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SCRA: Fourth Circuit Affirms District Court’s Ruling re SCRA and the Effect of Military Re-Entry by Borrower who Originated Loan during a Previous Active Duty Period

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

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

The Court of Appeals for the Fourth Circuit, in Sibert v. Wells Fargo Bank, N.A., No. 16-1568 (4th Cir. July 17, 2017), affirmed the ruling of the District Court for the Eastern District of Virginia.

Background
In Sibert, a servicemember had brought an action against the mortgagee, alleging that the mortgagee improperly foreclosed on his property by violating the rights afforded to him under the Servicemembers Civil Relief Act (SCRA). [The SCRA formerly appeared as 50 U.S.C. Appx. §§ 501, et seq. In 2015, the statute was transferred and is now located at 50 U.S.C.S. §§ 3901, et seq.]

The plaintiff-appellant, Richard Sibert, a sergeant in the U.S. Army, alleged that the foreclosure of his mortgage violated the SCRA, which prohibits foreclosure on a servicemember’s property during a period of military service without a court order. Briefly, the facts are that Sibert entered the U.S. Navy on July 9, 2004. On May 15, 2008, while on active duty, Sibert obtained a loan on his property secured by a promissory note. Sibert was honorably discharged from the Navy on July 8, 2008. In March 2009, eight months after Sibert’s naval discharge, Wells Fargo commenced a foreclosure proceeding on his home. In April 2009, Sibert re-enlisted in the military, joining the U.S. Army, where he remained on active duty. In May 2009, Siebert’s home was sold at public auction.

Court’s Analysis
The overarching issue resolved by the court is whether or not Sibert’s mortgage home loan qualifies under 50 U.S.C. § 3953(a), such that Wells Fargo was prohibited by 50 U.S.C. § 3953(c) from foreclosing on it without a court order. Section § 3953(c) states that a foreclosure is invalid if it is made during the period of the servicemember’s military service, except by court order which is only applicable if it complies with the protections of § 3953(a).

The interpretation of § 3953(a) is the turning point of the case: “This section applies only to an obligation on real or personal property owned by a servicemember that — (1) originated before the period of the servicemember’s military service and for which the servicemember is still obligated …” (emphasis added) [50 U.S.C.S. § 3953(a)].

Sibert contended that the SCRA is applicable to his mortgage home loan. Wells Fargo disagreed, asserting that the SCRA does not apply to his mortgage loan and, alternatively, that even if § 3953(a) did apply, Sibert voluntarily waived his rights under the SCRA in a “Servicemembers’ Civil Relief Act Addendum to Move Out Agreement.” Wells Fargo correctly maintained that “the period of ... service” described in § 3953(a) covers any period of military service, not individual periods as Sibert claimed, and because Sibert’s mortgage loan originated while he was serving in the military, the SCRA is inapplicable and the foreclosure was proper.

As a whole, § 3953(a) indicates that the SCRA does not apply to obligations that originate while the servicemember is already in the military. Due to the fact that Sibert’s mortgage originated while he was in the military, he cannot claim the remedy provided in § 3953(c).

Conclusion
The court ultimately decided that the SCRA’s protections did not apply to the mortgagor in this case where the mortgage originated during the servicemember’s first term of military service.

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Vacant Property in Foreclosure: Some Thoughts on the Process

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

by Robert Klein, Founder and Chairman 

Safeguard Properties (and Community Blight Solutions) – USFN Associate Member

Foreclosure is a necessity that scares the homeowner and gives the bank a headache. The mortgage counseling, incentives, and pre-screenings that are available in today’s homebuyer market can be helpful; ultimately, though, some foreclosures are bound to happen. When a foreclosure occurs, it can spell trouble for a neighborhood and trigger a demand for action.

For several years, states have grappled with the prospect of streamlining the foreclosure process, while ensuring protections are in place so that foreclosure is a last-ditch measure. This was to keep the social contract of home ownership solvent. Yet, once the decision has been made to foreclose, steps should be taken promptly to close out the property and allow it to re-enter the housing stock. At the end of 2016, states like Ohio, Michigan, and Florida led the country in vacated housing — with more than 80,000 vacant or abandoned homes and condominiums, each. Today, millions of homes are wallowing in the foreclosure process.

The longer a property sits vacant on the market during foreclosure, the more opportunity there is for its condition to worsen. Many community advocates and researchers have shown that buildings (particularly those boarded up) become beacons for crime. All the more reason that the burgeoning clearboarding movement is important as the “foreclosure/security” bandage, with the fast-tracking of a foreclosure to be the follow-up procedure. That’s why fast-track foreclosure laws like Ohio HB 390 and Maryland HB 702 came into being to swiftly address only vacant and abandoned homes.

The housing and mortgage service community relies heavily on one person to shepherd the process: its attorney. In Nevada, it can take more than 500 days to foreclose on a home following a 90-day delinquency, and that’s before any restoration or preservation can happen. The existing system calculates to an automatic six percent loss in value to the banks. This is a perfect example of the benefit brought by the lawyer who can quickly restore that property to saleable condition. With the combination of enhanced enforcement and efficiencies in technology to monitor and protect properties, it is the legal process that can ultimately determine whether an abandoned property drags an entire neighborhood down with it.

“Some of the mortgage companies today want these [properties] to be turnkey and are doing complete rehabs,” says Bob Hoobler, of RE/MAX 1st Advantage. “Once they foreclose, they want them to sell fast. They don’t want to have to sit on that asset.” As mortgage companies deploy assets to maintain and preserve properties, they want to protect their assets with quick, decisive legal turnaround to sale.

 

When a foreclosure happens, the home needs to be secured; the lawn needs to be cut, and the utilities need to be shut off. Neighborhoods suffer because homes are vacant; there is a loss to the local tax base. Municipalities whose schools rely on real estate taxes suffer. Maine’s foreclosure crisis recovery, for example, lags 10 percent behind national averages — with the typical foreclosure taking nearly two years. With the advent of fast-track foreclosure legislation, coupled with attorneys who can process it, Maine has the potential to catch up to the rest of the recovering national trend.

Foreclosures in the day-to-day life of the mortgage industry should be few; but if the fabric of America’s homeownership is to remain intact, foreclosures that do occur need to be quick, clean, and mistake-free. The front-line soldiers in the effort to maintain a balanced and fair housing market are foreclosure attorneys, and an efficient tool can be the fast-tracking process. Through fast-tracking and a solid understanding of efficient protocol, the legal processes help communities recover from the consequences of “zombie” properties — or better yet, avoid them altogether. After all, the goal for any responsible community should be going from foreclosure to property protection and re-sale as seamlessly as possible.

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Georgia: New Mortgage Servicing Rules

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

by Nicholas A. Rolader and Tomiya S. Lewis

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

Many states have shown an inclination to adopt rules either mirroring or sometimes even eclipsing those promulgated by the federal Consumer Financial Protection Bureau (CFPB), and Georgia is now jumping on the bandwagon. Effective July 19, 2017, Mortgage Servicing Standards (MSS) (GA Reg. 80-11-6, et seq.) adopted by the Georgia Department of Banking and Finance implement new standards that servicers must follow when handling delinquent accounts.

The new standards apply to any person or company that services loans within the state of Georgia, except, significantly to any bank or credit union “authorized to engage in business … under the laws of the United States” (O.C.G.A. § 7-1-1001(a)(1)). National banks and federal credit unions are therefore entirely exempt from the purview of the new standards, while those entities meeting the CFPB definition of a “small servicer” are also relieved from certain obligations.

Similarities to CFPB Rules
Generally, the standards require that servicers act with “reasonable skill, care, and diligence.” Though there is at present no precedent to further clarify this requirement, the majority of rules are far more specific and in line with CFPB rules. No fees may be charged for handling borrower disputes; facilitating routine collections; arranging repayment or forbearance plans; sending notice of non-payment; or updating records to reinstate a mortgage loan. (Note: The Georgia Department of Banking and Finance clarified in subsequent informal communications that servicer fees for updating internal systems or administrative tasks are prohibited; they confirmed that transactional costs such as recording costs and title costs are not prohibited.) All borrowers must be entitled to an error resolution process, which includes acknowledgment for receipt of notices of error within five business days of receipt, reasonable investigations, and a correction of error or determination of no error within 45 days.

The new MSS also closely mimic CFPB rules regarding loss mitigation, with two important exceptions. The standards, as currently written, prohibit conducting a foreclosure sale before evaluating complete loss mitigation applications when a complete application is received after the foreclosure process has commenced. However, the Georgia Department of Banking and Finance has advised that its intention was to track the cutoff period prescribed by the CFPB, whereby receipt of a complete loss mitigation package need not halt a foreclosure process if received 37 days or fewer before a scheduled sale. The department further intimated an intention to enforce the rule in accordance with the CFPB stipulations and to later clarify the language of the rule. Formal clarification of the rule has not been published to date. Secondly, this standard requires an appeal process for all forms of loss mitigation applications. While the CFPB rule governs review of loan modifications upon appeal, Georgia will require that any form of loss mitigation dispute be reviewed by personnel different than those who provided previous evaluations.

Other familiar CFPB regulations can also be found within the new MSS. Servicers may not “dual-track,” meaning commence foreclosure while a complete loss mitigation application is under evaluation; nor may servicers apply payments to anything other than principal and interest first, or impose force-placed insurance unless necessary and of a reasonable charge. Still, two final distinctions from the CFPB rules merit attention.

Differences from CFPB Rules
While the CFPB and the Georgia MSS both require a servicer acquiring rights to servicing a mortgage loan to provide contact information in its standard “welcome letter,” the Georgia rules depart from the CFPB rules in also mandating inclusion of a complete and current schedule of servicing fees and a statement setting forth the servicer standards described in this article. This disclosure must specifically include a description of the servicer’s process for appeal of loss mitigation denials. As best practice, it may be easiest for a servicer’s disclosures to specify its own policies and practices, but otherwise mirror the exact standards as set forth in Paragraph 2 of GA Reg. 80-11-6-.02.

Finally, where the CFPB has thus far been nebulous in describing requirements for self-reporting and remediating violations, the Georgia Department of Banking and Finance has attempted to define its expectations more clearly. The standards require that a servicer generally mitigate harm to the borrower when any violation is discovered while also maintaining a record of such violation. Where the violation, at the time of discovery, could result in aggregate financial harm to the borrower in excess of $1,000, the violation must be reported to the Department of Banking and Finance within ten days of discovery. After discussions with the department, it is the view of these authors’ firm that adequate compliance could consist of an internal audit system for quality control processes that would lead to reporting of any applicable violations discovered via periodic random sampling.

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Illinois: Payment of Post-Foreclosure Condominium Assessments; Confusion Abounds

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

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

There are effective, practical steps that mortgage loan servicers can take to prevent problems regarding condominium/homeowners associations (COA/HOA). For two years now, confusion has prevailed in Illinois over whether (and when) COA/HOA pre-foreclosure assessment liens are extinguished following completion of a foreclosure. In May of this year, a panel of the Illinois Appellate Court for the First District (which covers Chicago and Cook County) appeared to resolve the confusion with a bright-line rule. On August 8, 2017, however, a separate panel of the same appellate court issued a ruling that largely restored the previous uncertainty. The issue will now have to be resolved by the Illinois Supreme Court or the Illinois Legislature. Nonetheless, observation of best practices should prevent the issue from arising at REO closing tables.

Background
Almost two years ago, the Illinois Supreme Court held that a COA assessment lien against foreclosed property survives the foreclosure unless, and until, the winning sale bidder pays the ongoing, regular assessments that accrue following the sale. The case was 1010 Lake Shore Drive Ass’n v. Deutsche Bank National Trust Co., 43 N.E.3d 1005 (Ill. 2015). Ever since then, litigants have wrestled over exactly when such post-sale assessments must be paid in order to extinguish the lien for pre-foreclosure, unpaid assessments. Is there a “due date;” and, if so, what is it?

The question centers around section 9(g)(3) of the Illinois Condominium Property Act (the Act) (765 ILCS 605(9)(g)). That code section states that a buyer who takes title from a foreclosure sale, consent foreclosure, or deed-in-lieu of foreclosure must pay the regular assessments that accrue on the unit from the first day of the month that follows the sale or transfer. Section 9(g)(1) creates an automatic lien in favor of the COA for unpaid assessments, plus any associated costs or legal fees, but acknowledges that this lien is subordinate to most prior-recorded liens. Section 9(g)(3) acknowledges that the foreclosure of a prior mortgage wipes out the automatic lien, but states that payment of post-foreclosure assessments “confirms extinguishment” of the automatic lien. The 1010 Lake Shore Drive case held, in essence, that if post-foreclosure assessments go unpaid, then the extinguishment of any lien for pre-foreclosure assessments is never confirmed and, thus, still encumbers the condo unit.

After the 1010 Lake Shore Drive case came down, COAs and HOAs took the position that unless payment for post-foreclosure assessments was tendered on the first of the month following the judicial sale or soon thereafter, extinguishment of the lien for pre-foreclosure assessments was permanently and irrevocably waived. The associations would then assert extortive payment demands for clearance of pre-foreclosure assessment liens, which would frequently include substantial attorneys’ fees and other costs. These demands would occasionally reach into six figures. In many cases, COA/HOAs would make these claims after refusing to supply the information necessary to make timely payments in the correct amount.

The demands were typically presented to a foreclosing lender as a hurdle to a paid assessment letter — a necessary document for closing most residential COA/HOA REO transactions. The COA/HOA, aware of the lender’s vulnerability, took full advantage. Yet, section 9(g)(3) does not set forth a date by which post-foreclosure assessments must be paid. Instead, it merely sets the time from which they accrue to the new owner. Debate (and litigation) therefore raged over whether or not section 9(g)(3) implied a due date for payment.

2017 Judicial Rulings
In March, the Illinois Appellate Court for the First District appeared to decisively resolve this issue in favor of no due date. The decision in 5510 Sheridan Road Condominium Ass’n v. U.S. Bank, 2017 Ill. App. (1st) 160279 (Mar. 31, 2017), held that section 9(g)(3) of the Act did not include a timing deadline for tender of payment. Instead, statutory language requiring that assessments be paid “from and after the first day of the month” following the sale was simply a demarcation of time from which the obligation to pay actually begins. Under the 5510 Sheridan Road holding, with no deadline for payment, the liens were simply considered “confirmed as extinguished” as soon as post-sale assessment payments were tendered. Under this ruling, COA/HOAs were unable to argue that the timing of payment justified a demand for pre-foreclosure assessments, fees, or costs. This appellate court decision had the merit of creating a bright-line rule that everyone could easily observe.

Be that as it may, in August a separate panel of the First District Appellate Court handed down Country Club Estates Condominium Ass’n. v. Bayview Loan Servicing LLC, Ill. App. (1st) 162459 (Aug. 8, 2017). This case holds that section 9(g)(3) of the Act does contain a timing requirement — an indeterminate one that can always be debated and litigated: such payment is due “promptly.” In Country Club Estates the appellate court ruled that payment could be substantially delayed but still be prompt under extenuating circumstances, such as when an association unreasonably refuses payment or if court confirmation of the judicial sale takes an unexpectedly long time. Absent such circumstances, however, the opinion states that post-sale assessments are generally expected to be tendered in the month after purchase to be considered “prompt.”

Country Club Estates is a highly unfavorable decision for lenders because “prompt” payment is not sufficiently definite. Under the vagaries of this holding, COA/HOAs will almost certainly push the envelope in asserting claims that lender payments were not tendered “promptly.” This is likely because Illinois COA/HOAs have an established history of knowingly asserting weak claims with an expectation that lenders will pay, rather than fight, simply to get REO deals closed.

Practical Methodology
Nevertheless, observation of some wise procedures can prevent most problems of this nature. As the issue has unfolded over the past two years, best practices have remained the same. Lenders who wish to prevent this issue from arising at REO closing tables should do the following:

1. In all foreclosure cases where a condominium association is a party, issue a subpoena to the association seeking disclosure of both the amount due and the amount of regular assessments. The subpoena process is recommended because condo associations frequently file no appearance in foreclosure cases and also because subpoenas are easier to enforce than discovery requests. Despite that, in this author’s experience, issuance of discovery has also worked well.
2. Serve a demand for a statement of balance due to the condominium association board of managers, as provided by section 9(j) of the Act, while the foreclosure case is pending. If the association does not respond, its lien will be subordinate.
3. Make sure to tender a payment to the condominium association as soon as possible after the first day of the month following the foreclosure sale. Even where there is a dispute as to the amount due, it is always advantageous to make the best possible good-faith tender of payment in the first month following sale.
4. Make sure that communications with the association or its attorneys regarding assessment issues are in writing, whenever possible. Where such communications are not in writing, they should be fully documented in case a legal dispute later arises.

If the foregoing practices are implemented, demands for pre-foreclosure liens can be dealt with (or prevented) in a straightforward and expeditious manner.

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New York: No Jury Trial in a Foreclosure Action

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

by Bruce J. Bergman

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

The proposition that a borrower in a mortgage foreclosure action is not entitled to a jury trial is a reasonably well known one, although a new case underscores how encompassing the principle can be. [Security Pacific National Bank v. Evans, 148 A.D.3d 465, 49 N.Y.S.3d 122 (1st Dept. 2017)].

The underlying maxim is that mortgage foreclosure is an equitable action and, consequently, there is no right to a trial by jury. This is so — even if the complaint includes a request for money damages or a deficiency judgment — because such relief is incidental to the mortgage foreclosure process. The deficiency remedy is primarily equitable in nature and the money judgment is merely ancillary to the case. Thus, no right to a trial by jury is afforded, and that extends to guarantors on the note. Moreover, a borrower’s assertions of defenses of fraud or usury do not create an ability for a jury to decide the issue. Likewise, interposition of a counterclaim (for what might not otherwise be equitable relief) does not give rise to a jury demand.

The prohibition against the availability of a jury extended yet further in Evans. There, parties to a foreclosure sought specific performance of their settlement agreement as well as injunctive relief. Equitable relief was being pursued and no entitlement to a jury remained. Even were the borrower-defendant to have suddenly asserted a money damage claim — while at the same time withdrawing equitable claims — that could not revive or create a right to a jury trial that had been waived through equitable claims applying to the same transaction. The conclusion is meaningful and certainly a welcome one for lenders.

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North Carolina: Lender’s Affidavits Upheld

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

by Jeffrey A. Bunda

Hutchens Law Firm – USFN Member (North Carolina, South Carolina)

In a published decision, the North Carolina Court of Appeals rejected a debtor’s challenge to a foreclosing lender’s affidavit. The case is In re Foreclosure of Collins, No. COA16-655 (N.C. Ct. App. Feb. 7, 2017). This opinion offers guidance on the best practices of affidavit preparation and execution for North Carolina foreclosures under power of sale.

In Collins, the debtors’ sole challenge to the lender’s foreclosure action rested on a critique of the evidence offered at hearing. The facts are straightforward: In 2006, the debtors executed a note in favor of Beneficial Mortgage Company of North Carolina and secured repayment of the note with a deed of trust. Beneficial Mortgage Company of North Carolina merged with Beneficial Mortgage Company of Virginia in 2009, and that successor company ultimately merged into Beneficial Financial I, Inc. The debtors defaulted in 2013, and the penultimate Beneficial initiated foreclosure. The clerk of superior court entered an order authorizing foreclosure on October 17, 2013, from which the debtors exercised their right to a hearing de novo before a superior court judge.

Appellate Court’s Review
At that de novo hearing (held in early 2016), the debtors offered no evidence regarding payment or that another entity sought to foreclose. Instead, the debtors rested their case on a three-pronged challenge of the lender’s affidavit. First, the debtors complained that the affidavit before the court was executed in 2013 and that “the possibility exists that the Note had been negotiated at some point” between 2013 and the 2016 hearing. Second, the debtors asserted that the affiant had no personal knowledge of the facts contained in the affidavit and that the affidavit failed to meet the business record exception to the rule of evidence on hearsay. Finally, the debtors suggested that since lender’s counsel did not present the original note for inspection to the court, the foreclosure must fail.

The appellate court rejected all three arguments. In dismissing the debtors’ first argument, the court chastised the debtors’ “speculation” that the note had been negotiated and found that the trial judge properly admitted into evidence the 2013 affidavit, given that there was no evidence to support the debtors’ theory. The court then addressed the debtors’ critique regarding the business record exception to the hearsay rule and found that the trial judge did not abuse his discretion in admitting the affidavit. The court noted that the lender’s affidavit aptly set forth facts to establish that the affiant had knowledge of Beneficial’s servicing of the loan as the affiant testified that she was well-versed in Beneficial’s servicing practices. The court further noted that it was irrelevant whether the affiant had personal knowledge of the various mergers leading up to the final Beneficial entity because the court had independent evidence of these various mergers stemming from the public record.

The court then dispensed with the debtors’ final argument and opined that, although the lender’s attorney did not present the original note, a copy of said instrument was attached to the lender’s affidavit. Further, that affidavit stated that Beneficial possessed the note. Given that the debtors offered no evidence to contravene Beneficial’s status as holder of the note, the court could only infer that Beneficial is the holder and allowed the foreclosure to proceed. Accordingly, the trial court’s order was affirmed by the Court of Appeals.

Conclusion
Collins is instructive for servicers, and their counsel, as to how to tailor an affidavit that will pass muster — even in the face of speculative opposition from debtors. The appellate court’s holding ratifies the mortgage servicing industry’s best practices regarding affidavit preparation and execution, and rejects the speculation often offered by borrowers in defense. The opinion also demonstrates a court’s willingness to authorize foreclosure without the original note’s presentation at trial. While the original note’s presentation remains helpful for lender’s counsel, mortgage holders may rest easier on the fact that, so long as they are in possession of the note, North Carolina courts should authorize foreclosure.

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North Carolina: Appellate Ruling on the Lost Note Affidavit as Evidence

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

by John A. Mandulak

Hutchens Law Firm – USFN Member (North Carolina, South Carolina)

Creditors had been losing sleep over lost or misplaced promissory notes and how to go about enforcing their rights to collect on the underlying debt. Such a scenario puts the creditor in the awkward position of figuratively having a ticket to the show, but no way of getting to the theater. Questions about enforcement of the secured debt abound: Will I be able to foreclose? Will the action have to be in front of a judge? What do I have to prove to entitle me to an order for sale? Until early 2017, there wasn’t much direction from the courts as to how to collect on accounts that lacked a promissory note; however, the opinion in the In re Iannucci, No. COA16-738 (N.C. Ct. App. Feb. 7, 2017), case allows creditors to rest a little easier. While unpublished, Iannucci demonstrates that certain creditors may use lost note affidavits as evidence in foreclosure hearings, so long as the affidavit complies with North Carolina law.

Background
In the subject case, a creditor acquired the payment rights in a promissory note and, shortly thereafter, lost the original note. After default, this creditor sought to foreclose before the clerk of court using an affidavit traditionally used in place of lost instruments. Initially the clerk of court refused to issue an order for sale, reasoning that the provisions of N.C. Gen. Stat. § 45-21.16(d)(i) taken in their most literal context require her to determine whether there is a “valid debt of which the party seeking to foreclose is the holder” and that the use of a lost note affidavit defeated this finding. While the creditor lost at that point, it timely appealed the matter to the superior court.

The trial court considered the lost note affidavit and ruled in favor of the creditor. The borrower appealed that ruling to the Court of Appeals, alleging that the superior court judge erroneously admitted the lost note affidavit because it contained a legal conclusion and, further, that the information within the affidavit was inadmissible hearsay.

The Court of Appeals was not persuaded, however, reasoning that any conclusions of law within an affidavit could be disregarded by the trial court and, moreover, that the lost note affidavit offered into evidence tracked the language of Rule 803(6) of the Rules of Evidence to fall within the business records exception. Specifically, the affiant stated that the information averred in the affidavit was based on a review of records kept in the ordinary course of business, and that the entries were made by employees of the creditor at or near the time of the occurrence.

The borrower then made the technical argument initially made before the clerk of court: that a lost note affidavit could not satisfy the provisions of N.C. Gen. Stat. § 45-21.16(d)(i) because it would be impossible to prove that there is a “valid debt of which the party seeking to foreclose is the holder.” The appellate court disregarded this contention, taking the position that the provisions of North Carolina’s Uniform Commercial Code (N.C. Gen. Stat. § 25-3-309) allow a creditor to enforce an instrument if it is able to show the following: (1) that the creditor was in possession of and entitled to enforce the instrument at the time it was lost; (2) that the loss of possession was not due to a transfer of the party entitled to enforce the instrument; and (3) that the creditor cannot reasonably obtain possession of the instrument due to its loss or destruction.

The Takeaway
The real utility of the Iannucci ruling comes with the court’s application of the Uniform Commercial Code (UCC) to a power of sale foreclosure. Until this ruling, some clerks of court in North Carolina took a literal interpretation of N.C. Gen. Stat.§ 45-21.16(d)(i), similar to the clerk of court in this case, insisting that a creditor offering a lost note affidavit could not foreclose in the traditional power of sale proceeding. The Iannucci ruling served to bridge the gap between North Carolina’s foreclosure laws and its UCC, allowing a creditor to use a lost note affidavit to stand in the place of the promissory note in a power of sale foreclosure.

Creditors should be careful to not lose sight of the forest for the trees, however — as the content and allegations in any lost note affidavit are of principal importance. In the Iannucci case, the creditor seeking foreclosure was the creditor that lost the instrument. The provisions of N.C. Gen. Stat. § 25-3-309 allow that creditor to enforce its instrument, but the protections of the UCC fail to apply to subsequent creditors.

Namely, if a creditor loses its promissory note and thereafter sells its payment rights to a third-party creditor, the third-party creditor’s collection efforts before the clerk of court will fail. The distinguishing reason for this is that the affidavit submitted to the clerk will either be executed by the prior creditor, defeating subsection (2) of N.C. Gen. Stat. § 25-3-309, or the third-party creditor’s affidavit will be unable to aver that the creditor owned the note at the time it was lost. In either instance, the creditor may not proceed in a power of sale foreclosure, and must instead make a choice of either establishing its authority to collect before a superior court judge, or alternatively force the prior creditor to repurchase the debt.

Prior to filing a collection action, a prudent creditor should confirm both the form and the content of a lost note affidavit with its collection attorney — thus maximizing the likelihood of gaining the collateral.

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South Carolina: Amended Chamber Guidelines for Senior BK Judge

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

by Louise “Ceasie” Johnson, Tasha Thompson, Ronald Scott, and Reginald Corley

Scott & Corley, P.A. – USFN Member (South Carolina)

Over the past year, there have been many changes to bankruptcy practices and procedures implemented by the U.S. Bankruptcy Court for the District of South Carolina. Most recently, senior bankruptcy judge, the Honorable John Waites, amended his chamber guidelines effective April 10, 2017 (Amended Guidelines). Although the Amended Guidelines impose new requirements for various types of bankruptcy matters, they have the greatest impact on mortgage creditors’ established practices regarding 11 U.S.C. § 362 settlement orders and loss mitigation and mortgage modification (LM/MM). [Click here to access Judge Waites’ Local Forms webpage.]

Generally, the Amended Guidelines provide for procedural and substantive changes with respect to the following: (1) Chapter 13 attorneys’ fees; (2) LM/MM; (3) numerous new, standard 11 U.S.C. § 362 settlement orders; (4) procedures for valuation mediations; and (5) the deadline for filing joint statements of dispute in Chapter 13 cases.


I. Amended Guidelines regarding timelines for LM/MM through the DMM Portal (Portal) are as follows, with Creditor’s/Servicer’s (Creditor) requirements in bold:


a. Immediately upon entry of the LM/MM Order, Debtor’s Counsel must register on the Portal;
b. Within 7 days of Debtor’s Counsel’s registration on the Portal, Creditor must sign up for the Portal, ensure that all necessary forms are uploaded on the Portal, and assign counsel to case in Portal*;
c. On or before Day 14, Debtor’s Counsel must submit loss mitigation application and any additional, necessary forms through the Portal and pay the Portal fee;
d. On or before Day 21, Creditor must acknowledge receipt of application and documents in Portal, provide Creditor’s representative’s contact information in Portal, and notify Debtor’s Counsel of any missing documentation through the Portal;
e. Initial Mediation Session must be held before the expiration of Day 30; and
f. By Day 90, Creditor must report its decision on the loss mitigation review to the Court.


*At the time that Creditor assigns counsel to a case in the Portal, it should send legal referral or notification of the Portal matter to its local bankruptcy counsel and approve the standard legal fee for representing the Creditor throughout the LM/MM process in the Portal.


II. Amended Guidelines regarding 11 U.S.C. § 362 Settlement Orders (Settlement Orders) are as follows:


a. Judge Waites now has seven different, fact-driven, and fact-specific, form Settlement Orders; and
b. Standard Cure Periods now are required for Settlement Orders, pursuant to the new uniform standards set forth in the following chart:

 

Number of Missed Post-Petition Payments 

Length of Cure Period

 0-6 Months  12-Month Cure
 7-12 Months  24-Month Cure

 More than 12 Months 

 To be determined at a hearing

 

 

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South Carolina: State Supreme Court Analyzes “Unauthorized Practice of Law”

Posted By USFN, Tuesday, September 12, 2017
Updated: Monday, August 28, 2017

September 12, 2017

 

by Ronald Scott and Reginald Corley 

Scott & Corley, P.A. – USFN Member (South Carolina)

Following a long line of cases where the state’s high court has analyzed and interpreted the unauthorized practice of law in real estate-related transactions, the South Carolina Supreme Court recently decided Boone v. Quicken Loans, Inc. (S.C. July 19, 2017).

In Boone, the petitioners (a group of homeowners) alleged that Quicken Loans engaged in the unauthorized practice of law (UPL) in mortgage refinance transactions throughout South Carolina. The Court found that Quicken did not engage in UPL and that South Carolina-licensed attorneys were involved in every critical step of the mortgage loan transactions as required by state law: (1) preparation/review of legal instruments relating to real estate transactions; (2) supervision of title searches; (3) supervision of real estate closings and disbursement of funds; and (4) supervision of the recording of the legal instruments. [See State v. Buyers Service Company, 292 S.C. 426, 430, 357 S.E.2d 15, 17 (1987); Matrix Financial Services Corporation v. Frazer, 394 S.C. 134, 714 S.E.2d 532 (2011).]

Petitioners contended that Quicken engaged in UPL in all four of the above-referenced steps. In each instance, the Court determined that there had been sufficient supervision by a South Carolina-licensed attorney throughout the real estate transaction. Although the title search and certification were not completed by an attorney, the title work and the assembled documents (in their entirety) were reviewed by a South Carolina-licensed attorney prior to issuance of a title commitment or moving forward with the real estate transaction. At the closing, all documents relevant to the refinance mortgage closing were reviewed by an attorney who also stated that he or she had reviewed and explained the documents to the borrowers; answered any questions asked by the borrowers; and supervised the borrowers’ execution of the documents. Finally, with regards to the disbursement of the closing funds, an attorney was involved to ensure that the proper disbursement of the loan proceeds occurred and that the necessary real estate documents were recorded in the correct county’s register of deeds office.

Court’s Analysis and Conclusion
While the Supreme Court could have set a bright-line rule in Boone to say that a South Carolina-licensed attorney is needed at the center of each closing that takes place, carefully overseeing each step, it deliberately did not. The Court continues to recognize that while ‘“South Carolina, like other jurisdictions, limits the practice of law to licensed attorneys’ [quoting Brown v. Coe, 365 S.C. 137, 139, 616 S.E.2d 705, 706 (2005)] … “what constitutes the practice of law must be decided on the facts and in the context of each individual case. [Citations omitted].”

The Court expressly distinguished Boone from Buyers Service (cited above), where there had been a complete lack of attorney involvement throughout the real estate closing process, thus constituting UPL. In the Boone case, the Court said that “… we believe requiring more attorney involvement in cases such as this would belie the Court’s oft-stated assertion that UPL rules exist to protect the public, not lawyers. See, e.g., Crawford, 404 S.C. at 45, 744 S.E.2d at 541 (‘The unauthorized practice of law jurisprudence in South Carolina is driven by the public policy of protecting consumers.’).” The Court continued: “In this context, where there is already ‘a robust regulatory regime and competent non-attorney professionals,’ [citing Crawford at 47] we do not believe requiring more attorney involvement would appreciably benefit the public or justify the concomitant increase in costs and reduction in consumer choice or access to affordable legal services.”

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Tennessee: Nonjudicial Foreclosure is NOT Barred by Compulsory Counterclaim Rules

Posted By USFN, Tuesday, September 12, 2017
Updated: Tuesday, August 29, 2017

September 12, 2017

 

by Jerry Morgan

Wilson & Associates, PLLC – USFN Member (Arkansas, Mississippi, Tennessee)

In Threadgill v. Wells Fargo Bank, N.A., No. E2016-02339-COA-R3-CV (Aug. 1, 2017), the Tennessee Court of Appeals has confirmed that a lender does not lose its rights to conduct a nonjudicial foreclosure if it declines to file a foreclosure action as a compulsory counterclaim.

Borrower’s Lawsuit #1
In a 2011 case, a pro se borrower brought an action against Wells Fargo in order to stop a foreclosure of the property. The borrower filed the action in his capacity as trustee of the trust that owned the property. The borrower alleged breach of contract, misrepresentations, and violations of the Tennessee Consumer Protection Act, the Home Loan Protection Act, and the federal Truth in Lending Act. The circuit court granted summary judgment in favor of Wells Fargo, ruling that Wells Fargo had complied with the deed of trust, as well as the foreclosure statutes, and had committed no deceptive or unfair act.

The borrower appealed, and the Court of Appeals determined that it lacked jurisdiction, holding that a non-attorney trustee may not represent a purportedly pro se trust and, therefore, the notice of appeal signed by the non-attorney trustee was insufficient to initiate an appeal. [ELM Children’s Educational Trust v. Wells Fargo Bank, N.A., 468 S.W.3d 529 (Tenn. Ct. App. 2014).] The Tennessee Supreme Court denied permission to appeal.

Borrower’s Lawsuit #2
Two weeks after the Supreme Court’s denial, the borrower filed a new pro se action, this time in his individual capacity, alleging virtually the same claims against Wells Fargo. In his amended complaint, he asserted that if res judicata barred his second complaint, then the court must also find (by declaratory judgment) that any note or debt that Wells Fargo sought to enforce by foreclosure or otherwise is null, void, and unenforceable pursuant to Tenn. R. Civ. P. 13.01, which sets forth Tennessee’s compulsory counterclaims procedure.

The trial court disagreed. The court held that the parties and the issues alleged by the borrower were the same, meaning the borrower’s new claims were barred by res judicata. However, the trial court further held that a nonjudicial foreclosure is, by definition, nonjudicial, and therefore is not required to be raised in the lower court as a counterclaim.

Appellate Court’s Review
On appeal, the borrower interestingly conceded that res judicata barred his claims. Nonetheless, he contended that Wells Fargo, in response to the first lawsuit, was required by Rule 13.01 to bring a foreclosure action as a compulsory counterclaim. The Court of Appeals agreed with the trial court that such a compulsory counterclaim was not required.

The Court of Appeals noted that Rule 13.01 requires a party to state as a counterclaim “any claim, other than a tort claim, which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim …” As the appellate court recognized, the purpose of the second lawsuit “is to persuade the trial court to declare that the note and deed of trust are invalid under [Rule 13.01].”

The Court of Appeals observed that the Tennessee “legislature has determined that the public policy of the state is to allow foreclosures through non-judicial sale [citing CitiMortgage, Inc. v. Drake, 410 S.W.3d 797, 808 (Tenn. Ct. App. 2013)]” and further remarked that nonjudicial foreclosure was the “almost exclusive means of foreclosure in the [s]tate,” citing Dickerson v. Regions Bank, No. M2012-01415-COA-R3-CV (Tenn. Ct. App. 2014).] As a result, so long as the lender complies with the applicable statutes and the terms of the deed of trust, it does not have to resort to a judicial forum to foreclose.

The court next recognized that no Tennessee appellate court had yet addressed the precise issue of whether a nonjudicial foreclosure must be brought as a compulsory counterclaim. However, the Court of Appeals found that numerous jurisdictions had addressed the situation and had decided that similar rules of procedure regarding compulsory counterclaims do not bar subsequent nonjudicial, or power of sale, foreclosure proceedings.

Conclusion
The Court of Appeals agreed with the reasoning of these other jurisdictions and held that, in Tennessee, the compulsory counterclaim rule does not prohibit a lender from pursuing a subsequent nonjudicial foreclosure. The court noted that “to hold otherwise would be to allow a defaulting borrower to force a lender into court, and severely curtail if not eliminate its ability to pursue non-judicial foreclosure as otherwise permitted by Tennessee law.”

While not expressly addressed in this case, it is certainly arguable that allowing a borrower to compel a lender to forego its remedy of nonjudicial foreclosure (through the compulsory counterclaim rules) would be to unilaterally alter the terms of the deed of trust, which specifically permit nonjudicial foreclosures. At any rate, the Threadgill decision confirms that a lender’s ability to pursue a subsequent nonjudicial foreclosure in Tennessee is not defeated by compulsory counterclaim rules.

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New Jersey: State Supreme Court Finds that Lenders Participating in the Foreclosure Mediation Program may not Unilaterally Modify the Terms of a Mediated Settlement

Posted By USFN, Tuesday, September 12, 2017
Updated: Thursday, August 31, 2017

September 12, 2017

 

by Edward W. Kirn III

Powers Kirn, LLC – USFN Member (New Jersey)

After finding that the lender and the borrower entered into an enforceable settlement agreement through the Foreclosure Mediation Program, the New Jersey Supreme Court reversed the appellate division. The case was remanded to the trial court to craft an appropriate remedy. [GMAC Mortgage, LLC v. Willoughby, __ A.3d __ (N.J. July 31, 2017)].

Background
The borrower and the lender’s attorney participated in two mediation sessions; at the second session in May 2010 the parties entered into an agreement, which was memorialized in a “Foreclosure Mediation Settlement Memorandum,” a form provided by the judiciary. Pre-printed at the top of the settlement memorandum is a preamble stating, “The parties agree that the foreclosure action is resolved upon the following terms, conditions, and covenants.” The lender’s attorney then handwrote the settlement terms in the blank section.

The lender’s attorney wrote that the borrower was being offered a “trial to permanent modification plan contingent on signed modification documents and an initial down payment.” The lender’s attorney also noted the amount of the initial down payment and the date upon which it was due; the amount of the modified principal balance; the length of the modified term; the modified interest rate; and the amount of a non-interest bearing balloon payable upon maturity, refinance, or sale.

Additionally, the settlement memorandum contains a pre-printed statement at the bottom that states, “The parties agree that when executed this mediation settlement memorandum shall be final, binding and enforceable upon all parties.” Both the lender’s attorney and the borrower signed the agreement at the mediation session. The borrower went on to make the initial down payment timely, as well as trial payments for a year.

At the end of the year, the lender sent the borrower a permanent loan modification, which contained different terms than those set forth in the Foreclosure Mediation Settlement Memorandum. The borrower did not sign and return the permanent loan modification but did start making the higher monthly payments. After the borrower’s monthly payment was returned due to her failure to sign and return the permanent loan modification agreement, she filed a pro se motion to enforce the May 2010 settlement. The chancery court denied the borrower’s motion to enforce the May 2010 loan modification agreement, finding that it was a “provisional settlement.” The appellate division affirmed the chancery court’s determination that the May 2010 agreement was provisional.

Supreme Court’s Analysis and Conclusion
The Supreme Court observed that the Foreclosure Mediation Program’s goals “can only be met if our chancery courts enforce mediated settlements,” and that the state’s public policy favors the settlement of disputes through mediation, citing Willingboro Mall, Ltd. V. 240/242 Franklin Ave., L.L.C., 215 N.J. 242, 253-54, 71 A.3d 888 (2013).

A valid settlement agreement requires “offer and acceptance” by the parties, and the terms must be sufficiently definite so that the parties can perform under the contract with reasonable certainty. Weichert Co. Realtors v. Ryan, 128 N.J. 427, 435, 608 A.2d 280 (1992) (quoting West Caldwell v. Caldwell, 26 N.J. 9, 24-25, 138 A.2d 402 (1958)). The Court found it significant that the lender’s attorney handwrote the key provisions on the settlement memorandum. See In re Estate of Miller, 90 N.J. 210, 221, 447 A.2d 549 (1982) (“Where an ambiguity appears in a written agreement, the writing must be strictly construed against the draftsman.”).

The Court then concluded that the settlement memorandum in this case “has all of the indicia of a permanent and binding agreement.” Further, the Court found that the borrower was reasonable in making the payments as set forth in the agreement to save her home. In reversing the appellate court, the New Jersey Supreme Court found that the chancery court, which is sitting as a court of equity, erred by not enforcing the agreement as a permanent modification of the loan.

While the mediation program is currently about to change in New Jersey, the takeaway from this case is that proposed terms should not be disclosed at a mediation session unless they are definite.

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Florida: Lender Not Liable for Attorneys’ Fees if Case Dismissed for Lack Of Standing

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

August 8, 2017

by Roy Diaz
SHD Legal Group, P.A. – USFN Member (Florida)

The Fourth District Court of Appeal (DCA) recently held that a borrower was not entitled to attorneys’ fees pursuant to the Florida statute that permits a prevailing party attorneys’ fees; the borrower had successfully defended a foreclosure action based on the bank’s lack of standing. Nationstar Mortgage LLC v. Glass, 42 Fla. L. Weekly D815 (Fla. 4th DCA Apr. 12, 2017). The rule in Florida is that a court can only award attorneys’ fees to a prevailing party “when authorized by contract or statute.” In Florida, notes and mortgages typically include standard attorney fee provisions entitling a prevailing party to collect attorneys’ fees if a lawsuit is filed to enforce the terms of the note and/or mortgage.

In Glass, the bank filed a foreclosure action against the borrower. The borrower successfully moved to dismiss the bank’s amended complaint based on alleged lack of standing. The bank initially appealed the order of dismissal and, for unstated reasons, voluntarily dismissed its appeal. The borrower moved for appellate attorneys’ fees and costs as the prevailing party based on the attorneys’ fee provisions in the note and mortgage and Florida Statute 57.105(7), which reads: “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 plaintiff or defendant, with respect to the contract. […]”

Notwithstanding the fact that the borrower clearly was the prevailing party in Glass and despite the reciprocal fee provisions contained in the note and mortgage, the Fourth DCA denied the borrower an award of attorneys’ fees. On the issue of entitlement to attorney fees, the court found: (i) the movant must be the prevailing party; and (ii) a party seeking fees must prove that both they and the party against whom they are seeking fees are parties to the contract containing the fee provision — here, the note and mortgage. By accepting the borrower’s argument that the bank lacked standing, the court concluded that the borrower could not satisfy the second requirement.

The court succinctly explained: “Simply put, to be entitled to fees pursuant to the reciprocity provision of section 57.105(7), the movant must establish that the parties to the suit are also parties to the contract containing the fee provision. A party that prevails on its argument that dismissal is required because the plaintiff lacks standing pursuant to the contract sued upon cannot satisfy that requirement.”

By establishing that the bank lacked standing to bring the lawsuit, the borrower established that the bank was not a proper party to the action. This holding regarding attorneys’ fees is obviously favorable to the bank; however, it only applies if the bank’s foreclosure was unsuccessful due to lack of standing — which, under Florida law, can generally be cured in a subsequent action.

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Minnesota Court Allows One Foreclosure Bid for Multiple Parcels

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

August 8, 2017

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

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

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

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

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

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

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

 

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

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

August 8, 2017

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

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

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

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

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

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

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

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

August 8, 2017

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

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

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

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

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

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

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New York: Monthly Bank Statements Defeat the Foreclosure

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

August 8, 2017

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

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

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

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

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

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

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

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

August 8, 2017

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

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

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

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

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

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

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

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

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

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

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

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

August 1, 2017

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

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

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

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

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

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

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

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

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

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

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

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

Moving Forward

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

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National Chapter 13 Plan Project

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

August 1, 2017

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

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

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

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

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

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

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

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

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

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

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To Claim or Not to Claim? That is the Question

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

August 1, 2017

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

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

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

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

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

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

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

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

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

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

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

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

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Legislative Updates: Seven States

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

August 1, 2017

Connecticut

 

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

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

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

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

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

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

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

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

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

Delaware 

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

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

 

Florida

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

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

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

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

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

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

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

Maryland 

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

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

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

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

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

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

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

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

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

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

 

Texas

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

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

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

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

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

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


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

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

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

Utah

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

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

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

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

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

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

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

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

Vermont 

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

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

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

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

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

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

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

June 27, 2017

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

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

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

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

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

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

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

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

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Chicago: Proposed Amendment to Vacant Property Registration Ordinance

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

June 27, 2017

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

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

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

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

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Mandatory e-Filing in Illinois

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

June 27, 2017

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

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

Trial Courts

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


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

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

Closing

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

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

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

June 27, 2017

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

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

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

MCL § 600.3252 states, in relevant part:

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

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

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

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

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

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

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

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

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