” broadly. Id. (citing Ham v. Portfolio Recovery Assocs., 308 So.3d 942, 948 (Fla. 2020)). Here, Valley needed to prevail in the adversary proceeding to be able to enforce its rights to liquidate and collect its claims; and it was required to file the adversary proceeding to reserve its rights to do so. Id. The court characterized the relief sought as having “a clear and direct relationship to those guarantees” and, as such, was an “action with respect to the contract” under the statute. Id.

            Next, the court had to determine whether debtor was the prevailing party in the adversary proceeding. Finding that he was, the court explained that debtor was active in the litigation against the summary judgment motion and that it ruled in debtor’s favor on summary judgment. Id. Valley raised an issue that it could not have known at the time it filed the complaint that it would not have succeeded in denying debtor’s discharge under 11 U.S.C. § 727(a)(5), and the allowance of fees would lead to an inequitable result. Id. The court dismissed that argument because during the litigation, but before debtor’s motion for summary judgment, the debtor provided the information necessary for Valley to dismiss the count in the complaint seeking relief under 11 U.S.C. § 727(a)(5), but it failed to do so, and the debtor was forced to litigate that matter completely. Id. at *3.

            In its conclusion, the court stated the 11^th Circuit Court of Appeals has upheld the award of attorneys’ fees under the fee-shifting statute as to the discharge of a particular debt under 11 U.S.C. § 523(a). Id. (citing Cadle Co. v. Martinez (In re Martinez), 416 F.3d 1286 (11th Cir. 2005)). It further noted there have been several bankruptcy cases that upheld fees under § 57.105(7) in adversary proceedings that combined requests for exception to discharge of a particular debt and denial of discharge as to all debts under 11 U.S.C. § 727(a). Id. Noting that there were no reported decisions that examined an award of fees based solely on 11 U.S.C. § 727(a), the court stated it believed the 11th Circuit’s reasoning in other cases supported its award of fees to the debtor in this case.

            While the facts of this case led to a “case of first impression,” the existence of § 57.105(7) should be noted by attorneys and servicers litigating matters in Florida state court and federal courts applying Florida law. Creditors and servicers should discuss matters with counsel to ensure there is a reasonable basis for “any action with respect to the contract” to prevent it from being on the wrong side of Florida’s fee-shifting statute.

Copyright © USFN 2023

USFN e-Update - October

Brock &Scott, PLLC*

USFN Member (CT, NC, RI, AL, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN, VT, VA)

Fannie Mae’s updated servicing guide published October 11, 2023[1], in particular, Part F, Chapter F-2, Section F-2-04 (Firm Minimum Requirements) revises some of the requirements of law firms who are Fannie Mae approved to provide “greater flexibility to operate in post-pandemic hybrid and remote work environments.” The new version reduces some of the operational requirements imposed on firms in the prior Servicing Guide, which went unchanged from 2014. The prior version may be found in the Fannie Mae Servicing Guide published December 21, 2022.

The special rules afforded to some states (AK, DC, ID, NH, RI, MT, WV, and WY) were expanded to include the Dakotas, American Samoa, Guam, Puerto Rico, and USVI. While Fannie Mae still expects servicers to prefer firms who have qualifying attorneys who physically reside in those jurisdictions (and devote more than 50% of time in that jurisdiction), servicers may engage firms without resident attorneys in those states as long as the other requirements are met, i.e., they are licensed and in good standing in those jurisdictions and practice law full time.

Previously, firms must have had an appropriately staffed office in each jurisdiction where the firm is retained by Fannie Mae (with the exception of special rule states). The new rule requires that firms have an appropriately equipped office in at least one of the jurisdictions where the firm has been selected and retained, or for which the firm submitted a Servicer Selection Form 200.  An approved office means a brick-and-mortar place of business that is not a place of abode and contains the usual and sundry equipment and facilities to practice law.

Firms must have at least two qualifying attorneys (one with at least eight years of experience in jurisdiction-specific default servicing and the other with at least five years). If the firm does NOT have an office in the jurisdiction, then the two qualifying attorneys must reside in the relevant jurisdiction, be licensed and in good standing, practice law full time, and devote more than 50% of their work in the relevant jurisdiction.

If the firm does have an office in the relevant jurisdiction, then one or both qualifying attorneys may reside outside the jurisdiction, provided that the attorneys ordinarily work at the office, excepting national or regional emergencies, weather-related travel restrictions, or health-related pandemics, or other situations where it is not reasonable for in-office work.

Many firms incurred significant expenses to maintain and staff brick-and-mortar locations outside of their primary location to accommodate the prior requirement. The new rule alleviates at least some of the costs of owning or leasing commercial space to maintain the physical presence. As technology is improved, perhaps the rules for special states will be further expanded, especially for states and regions that have their borders in close proximity.

Copyright © USFN 2023

USFN e-Update - October

Reimer Law Co.*

USFN Member (KY, OH, WV)

Looking back at the historical evolution of the foreclosure process and the legal systems of the Roman civil law and the Common Law of England, we can trace how these ancient beginnings have shaped the concept of foreclosure over the centuries, and just how little has changed over 1,500 years.

When we review the historical aspects of the foreclosure process, it is imperative that we first understand the meaning of the term “mortgage.” In the legal publication known as Ohio Jurisprudence 2d, a mortgage is defined as “the conveyance of property to secure performance of some obligation, conditioned to become void on the due performance thereof.” In other words, property is given as security for some type of obligation that will cease when the person/entity obligated completes whatever he or she (or “it” in the case of a business entity) has promised to do. It is thought that the word “mortgage” has been derived from the Latin “mortuum vadium.” The literal translation of this term is a “dominant pledge.” This meaning appears to reflect the view that, if the obligation was not performed within the stated time, the security (property pledged) of the debtor or person/entity who made the promise would become dead or dormant.

Each state has various statutes that govern mortgages. In all states, the real estate mortgage is security for a related obligation, like a note or loan, with that obligation being the primary document and the mortgage being used to collateralize the document. In other words, the mortgage follows the note.

There are two requirements to any mortgage – the right to redeem in the mortgagor (the borrower) and the right to foreclose in the mortgagee (the lender). These concepts are basic to modern real estate practices. The borrower can repay his or her obligation and have the security interest satisfied as a result, whereas the lender retains the right to enforce its lien on the collateral if there is a default. The right of enforcement is what is known as foreclosure.

The legal purpose/reason for foreclosure involves cutting off the “equity of redemption,” or the right to retain property of the mortgagor in his or her security. In Roman civil law, often thought to be the predecessor of modern foreclosure laws, a pledge of fixtures, or land, was termed a “hypotheca.” Failure of payment as required by the pledge resulted in a procedure with notice to all interested parties whereby a hearing was held in open court on the default, and the sale of the property was publicized. The goal was to minimize damages to both parties.

Although the present system does not appear to vary in theory from that practiced by the Romans, the mortgage pledge was not recognized by feudal law in England. Not until the 16^th century did Common Law, the source of much of the law in the United States, come to accept the principle of “mortuum vadium.”

            English loans in the 11^th to 16^th centuries were unpredictable. Lenders could demand repayment at any time. If the borrower defaulted, a lender could seek a court order and the land would be forfeited to the lender by the borrower. A borrower then had the option of petitioning the king, who could then refer the matter to a lord chancellor, who had ultimate authority to rule as he saw fit. From 1618 to 1621, the lord chancellor was Sir Francis Bacon, who established the Equitable Right of Redemption, which allowed borrowers to pay off debts, even after default. The official end of the period to redeem the property was called “foreclosure,” derived from an old French word that means “to shut out.”

            In Common Law, the “mortuum vadium” was an absolute mortgage, a failure of which resulted in a forfeiture of title without any recourse to the debtor. This severe remedy was eased over a period of years by the various courts of England, known as courts of equity and chancery. As time progressed, the laws primarily stated that a mortgagee could not obtain clear title without actively demonstrating that it had a great enough interest in the property to cut off the mortgagor’s right to redeem the property, also known as the “equity of redemption.” The matters were routinely heard in a court proceeding where the parties were able to plead their respective cases.

            In the 1700s, the phrase “equity of redemption” came into common usage. In the case of Duchess of Hamilton v. Countess of Dirlton (1Ch.R. 165), the right of redemption was subject to two conditions:

1.     The mortgagor must pay the principal and interest within a reasonable time after the property was taken by the mortgagee, and

2.     The mortgagee had a right to petition the court to grant a decree ordering the debtor to pay by a fixed date or be forever barred from being able to redeem the property.

Upon obtaining a decree that cut off the equity of redemption, the mortgage obligation was satisfied by what was known as strict foreclosure. This was where the pledged property entirely became the property of the mortgagee when the right of redemption was terminated by the court’s decision. This greatly favored the mortgagee. Today, foreclosure is completed by public sale where fair conduct and bidding at the sale come into play, and surplus funds after satisfying expenses and mortgage claims and liens are generally turned back to the mortgagor.

During the Great Depression, beginning in the early 1930s, masses of homeowners were unable to make their mortgage payments. Between 1929 and 1933, personal income in the U.S. declined by 44 percent, the unemployment rate climbed to 25 percent, and housing values plummeted. The resulting defaults led to record numbers of foreclosures by mortgagees, largely banks. By 1933, a staggering 40 to 50 percent of all mortgages in the United States were in default, leading nearly 275,000 people into foreclosure as compared to 68,000 in 1926! This slide toward total collapse was one of the primary contributors to the banking crisis of the early 1930s. Twenty-seven states instituted moratoria to reduce the number of foreclosures at that time.

To combat these housing problems, the U.S. Federal Government instituted the Home Loan Bank Act of 1932. This was followed by the Home Owners’ Refinancing Act of 1933, which eventually led to the Federal Housing Authority (FHA), which was actually part of Franklin Roosevelt’s New Deal. This created federally funded long-term low-interest mortgages to refinance unstable mortgages. In 1938, the government created the Federal National Mortgage Association (Fannie Mae), which backed banks by purchasing mortgages, and thus freed up more of the banks’ money for additional mortgage and construction loans. This eventually led to the post-World War II housing boom.

In the 1950s and 1960s, the mortgage industry was fraught with discriminatory practices. Unbridled lending discrimination culminated in massive foreclosures for a disproportionate number of minority homeowners. Lenders disparately foreclosed upon upper-class, middle-class, and lower-class minority homeowners. This served to deepen racial segregation and prolonged the stagnancy in the real estate market in post-war America. This led to the Fair Housing Act of 1968, which really did very little to curb the discriminatory procedures of lending to and foreclosing on minorities.

One of the latest foreclosure crises occurred late in the first decade of the 2000s.  The financial industry was tanking, and Congress attempted to right the economy with a $700 billion bailout of the financial industry. The collapse of the housing market was largely responsible for the downturn and, as a result, the bailout did little to improve the economic situation in the U.S. In mid-2010, there was a 14 percent increase in the number of homeowners receiving default notices, and a staggering one in every 45 homes were foreclosed upon during that time period. In August 2014, the foreclosure rate was 33.7 percent, most densely in New York, New Jersey, and Florida. The problem became more widespread due to vast unemployment, and banks became more aggressive in their foreclosure efforts. 

Recently, the foreclosure industry has been greatly affected by the COVID-19 pandemic. The inception of moratoria and forbearance plans largely brought the foreclosure process to a halt. In addition, the government assisted Americans with stimulus funds in an attempt to curb the economic hardships resulting from the pandemic. Toward the end of 2021, and into 2022 and beyond, foreclosures increased dramatically as the moratoria gradually came to an end, as did the economic assistance.

In looking back at history and the evolving landscape of foreclosures, it is interesting to note that, after 1,500 years of changes in laws and rules, even with all the latest challenges to the way foreclosure is handled in our country, we have a system similar to that of the Romans. In most states, the primary instruments that have a mortgage effect are the mortgage deed and the deed of trust. To a degree, we have come full circle in adopting a foreclosure process that has recognizable similarities to the process used by our ancient ancestors.

Copyright © USFN 2023
USFN e-Update - October

Orlans PC *

USFN Member (DE, MA, MI, DC, FL, MD, NH, PA, RI, VA)

Delaware Superior Court Judge Danielle Brennan issued a decision on June 1, 2023, that has important implications for junior lienholders. Previously, lenders foreclosing in second position were entitled to the proceeds of Sheriff sales. The new decision, REO Trust 2017-RPL1 v. Short Sale, LLC, provides that sale proceeds must be distributed to the senior lienholder first, and then any remaining proceeds will be distributed to the foreclosing junior lienholder.

The June ruling originally stated that if the sale proceeds were insufficient to satisfy both the senior lien as well as the foreclosing junior mortgagee’s lien, the property would remain encumbered by its mortgage. Subsequently, a motion for reargument was filed, and the Court issued an amended ruling on August 1, 2023, deleting the sentence regarding retaining the mortgage lien. Accordingly, whether sale proceeds are sufficient to satisfy the debt owed to a foreclosing junior mortgagee, the junior mortgage will be divested by the sale.

This represents a major change in Delaware foreclosure law. Junior lienholders may elect not to foreclose unless there is sufficient equity in the property to pay off the superior liens as well as the foreclosing lien.  Mortgagors may be more likely to default on junior mortgages, knowing that lenders are unlikely to foreclose. Real estate purchasers may be less likely to bid on properties, given the uncertainty surrounding junior mortgage foreclosure sales.

The foreclosing junior mortgagee filed an appeal on August 28, 2023, which could take six to 12 months before the Delaware Supreme Court issues a final decision. The Superior Court’s ruling may likely be overturned.

In response to the Court’s ruling, the Sheriff of New Castle County announced new rules for Sheriff sales, retroactive to June 1, 2023. The Sheriff now requires a 40-year title search when scheduling all foreclosure sales. If the foreclosing lender is in a junior position, they are not permitted to credit bid. Foreclosing lenders in a junior position who are the winning bidder will be required to post 20% of the high bid amount at the time of sale. The remaining 80% of the bid must be paid by the listed due date in the form of an attorney check or cashier’s check. Sale proceeds will only be distributed by the Sheriff to foreclosing lienholders in first position.  Where the foreclosing lienholder is in a junior position, the Sheriff will turn over the sale proceeds to the Court clerk, and the foreclosing lienholder must petition the Court for the proceeds. It is unknown how the Court would rule on such a petition or whether the Court will distribute funds. The Court may wait for the Supreme Court’s decision on appeal before disbursing funds.

The Sheriff of Kent County will hold sale proceeds for junior lienholders until the appeal is decided. The Sheriff of Sussex County has not issued a statement on how he will proceed in response to the Court’s decision.

The Superior Court’s ruling is very harsh for junior mortgagees. Since the outcome of the appeal is unknown, the distribution of proceeds from junior mortgagee sales is in limbo, which also affects senior mortgagees. The requirement to provide the Sheriff with a 40-year title search will increase costs for all lienholders proceeding to sale in New Castle County.

We do not recommend proceeding to sale on junior liens at this time due to the uncertainty as to whether the debt will be satisfied.

Copyright © USFN 2023

USFNews - Oct. 18

* Denotes firm is a 2022 Award of Excellence recipient

Frenkel Lambert Weiss Weisman & Gordon, LLP*

USFN Member (NY, FL, NJ)

New York’s Foreclosure Abuse Prevention Act (“FAPA”) has implications well beyond the Engel decision that may impact the language servicers seek to include in bankruptcy plans and/or orders. Signed into law by the governor of New York on December 30, 2022, FAPA was initiated to overturn the decision rendered by the New York Court of Appeals in Freedom Mortgage Corporation v. Engel, 37 N.Y.3d 1 (2021). The Court in Engel held that voluntary discontinuance of a foreclosure proceeding constituted deacceleration of a loan and reset the statute of limitations.

Under FAPA, CRPL §203 was amended to provide that once a cause of action for foreclosure has accrued, no party may unilaterally waive, postpone, cancel, toll, revise, or reset the accrual thereof or otherwise purport to affect a unilateral extension of the statute of limitations period prescribed by law to commence an action and to interpose the claim unless prescribed by statute.  As such, a party may not unilaterally change or reset the time at which a cause of action in foreclosure accrues, nor the time limit for commencement of an action.

CPLR §213(4) was also amended by FAPA to provide that if the statute of limitations is raised as a defense based upon a claim that the loan was previously accelerated, a plaintiff is estopped from asserting that the instrument was not validly accelerated, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated. As such, an express judicial determination that a loan was not validly accelerated is now required to proceed with a new action on grounds that the loan was not previously accelerated.

In Chapter 11 Bankruptcy cases, pursuant to 11 U.S.C. §1124(2), a debtor may cure debt that was accelerated pre-petition. Although the Bankruptcy Code does not define “cure,” the courts in the 2nd District have held that a plan under 11 U.S.C. §1124(2) which provides for the curing of a default effectuates a “reversal” of the event that triggered the default and returns the parties to a pre-default status quo. See In Re: Depietto 2021 WL 3287418 (S.D.N.Y), citing In Re: FCC, 208 F.3d 137 (2d Cir. 2000); In Re Next Wave Personal Communications, Inc., 244 B.R. 253 (S.D.N.Y. 2000).

As such, secured creditors should carefully review any plan that affects a pre-petition accelerated loan, a foreclosure action, or cures a default under §1124(2). The confirmed plan becomes a new binding contract between the debtor and secured creditor pursuant to 11 U.S.C. §1141 and will establish the parties’ rights and obligations. Secured creditors may want to consider having language included in the Chapter 11 plan and/or confirmation order which provides that confirmation will be an express judicial termination that the loan is deaccelerated to avoid any future defense based upon the statute of limitations.

Copyright © 2023 USFN

USFNews - October 4, 2023

*Denotes firm is a 2022 USFN Award of Excellence recipient.

USFN is pleased to announce the addition of SingleSource Property Solutions as its newest associate member. A leading provider of property preservation, REO asset management, title & settlement, and valuation services, SingleSource offers comprehensive, customizable solutions to a broad cross-section of the financial services industry. Join us in welcoming SingleSource to USFN’s associate membership.

Summer 2023 USFN Report

Jorge Rios-Jimenez has joined The Mortgage Law Firm (USFN Member – AZ, CA, HI, OK, OR, WA) as Director of Process Improvement & Business Development. With an exceptional 18 years of industry experience, Rios-Jimenez brings profound knowledge and expertise to the firm’s leadership team. He’ll play a pivotal role in challenging the firm’s operational metrics, delivering tailored innovative solutions, and helping propel the firm’s success to new heights.

Summer 2023 USFN Report

Ronald "Ron" Charles Scott, partner at Scott & Corley, PA (USFN Member - SC) was recently honored at a sold-out dinner as the 2023 recipient of the Compleat Lawyer Platinum Medallion Award, the highest such alumni honor bestowed by the University of South Carolina School of Law. A 1976 graduate of the Law School, Scott was one of three attorney alums to receive the 2023 Platinum Medallion. The selection committee cited Scott’s "public service, community service, and civic service, as well as his commitment to diversity and inclusion, and his numerous acts of kindness and selflessness." In addition to his law degree, Scott holds master’s degrees in both business and accounting from the University of South Carolina’s Darla Moore School of Business.

Scott & Corley, PA is also proud to announce Ronald "Ron" C. Scott and Reginald "Reggie" P. Corley have been recognized by Super Lawyers Magazine^® and are 2023 Super Lawyers^® selections in the practice area of Creditor-Debtor Rights. Scott has been selected to Super Lawyers ^® for seven consecutive years. Corley was previously selected to the Rising Stars list before his selection to the Super Lawyers^® list for 2019 - 2023. Additionally, the firm has been named a Tier 1 firm in Columbia, South Carolina, in its primary practice area of mortgage banking and default for 2023 "Best Law Firms" by U.S. News - Best Law Firms^®. Scott has been recognized for 14 consecutive years (2010-2023) and Corley for the past six years (2018-2023) in The Best Lawyers In America^®.

Summer 2023 USFN Report

Gross Polowy LLC (USFN Member – NJ, NY) welcomes Mario Serra to the firm as the managing attorney of its New Jersey practice. Serra holds degrees from Seton Hall University and Quinnipiac University School of Law. He is an experienced litigator with more than 23 years of experience in serving the financial services industry, with extensive experience in default servicing of both commercial and residential loans, including foreclosure, bankruptcy, loss mitigation settlement negotiations, and commercial litigation.

Summer 2023 USFN Report

Liebo, Weingarden, Dobie & Barbee PLLP

USFN Member (MN)

and by Jennifer West, Esq.

Southlaw PC *

USFN Member (IA, KS, MO, NE)

The practice of nonjudicial foreclosures in the United States, at least in the 8th Circuit, has been altered to the extent the process involves a junior lien held by the United States after the  8th Circuit Court of Appeals issued an order affirming a Missouri federal court decision. In July 2023, the 8th Circuit Court of Appeals affirmed in Show Me State Premium Homes v. McDonnell the lower court’s determination that when the United States has a subordinate lien (other than a federal tax lien), the holder of the senior interest must foreclose its lien by judicial action to eliminate the subordinate interest of the United States. 2022 WL 970890 (E.D. Mo. Mar. 31, 2022) affirmed 74 F.4th 911 (8th Cir. 2023).

The ruling may be a case of unintended consequences. Prior practices involving the foreclosure and removal of government liens in all nonjudicial states are now being called into question. Show Me involved a nonjudicial county tax lien foreclosure in Missouri where the Department of Housing and Urban Development had two junior mortgages. Although the senior interest foreclosed by a nonjudicial sale was a county tax lien, the ruling applies to senior mortgage and deed of trust foreclosures. The case is binding in the 8th Circuit, but its impact is likely larger because some title insurers have interpreted the ruling to apply to any nonjudicial foreclosure proceedings nationwide. Thus, all states that use nonjudicial mortgage foreclosures as the primary foreclosure method must take note.

The Missouri federal district court in Show Me held that for any property where the United States has a junior lien “28 U.S.C. § 2410(c) prohibits the extinguishment of property interests of the United States by a nonjudicial tax sale.” In other words, the court held if the United States has a junior lien (e.g., HUD second mortgage, USDA second mortgage, etc.), the statute requires the senior lienholder to name the United States as a defendant, foreclose by judicial action, and seek a judicial foreclosure sale to eliminate the junior federal lien. The decision was appealed, and the 8th Circuit affirmed the district court’s decision in July 2023.[1]

Prior to Show Me, servicers, insurers, and foreclosure counsel had relied on the holding in U.S. v. Brosnan, 363 U.S. 237 (1960), in which the U.S. Supreme Court explained that nonjudicial foreclosures eliminate junior federal liens using whatever state elimination method is available. Since then, title underwriters have been insuring nonjudicial foreclosures involving subordinate government liens. The federal statute at issue in Brosnan and Show Me, 28 U.S.C. § 2410, provides that despite the usual immunity from lawsuits, the United States waives its immunity in cases of foreclosures and other real property related lawsuits - essentially, the statute provides that parties may sue the United States in foreclosures and other real property lawsuits despite the usual rule that private parties may not sue the United States. The statute does not say that a party must sue the United States to foreclose but that it is permitted. After Brosnan, the statute was modified in 1966 to give the United States one year to redeem and to require a judicial sale where a party forecloses by judicial action. The amended statute did not, however, according to its plain language, require a judicial foreclosure in every case. Servicers, insurers, and practitioners continued to rely on the holding in Brosnan, i.e., and continued to foreclose by nonjudicial proceedings. If the servicer chose to foreclose by action, the servicer had to seek judicial sale and had to give the United States one year to redeem. 

In Show Me, the parties and the courts did not focus their discussion on Brosnan, and due to the unique posture of the case, there is room to argue in the future that Brosnan is still good law. Unfortunately, until then, title insurers are likely to follow Show Me. The ripple effect of this ruling is ongoing, and it is unclear how the various federal agencies are going to handle nonjudicial foreclosures involving property in which the United States holds a lien. For now, several title insurance underwriters have taken the position that nonjudicial foreclosure of property is insufficient to eliminate and junior government liens, except federal tax liens.[2] Moreover, any litigation to quiet title following a nonjudicial foreclosure sale could be removed to federal court. If the United States pursues such a case, that might be an opportunity to argue that Brosnan remains valid law.

In the meantime, Show Me has already changed the nonjudicial foreclosure landscape. Many firms within the 8th Circuit have been requesting judicial foreclosure approval, and servicers have likely seen significant increases in the number of judicial foreclosures involving government liens. This will almost certainly impact servicers in several respects. Judicial foreclosures will take much longer - in Missouri and Minnesota, a nonjudicial foreclosure takes two to three months while an uncontested judicial foreclosure can take nine to twelve months, plus the United States has a year to redeem. Some firms have been successful in working with U.S. Attorneys to obtain consent judgments from the United States in an effort to streamline the judicial process, but the process is still longer than a nonjudicial proceeding. Judicial foreclosures also require more attorney time and increase the costs of foreclosure. Another likely consequence will be an increase in the number of contested cases after a judicial foreclosure is filed because it is easier for a foreclosure defendant to contest a foreclosure when a court action is already pending.

As for recently completed nonjudicial foreclosures, the hope is that counsel and servicers will not be forced to examine past sales and determine whether any corrective action needs to take place. While it is expected that title insurance underwriters will address insurability questions in the near future, the requirements will continue to evolve as the various government agencies develop internal post-ruling procedures. Currently, many pending nonjudicial foreclosure sales have been canceled if the property is subject to a junior federal lien, and judicial foreclosure proceedings have been initiated. A minor consolation is this decision does not affect foreclosures with junior federal tax liens (e.g., IRS liens) because those liens can be eliminated through nonjudicial foreclosures authorized by a separate statute—26 U.S.C. § 7425.

The number of properties with other junior federal liens (e.g., HUD second mortgage, USDA second mortgage, etc.) that fall under Section 2410 is considerable. Filing judicial foreclosures in cases involving Partial HUD junior mortgage claims flies in the face of logic and is of little benefit to HUD or the borrower. After all, servicers are likely to convey many of the REO properties to HUD after the foreclosure, and the delay only increases the HUD insurance claim amount. Thus, HUD should be interested in setting up a waiver program to help reduce the cost and risks of foreclosure-related losses. HUD and other government agencies could consider this ruling as an opportunity to streamline and clarify internal procedures to permit nonjudicial foreclosure, at least in some circumstances. In fact, 28 U.S.C. § 2410(e) contemplates a method by which a release of a government lien may be requested. Consistent procedures for either requesting a release of lien or granting permission to proceed nonjudicially where a partial HUD claim exists would resolve many of these issues and is likely the most cost-effective solution for all interested parties.

With FHA and VA using partial claim junior mortgages for COVID forbearance deferrals, this decision is already having an outsized impact on servicers and insurers. Servicers will continue to see a lot more foreclosures with junior federal liens proceeding judicially unless the government agencies can develop a concise process to address an inevitable, increased bottleneck in our courts following this decision.

Copyright ©2023 USFN

USFNews - Sept. 20

*Denotes firm is a 2022 Award of Excellence recipient

Halliday, Watkins & Mann, P.C.

USFN Member (UT, AK, AL, CO, ID, MN, MS, MT, ND, NE, SD, WY)

The Utah Consumer Sales Practices Act, Utah Code §§ 13-11-1 et seq. (“UCSPA”), is intended to protect consumers from deceptive, fraudulent, and unfair business practices and has frequently been used by the plaintiff’s bar in an effort to remedy perceived wrongs in various financial transactions. However, after the United States Court of Appeals for the 10th Circuit’s recent decision in Matchett v. BSI Financial Services, No. 21-4142, 2023 U.S. App. LEXIS 18563 (10th Cir. July 21, 2023), consumers ought to be wary about utilizing the UCSPA to sue mortgage servicers for charging the consumer improper fees.

Enacted in 1973, the UCSPA is meant to protect consumers in a wide array of transactions involving the sale of goods, service providers, real estate, leases, warranties, credit transactions, and the like. Violations of the UCSPA’s provisions may result in substantial penalties, such as monetary fines, injunctions, and even criminal charges. The UCSPA is intended to apply to both simple transactions (e.g., purchase of an item of furniture) and complex transactions (e.g., purchase of family home) by targeting misrepresentation, deceptive pricing, and failure to deliver products or services in a timely manner.

In Matchett, the borrower Radonna Matchett sued her mortgage servicer, claiming that BSI Financial Services (“BSI”) improperly charged her “convenience fees” on at least seven different occasions. She alleged that, between September 2017 and April 2018, BSI’s online payment system experienced frequent errors, forcing her to make her monthly payments over the phone instead of paying online. With each phone payment made, Matchett was charged a $20.00 “convenience fee.” Matchett alleged that the $20.00 fee amount was 10 to 50 times more than BSI’s actual cost of taking a phone payment. Accordingly, Matchett sued BSI in Utah state court, alleging violations of the UCSPA among other claims. The case was removed to federal district court and BSI moved to dismiss Matchett’s UCSPA claim.

The Utah federal district court granted BSI’s motion to dismiss, finding that Matchett could not state a claim for relief because the UCSPA does not regulate mortgage loans or mortgage servicers. Even if the UCSPA applied to mortgage servicers, the district court concluded, BSI’s alleged conduct did not plausibly violate the UCSPA. After Matchett’s claims were dismissed, her motions (A) to amend the complaint and re-file in state court and (B) to certify two questions of state law regarding the UCSPA to the Utah Supreme Court were both denied.

On appeal, the 10th Circuit agreed with BSI that the Court’s precedent in Berneike v. CitiMortgage, Inc., 708 F.3d 1141, 1149-50 (10th Cir. 2013), foreclosed Matchett’s UCSPA claim. In Berneike, similar facts were in play—a homeowner asserted UCSPA claims against her mortgage servicer for alleged overcharges and improper fees. The district court dismissed the homeowner’s claims and the 10th Circuit affirmed, relying on prior Utah Supreme Court precedent in Carlie v. Morgan, 922 P.2d 1 (Utah 1996) to bar UCSPA claims when the complained-of conduct is governed by other, more specific law. Because the Utah Fit Premises Act provides specific remedies to residential tenants whose rental units become uninhabitable because of health and safety violations, the Carlie court ruled that residential tenants are precluded from bringing UCSPA claims based on those violations. Similarly, the Berneike panel held that because the Mortgage Lending and Services Act (“MLSA”), Utah Code §§ 70D-2-101 et seq., specifically regulates mortgage servicing, UCSPA claims would not be allowed based on allegations of wrongful conduct in the mortgage servicing context.

By the same logic, Matchett’s UCSPA claims against BSI could not be allowed. She had alleged that BSI charged her improper fees while servicing her mortgage. And despite her argument that Utah law should only disallow UCSPA claims under Carlie when the other, more specific law provides a remedy for the defendant’s alleged conduct, the Berneike court’s broad reading of Carlie foreclosed her argument. Accordingly, in affirming the dismissal of Matchett’s claims, the 10th Circuit Court of Appeals held that it was bound by Berneike’s holding that Utah law forbids UCSPA claims by a mortgagor against a mortgage servicer based on allegedly wrongful overcharges and fees.

Going forward, mortgagors will want to carefully consider the claims they intend to bring against mortgage servicers for the purported improper charging of fees, as efforts to pursue such relief under the UCSPA will likely be unsuccessful.

Copyright @2023 USFN

USFNews - September 6

BWW LawGroup, LLC *

USFN Member(MD, DC, VA)

As one of only two U.S. cities to host a pair of its own MLB teams, Chicago, IL, is accustomed to midsummer grand slams. In July 2023, the USFN Compliance and Legal Issues Seminar hit another, with a speaker lineup led by three big league keynote speakers.

First on deck was Mark McArdle, Assistant Director of Mortgage Markets for the Consumer Financial Protection Bureau, who was introduced by Richard Nielson of Reimer Law Co.

McArdle has been with the CFPB since 2017, serving under five directors and acting directors. Prior to his tenure with the CFPB, he served as the Deputy Assistant Secretary for Financial Stability at the U.S. Department of the Treasury. In that role, McArdle led the office that managed the Troubled Asset Relief Program (TARP). He played a key role in the development of the HAMP Program and oversaw the creation of the Hardest Hit Fund, which provided funding to state housing finance agencies for foreclosure prevention efforts.

McArdle discussed the current regulatory environment and its impacts on homeowner assistance.  For context, he recalled the record and document-driven process which governed HAMP, where the rules were designed around the paperwork. He then confirmed that the current goal of the CFPB is to streamline the rules so the paperwork necessary for loss mitigation is designed around the rules.

McArdle confirmed that the CFPB is working in conjunction with other agencies, particularly through the Financial Stability Oversight Council to increase liquidity for non-bank mortgage originators. He noted that six of the 10 largest mortgage originators are non-banks, and account for 60% of mortgage originations. However, those entities have no access to emergency liquidity funds. If those entities suddenly exit the market, who will originate those mortgage loans?

Finally, McArdle encouraged maintaining open lines of communication with the CFPB, specifically encouraging the use of the Regulatory Inquiries Line for questions. He mentioned that the CFPB’s current enforcement actions are a good measure of its priorities. Currently, eliminating junk fees is high on that list. When asked what constitutes a “junk fee,” McArdle stressed that the CFPB recognizes good faith and referred to the CFPB’s Request for Information on the subject. He gave a very straightforward practical response, “Is there a cost to the service provider that roughly relates to the fee? Or, is it a $100 fee for an event which costs the lender/provider nothing?”

The second keynote speaker was William Collins, the Director of the Department of Housing and Urban Development’s National Servicing Center, in Oklahoma City, OK. Collins was presented, townhall interview style, by Jeffrey Weisserman of Trott Law, P.C. Asked about the recovery since COVID-19, “how has it gone?” Collins had a positive outlook. He stressed that redefault rates remain low and that current default rates are at pre-COVID levels. The most telling figures was that FHA had approximately 950,000 loans in forbearance in the second quarter of 2022, versus only 150,000 in July 2023.

In a moment that would have been the bright spot at any USFN seminar, Collins foretold of an anticipated proposed Rule which will modify how interest debenture curtailments are assessed. Collins could have been channeling any of the USFN member firms when he described the disconnect between the actual harm caused by missing a first legal action deadline by one day, and the penalty as currently assessed. Weisserman said, “I was sure that would get an applause from this group.” Having received permission, applause did ensue.

Of course, no conversation regarding FHA loans would be complete without some discussion of the “face-to-face” requirement for loss mitigation solicitations. Collins confirmed the trend toward allowing servicers to leverage technologies to accomplish the same goals of the face-to-face meeting.

Collins also fielded a question regarding the “marketability” versus “insurability” standards for title to real property acquired by the Department of Housing and Urban Development. It did not surprise those in attendance to learn that there were no changes on the horizon on that issue.

Finally, Collins confirmed that HUD is making efforts to allow cash-for-keys to be offered to borrowers prior to a foreclosure sale. The hope is to increase the volume of foreclosure sales that are acquired by investors and to increase the utility of the claims without conveyance of title and second chance auction programs.

The final keynote presentation was delivered by Manuel (“Manny”) Newberger of Barron & Newburger, P.C.  Newburger is recognized nationally for his expertise in consumer and commercial law, consulting on FDCPA, FCRA, and TCPA compliance.

Newburger discussed the upcoming U.S. Supreme Court argument in Consumer Financial Protections Bureau v. Community Financial Services Association of America, which is scheduled for oral arguments in October 2023. In an almost prophetic statement quoting from the Art of War, Newburger said that “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” Newburger included necessary critiques of the CFPB, though warning that “you don’t want the CFPB to go away.”

This final keynote presentation then hinged on three proposed Rules. First was the CFPB’s proposed Registry to Detect Repeat Offenders. This Rule, which was proposed without a SBREFA hearing, would require certain nonbank financial firms to register with the CFPB when they become subject to certain local, state, or federal consumer financial protection agency or court orders. This Rule would require an entity to designate a responsible executive to be the highest-ranking person responsible for overseeing your compliance with the Rule or Order. That executive would then be required to file an attestation each year confirming compliance. Newburger predicts that this Rule would significantly decrease an entity’s willingness to enter into an Agreed Order.

The second proposed Rule was the CFPBs proposed Rule to require nonbanks that are subject to CFPB supervision, and which use form contracts to impose terms and conditions that limit or purport to limit consumer rights and legal protections to register with the CFPB. Newburger considers this an end run around the CFPB’s failed rule to prevent financial companies from using arbitration clauses. The prior Arbitration Agreements Rule was upended on November 1, 2017, by a joint resolution passed by Congress and signed by then President Donald Trump.

The third proposed Rule was announced in January 2023, the day after three Consent Orders were entered involving non-compete agreements which the CFPB asserted were excessively broad and abusive. Newburger interprets the CFPB’s messaging on this front to be, “this is the CFPB’s litigation strategy, whether or not the Rule is enacted.”

Newburger summed up his experience with the CFPB to remind those in attendance that forms, processes and templates have proliferated to comply with the Rules created by the CFPB. For example, without Regulation F, the model validation notice (which has been adopted industrywide) would likely run afoul of the straightforward text of the FDCPA. He has had generally fair and positive experiences with those who work for the CFPB and implores his audience to abide by “Manny’s Rules”:

•        External optics must match internal legal positions; and

•        If you don’t want the government to think you are criminals, don’t act like criminals.

These keynote presentations along with evening networking at the House of Blues, a morning walk-run through downtown Chicago led by Doug Oliver of McCalla Raymer Leibert Pierce, LLC, and a host of presentations by USFN members and servicers alike, knocked the ball out of the park for a grand slam in the summer of 2023.

Copyright @2023 USFN

USFN e-Update - August

Graham Arceneaux & Allen, LLC

USFN Member (LA)

Louisiana is currently in a crisis when it comes to property insurance. In the wake of several hurricanes going back to 2020, more than a dozen insurance providers doing business in Louisiana have become financially insolvent. Other insurance companies pulled out of the state due to the number of claims and payouts. As a result of these natural catastrophe losses, homeowners have seen their insurance premiums increase as much as 60% to 100% in one year.

Property insurance issues are not limited to Louisiana. State Farm and Allstate have pulled back from California’s home insurance marketplace, stating increasing wildfire risk and soaring construction costs have prompted them to stop writing policies in the nation’s most populous state.

In Colorado, devastating wildfires have seen homeowner’s premiums rising significantly. Colorado state lawmakers commissioned a study which found 76% of the states’ insurance carriers decreased their exposure in Colorado in 2022 leaving the five largest insurance companies to dominate the market.

Florida, like Louisiana, has struggled to keep their insurance market healthy due to the unfortunate frequency of hurricanes impacting the state.

Insurance companies agree that the cycle of natural disasters, and their increased intensity in recent years, along with the higher costs to repair homes and the higher costs for reinsurance premiums have led to the homeowner bearing the burden of substantially increased insurance premiums.

The increase in insurance premiums in Louisiana (as previously stated) can be as much as 60% to 100% for calendar year 2023. Borrowers across the country are still dealing with persistent inflation as is evident by the Federal Reserve’s latest rate increase on July 26, 2023.

Borrowers are now watching their monthly mortgage payments increase dramatically due to the escrow shortage caused by increasing insurance premiums. Borrowers are calling their servicers and seeking some sort of relief, but finding little relief as escrow charges are not subject to modification. Insurance costs in Louisiana and other states vulnerable to natural disasters are pushing some borrowers to their financial limits.

In summary, an increase in property insurance for borrowers will necessarily increase mortgage defaults and, by extension, foreclosures. Until property insurance rates moderate, expect to see this trend in states with heightened natural disaster vulnerabilities.

Copyright @2023 USFN

USFN e-Update - August

Brock & Scott, PLLC *

USFN Member (NC, RI, AL, CT, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN, CT, VA)

On July 18, 2023, in the unanimous decision of KeyBank National Association v. Keniston et al., 2023 ME 38, the Maine Law Court reexamined its prior holding in MTGLQ Investors, L.P. v. Alley, 2017 ME 145, 166 A.3d 1002 that, in a foreclosure action where the sole signer of the promissory note is deceased, it is necessary to probate the decedent’s estate, even when there is a surviving joint tenant. In Alley, the Law Court dismissed a foreclosure complaint where it named neither the debtor nor the debtor’s estate, holding that the debtor was a necessary party. Id. at ¶4, 8. Keniston now limits the Alley decision, making it clear that a note signor’s estate need not be named as a party in an in rem foreclosure where there is a surviving joint tenant or other non-borrower owner of the property.

Frederick Keniston, the signer of the note, died in 2011. The mortgage continued to be paid each month, but eventually went into default in 2018 and was placed into foreclosure. The Alley decision states that a foreclosure complaint must account for both the debt interest as well as the mortgage interest. Accordingly, in Keniston, in addition to naming as a defendant the surviving joint tenant and co-mortgagor, KeyBank obtained from the Maine Probate Court an Order Determining the Heirs of the Estate of Frederick Keniston[2] and named the heirs as parties[3] in the foreclosure, to account for the sole note signer’s interest as was required under Alley.

After a contested bench trial, the court dismissed KeyBank’s complaint, ruling that the debtor or the debtor’s estate was a necessary party and was not properly represented in the action, despite naming the estate’s heirs pursuant to the Order Determining Heirs.

On appeal, KeyBank argued that the Alley holding is of limited application and should not apply to Keniston, where, by operation of law, the property vested in the surviving joint tenant upon Frederick’s death. Probate of his estate was therefore unnecessary as no interest in the property would have passed to the estate. Id. at ¶9. KeyBank argued that “the trial court erred in relying on Alley to determine that either Frederick or his estate was a necessary party to the case.”  Id. at ¶10. The Law Court agreed. Id.

Acknowledging that the heirs were named due to the Alley holding, the Law Court ruled that “the heirs were not proper parties because they never had an interest in the property, nor could they be liable on the debt.” Id. at ¶9. The Law Court, therefore, overruled Alley “to the extent it implies the debtor or the debtor’s estate must be a party to every foreclosure case.” Id. at ¶14. The Court further stated that “the trial court erred in holding that KeyBank needed to enforce the note against Frederick’s estate and that either Frederick or his estate was a necessary party. This action may proceed in rem against the property, joining as parties all who have any interest in the mortgage or property.” Id. at ¶19.

The Keniston case will streamline the Maine foreclosure process where the sole note signer has passed, provided there is a surviving joint tenant. The decision will limit the need to open probate and will reduce the number of defendants to be named in similar cases.

Wilson & Associates, PLLC*

USFN Member (AR, MS, TN)

               In May of this year, the Arkansas Court of Appeals reversed a decision from the Pulaski County Circuit Court, Third Division, holding that the appellant’s foreclosure complaint was not barred by the statute of limitations because its prior maturities of the debt that occurred when it exercised the option to accelerate were later extinguished by filing notices of cancellation (Wilmington Savings Fund Soc’y v. Smith, 2023 Ark. App. 326 (2023)). 

               Milton Smith purchased the subject property and executed a promissory note and mortgage in favor of Bank of America on October 16, 2007. The mortgage provided that, in the event of a default, the lender had the option to declare the entire unpaid balance of the debt, including interest, immediately due and payable, and both the note and mortgage were payable in monthly installments. 

               Smith defaulted on payments on the note in December of 2009, and Bank of America filed a Notice of Default and Intention to Sell which stated that a default had occurred in the payment of the indebtedness and that the unpaid balance of the debt was now wholly due. It also set a foreclosure sale date of July 8, 2010. The sale was later canceled, and a notice of cancellation was recorded in the county records on July 8, 2010. On December 16, 2010, Bank of America recorded another Notice of Default and Intention to Sell with a foreclosure sale scheduled for February 17, 2011, which was later canceled by a recorded notice of cancellation on February 14, 2011.

               The note and mortgage were later assigned to Wilmington Savings Fund Society (“Wilmington”), and Wilmington filed a third Notice of Default and Intention to Sell on February 4, 2016, with a foreclosure sale scheduled for April 5, 2016. In response, Smith filed a complaint to quiet title alleging that the promissory note could not be enforced because no payment had been made since 2009, and thus the statute of limitations for enforcing it had expired. Meanwhile, the hazard insurance on the subject property had expired, and Wilmington sent Smith a letter notifying him that it had obtained the required hazard insurance, as permitted under the terms of the mortgage, and that the premium had been billed to an escrow account created for the loan. Wilmington also later counterclaimed alleging that it was entitled to foreclose because it was still owed the remaining principal sum, plus accrued interest and costs, and the indebtedness under the note had never been accelerated, but even if it had been, the statute of limitations had been tolled by Wilmington’s and/or its predecessors’ abandonment of acceleration as shown by the filing of the notices of cancellation.

               Smith responded with a motion for summary judgment and dismissal arguing that Wilmington’s foreclosure cause of action was barred by the five-year statute of limitation because the limitation period had run many years ago in May 2015 due to Bank of America’s original acceleration of the indebtedness on the note in May of 2010. Wilmington responded by citing Mitchell v. Federal Land Bank, 206 Ark. 253, 174 S.W.2d 671 (1943), arguing the acceleration had been waived through the unilateral actions of the mortgagee when Bank of America waived the May 2010 and December 2010 accelerations by filing notices canceling the foreclosure sales. Wilmington also cited Dunnington v. Taylor, 198 Ark. 770, 131 S.W.2d 62 (1939), arguing that even if the statute of limitation has begun to run when the debt was first accelerated in May 2010, the insurance payments made by Wilmington either tolled the statute of limitation or created a new date from which the limitations would run as each payment was made.

Smith responded by arguing that Mitchell and Dunnington were no longer binding legal precedents because Ark. Code Ann. § 16-56-111 had been amended in 1989, and prior to that date, all exceptions to the five-year limitation period had been judicially created. Smith alleged the statute of limitations had undergone a major change after the amendment because the General Assembly had only codified a part of the judicially created exceptions to the statute, but not all of them, and thus the exceptions not expressly included in the statute, such as those from Dunnington and Mitchell, were no longer binding precedent. Wilmington responded by arguing that Dunnington and Mitchell were still binding because the amendment did not include unmistakable language displaying a legislative intent to overrule them.

The circuit court ruled on the motions and entered an order on February 21, 2020, finding that the five-year statute of limitations had run, barring Wilmington from foreclosing on the subject property. In another order on April 6, 2020, the circuit court denied Wilmington’s motion for a new trial, stating that the limitation period had run and the 1989 amendment controlled. Wilmington appealed.

On appeal, the Arkansas Court of Appeals ruled that Mitchell and Dunnington remained good law and that the legislature had not intended to overrule the prior cases when it amended the statute of limitations in 1989 as shown by the lack of unmistakable language showing such intent. Applying Mitchell to the facts of the present case, the court of appeals found that Wilmington’s foreclosure action was not barred by the statute of limitations because the accelerations of the debt that occurred in May and December 2010 were later extinguished and waived as shown by the filing of the notices of cancellation in July 2010 and February 2011. The note did not mature again until Wilmington later chose to accelerate in 2016, and thus Wilmington’s foreclosure complaint filed in June of 2019 was within the five-year period and not barred by the statute of limitations.

This holding comes as good news to lenders and investors who have chosen to previously accelerate their notes and filed Notices of Default and Intention to Sell, only to later cancel the scheduled foreclosure date. The holding is good news for borrowers too because the parties can now afford to be more generous in canceling prior foreclosures to work with the borrower while no longer battling a looming statute of limitations deadline. While deceleration has long been an option to toll the statute of limitations, this holding provides a clear, concrete example of what deceleration looks like. Lenders and investors can rest assured that their interests are protected by canceling a foreclosure sale after acceleration has occurred as long as a notice of cancellation is filed to toll the statute of limitations.

Copyright @2023 USFN
USFN e-Update - August

McCalla Raymer Leibert Pierce, LLC *

USFN Member (CT, FL, GA, IL, AL, CA, KY, MS, NV, NJ, NY, OH, OR, TX, WA)

Servicers know that Connecticut’s statutory pre-suit notice requirement under the Emergency Mortgage Assistance Act (“EMAP”) implicates subject matter jurisdiction after two Appellate Court decisions¹. In 2021, the Connecticut Supreme Court granted certification in KeyBank v. Yazar, 340 Conn. 901, limited to two issues: (1) does the statutory pre-suit EMAP notice requirement implicate subject matter jurisdiction and (2) whether a second EMAP notice is required after a case has been dismissed on procedural grounds, when the same monetary default remains.

On July 25, 2023, the Connecticut Supreme Court issued its long-awaited opinion on these two issues. On the issue of subject matter jurisdiction, the Court held that a mortgage foreclosure is indeed a common law cause of action in Connecticut and accordingly, held that EMAP does not implicate subject matter jurisdiction. This holding reversed two Appellate Court opinions (Hammons  and Yazar), which had held that the notice requirement was a jurisdictional requirement.

On the second question of whether a second EMAP notice is required after a prior case is dismissed and the same default remains, the Court squarely held that each consumer mortgage foreclosure has to allege in the complaint that the statutory EMAP requirement has been satisfied. Each case stands on its own notice, even if it’s the same monetary default. The Court looked to the legislative history of the statute because its text was ambiguous. As the statute is remedial in nature, the Court held that a consumer foreclosure is not ripe without the notice having been sent prior to the service of each Complaint.

Copyright @2023 USFN

USFN e-Update - August

Rosenberg & Associates, LLC *

USFN Member (DC, MD, VA)

On May 8, 2023, Maryland Governor Wes Moore signed into law Maryland House Bill 686. House Bill 686 permits mortgage lenders, collection agencies, and certain non-depository financial institutions conducting business in the State of Maryland to operate under a single license obtained from the Maryland Office of Financial Regulation (“OFR”). House Bill 686 also requires license applicants to pay a surety bond and sets the criteria for how the amount of the surety bond will be determined.

House Bill 686 became effective on July 1, 2023. Financial institutions affected by the new law include financial services companies regulated by OFR, such as collection agencies, consumer loan lenders, installment loan lenders, sales finance companies, mortgage lenders, check cashing services, money transmitters, and debt-management businesses. The passage of this new law indicates Maryland is aiming to modernize and streamline licensing of financial service providers operating in the state. Previously, OFR required each branch of a collection agency, mortgage lender, and certain other non-depository financial services companies to obtain individual, separate licenses from OFR for each branch they maintained in the state, resulting in additional fees, paperwork, and other administrative burdens.

With respect to the licensing of mortgage lenders and originators, the new Maryland law eliminates the need for each branch to obtain a separate license from OFR. In order to comply with licensing requirements, Section 11-505 of House Bill 686 requires the applicant to maintain the following information in NMLS: “the [lender’s] legal name and any trade name used by the [lender], the address of the [lender’s] principal executive office, the address of each additional location, if any, where the [lender] does business and that the general public may reasonably view as a location that does business as a mortgage lender including any location that investigates consumer complaints or directly communicates with customers verbally, electronically, or in writing or that houses any core operational infrastructure or technology systems; conducts any core management, information security, and technology, risk and compliance, or finance functions or is otherwise required to be listed in NMLS by regulation [OFR] adopts.” Also, under Section 11-505, the mortgage lender has a duty to monitor, maintain, and update the accuracy of the aforementioned information in NMLS at all times.

Section 11-507 of House Bill 686 sets the criteria that applicants must meet to apply for a license. Under Section 11-507, to apply for a license from OFR, the mortgage lender must submit an application under oath containing the applicant’s legal name and any trade name used, the applicant’s principal executive office address, or if the applicant is not an individual, the name and residence of each control person, and the address of any additional location of the lender.

Section 11-508 requires the applicant to also post a surety bond in the amount of at least $50,000 and no more than $750,000. Factors that OFR considers in determining the amount of the surety bond include, but are not limited to, the nature and volume of the business or proposed business of the applicant, the financial condition of the licensee or applicant including the applicant’s liquidity, the applicant’s liabilities, the history of and prospects for the licensee or applicant to earn and retain income, the potential harm to consumers if licensee becomes insolvent, the quality of operations of the licensee or applicant, the quality of the management of the licensee or applicant, the nature and quality of the person that has control of the licensee or applicant and any other factor that OFR considers to be relevant.

By centralizing and streamlining the licensing process and by creating a single license under which multiple branches may operate, Maryland hopes to reduce red tape, improve efficiency, and increase transparency regarding licensing requirements for the financial services industry and consumers alike. The actual positive or negative impact the law will have on the licensing of financial service providers in Maryland remains to be seen.

Copyright @2023
USFN e-Update - August

BWW Law Group, LLC *

USFN Member (MD, DC, VA)

On June 14, 2023, the U.S. Court of Appeals for the 4th Circuit confirmed that a Chapter 13 debtor who earns more than the median income may use their actual mortgage payments when calculating disposable income available to pay unsecured creditors. The opinion in Bledsoe v. Cook, 70 F.4^th 746 (2023) aligns the 4^th Circuit with the 6^th and 9^th Circuits on this issue.

In 2021, Mr. and Mrs. Cook filed a Chapter 13 Petition in the U.S. Bankruptcy Court for the Eastern District of North Carolina. In calculating their disposable income to be paid in their court-approved plan, they deducted their actual monthly mortgage payment. The trustee objected, arguing that the National and Local Standards issued by the IRS caps the amount a debtor may deduct for secured mortgage payments. The Bankruptcy Court overruled the trustee’s objection and, on the request of the trustee, certified an appeal directly to the 4^th Circuit Court of Appeals under 28 U.S.C. § 158(d)(2)(A).

The 4^th Circuit took a “plain language” approach in affirming the Bankruptcy Court. The Court noted that 11 U.S.C. § 707(b)(2)(A)(iii) allows a debtor to deduct amounts “contractually due to secured creditors” or “any additional payments to secured creditors necessary for the debtor . . . to maintain possession of the debtor’s primary residence.” The Court reasoned that if petitioners were not permitted to deduct their entire mortgage payment, they may be unable to afford to maintain their primary residence in direct conflict with the plain language of the Bankruptcy Code. They rejected the trustee’s argument that actual mortgage payments may only be deducted upon proof that the amount above the relevant Local Standards is “reasonable.”  The Court disagreed noting the legislative intent of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was to curtail bankruptcy court discretion and declined to restore the discretion Congress sought to remove.

While the holding in this case is fairly simple and its arguments are straightforward, it will have fairly significant effects on bankruptcy courts in the Fourth Circuit. Since the inception of BAPCPA in 2005, bankruptcy courts have split on the proper treatment of mortgage payments in calculating disposable income under Chapter 13. This ruling will allow debtors with mortgage payments that exceed the allowances in the Local Standards to create a more reasonable budget, resulting in an increased likelihood of plan completion.  Mortgage servicers incur significant costs with repeat filers who fall in and out of bankruptcy as they try to forge a feasible plan. Hopefully, this opinion will result in fewer repeat filers as more Chapter 13 Plans are satisfied and seen to their intended conclusions.

Copyright @2023 USFN

USFNews - Aug. 23

Brock & Scott, PLLC

USFN Member (AL, CT, FL, GA, KY, ME, MD, MA, MI, NH, NJ, NC, OH, PA, RI, SC, TN, VT, VA)

            Recently, the Bankruptcy Court for the Northern District of Indiana was faced with the issue of what happens when a secured creditor fails to file a proof of claim but remains bound by the terms of a confirmed plan. In the case of In re Matter of Flores, 649 B.R. 534 (Bankr. N.D. Ind. 2023), the secured creditor, which held a lien on a motor vehicle, failed to file a proof of claim or object to the debtor’s plan that proposed to pay the claim in full over the life of the plan with interest, despite having notice of the bankruptcy case. The debtor also failed to file a claim on behalf of the secured creditor as permitted by the Federal Rules of Bankruptcy Procedure Rule 3002.

            Several months after confirmation of the plan, without a filed claim on which to distribute, the Chapter 13 trustee filed a motion to redirect the funds that were intended to be distributed to the secured creditor through the plan to the debtor’s unsecured creditors. That motion was unopposed, and the bankruptcy court entered an order which provided that the secured creditor would receive $0.00 distribution from the bankruptcy estate for failure to file a claim. While that motion was pending, instead of responding, the secured creditor filed a motion for relief from stay, alleging that it was not adequately protected because it was not being paid through the plan.

            The bankruptcy court, relying on its precedent from In re Matter of Jones, 555 B.R. 870 (Bankr. N.D. Ind. 2016), denied the motion for relief. Calling the situation a “self-inflicted wound,” the court explained that there was no cause to grant relief for lack of adequate protection when the creditor’s failure to file a proof of claim caused it to not receive payments in the bankruptcy case. Further, the court explained, adequate protection was a pre-confirmation remedy that was only meant to be a temporary measure to protect a creditor between the filing of the petition and confirmation. As such, following plan confirmation, the grounds for relief are “generally limited to post-confirmation defaults of the debtor’s plan.”

            The court also noted that confirmation of the plan is res judicata and bars issues that could have been raised prior to confirmation from being raised following confirmation (i.e., a creditor’s treatment under the plan). The result is that the confirmation order “bars a secured creditor from seeking relief from the [automatic stay] absent a post-confirmation default in carrying out the plan.”

            The Court noted that its conclusion was not a windfall for the debtor as the secured creditor’s lien remains intact and the debtor will have to address that lien following completion of the plan. For a claim secured by a motor vehicle, this is only a mildly comforting result as the collateral will continue to lose value over the life of the plan. A mortgage creditor may take more solace in the fact that its lien will survive the bankruptcy case, as property values generally increase over time, but risks and expenses will still be present.

            As the bankruptcy court succinctly stated, “[n]ot filing a claim has consequences.” A secured creditor facing a scenario where it does not get paid over the life of a Chapter 13 plan, which could last up to 60 months, is not good; especially when it could have been avoided by filing a proof of claim. The bankruptcy court in this case noted that a secured creditor cannot fail to participate in the case and expect the debtor to file a claim on its behalf. Secured creditors questioning whether to file a proof of claim should likely err on the side of caution; or, at a minimum, contact counsel to discuss.

Copyright @2023 USFN

USFNews - August 9

KML Law Group, PC

USFN Member (PA, NJ)

In April, USFN published an article titled “Will HUD Face-to-Face Meeting Waivers Become Permanent?” A link to that prior article is here: https://www.usfn.org/blogpost/1296766/488160/Will-HUD-Face-to-Face-Meeting-Waivers-Become-Permanent

Now it seems that open question is one major step closer to reality.

On Monday, July 31, 2023, FHA published a proposed rule in the Federal Register titled “Modernization of Engagement with Mortgagors in Default.” The rule is open for public comment through September 29, 2023, and the Federal Register docket reference is Docket No. FR-6353-P-01.

The proposed rule, if it is adopted, would allow servicers to utilize electronic and other remote communication tools, among other things, to conduct interviews to satisfy the early intervention requirements, and would eliminate the current requirement (that is currently subject to a formal waiver due to COVID) that mortgagees make at least one trip to the mortgaged property to schedule a face-to-face meeting with the borrower. Of course, elimination of the face-to-face meeting requirement has a quid pro quo. The proposed rule would expand the requirement to include all borrowers, rather than just those who reside in the mortgaged property and/or whose properties are within 200 miles of their mortgagee, its servicer, or a branch office.

Industry stakeholders are encouraged to read the entire proposed rule and to submit comments following the methods outlined in the Federal Register. The comment period closes on September 29, 2023. Read the proposed rule as published in the Federal Register here.

Copyright @2023 USFN