by Dan McCarroll
Cybersecurity Consultant

How many times a week do many of us question whether we are cybersecurity minded, have we somehow been exposed to an intrusion or become victims of an attack? If approached with a little planning, shared language, and some commonsense steps, many of the mysteries cybersecurity carries may be solved.

Obviously, nothing is 100% guaranteed, nor can we ensure our systems are completely secure and all vulnerabilities cannot be known since they will be unique to our organization. There is not a single solution for securing information systems and it is not possible to “copy, paste, and execute” a cybersecurity plan. What can be accomplished though, is replicating, and adapting some well thought out standards and practices.

In a broad discussion, advancing a collective cybersecurity posture seems the least pejorative topic area and approach. It is assumed in the material that follows that our Information technology professionals are working from a cybersecurity framework. The intent of this piece is not to retell or challenge a cybersecurity professional on how to best secure infrastructure and the information riding on it. It is, however, presented with the idea that gaining a better understanding of what an organization has at risk and where additional emphasis and capabilities should be applied to reduce risk.

Many of these tips are presented with the idea that an organization has an IT department and maybe a helpdesk capability. It does not assume there is a separate cybersecurity director or officer solely dedicated to information security. Along those lines, it is worth considering that IT support is not a good place for cybersecurity responsibilities and governance to reside. The inherit conflict is that IT is a support element where both internal and external users go to for resources, answers, and solutions to their day-to-day user needs.  The cybersecurity responsibilities are less about support and more about protecting, detection and recovery. IT support is customer service-like and cybersecurity is more about policies and procedures with a bent toward restrictions and limits in place to prevent network attacks.

Formulating a Plan
Ideally, an effective cybersecurity plan flourishes with the separation in duties between the two requirements. That is not to say IT is not inextricably tied to and part of a sound and effective cybersecurity solution, but rather having both IT and cybersecurity responsibilities under one office proves to be a difficult in practice. It is especially challenging when compliance (which includes best practices and or accepted norms) and conveyance decisions are in conflict.

When conducting a cybersecurity assessment, ask questions with that focus and you are on the way to having the right information to be implement in a cybersecurity strategy and plan or to refine your existing plan. A good question to ask is where are you organizationally in terms of protecting digital systems and the information these systems deal in, process, store, transfer, and then interact with in every expanding data and information world we find ourselves indulging in every minute of every day?

An assessment should be viewed and conducted with the goal of gaining a better understanding of where a certain set of policies, process and procedures stand in terms of effectiveness. The results of an assessment should provide findings that are factual and then from these findings we can take steps to address gaps or shortfalls in our organization specific needs.

Assessing an organizations cybersecurity methods and procedures can be daunting but taken a piece at time can reduce the sense of peril normally felt as organizations attempt to increase the cybersecurity effectiveness. This piece should not be viewed as anything more than a healthy start from which to build on. The actions taken after an assessment will become your cybersecurity strategy and plan. The assessment is your due diligence piece of the process. In a chicken or egg scenario, the cybersecurity strategy and plan will almost always specify the requirement for a cybersecurity assessment with a certain periodicity.

Taking the First Cybersecurity Steps

The first piece of the puzzle is best solved with a business unit and staff level effort. A cybersecurity assessment team should be created and at a minimum membership should include:

1. Senior management providing oversight and to ensure the C-suite has a touch point.
   
   
2. An information security and or Information technology officer technical lead for system infrastructure and network security practices.
   
   
3. A privacy and or compliance officer to help identify the systems where personally identifiable information, the Health Information Portability and Accountability Act (HIPAA), and other security such as best practice out of the Department of Commerce, National Institute of Standards and Technologies Cybersecurity Framework (NIST CSF).
   
   
4. Someone from each of the business units, including finance, marketing, human resources, and any of the other organization unique units.

This assessment team brings their business unit specific understanding and perspective in achieving organizational objectives. It is common to need further tailoring as the team forms and better understands the organizational cyber security posture.

The assembled assessment team now takes on some very specific while not all-inclusive steps such as:

1. Identify the information the business units deal in, ingest, generate, store, process and or share.
   
   
2. Identify where and how information is stored and archived.
   
   
3. Identify how information is accessed from within the organization and remotely.
   
   
4. Identify service providers who have access to the onsite networks or provide access to users.
   
   
5. Identify the various methods users access services, onsite networks, and other subscription accounts.
   
   
6. Identify Wi-Fi systems and VPN for remote desktop access, hot spots and devices such as cell phones and company or user provided IT systems.
   
   
7. Identify all the servers, laptop, printers, file storage systems utilized
   
   
8. Identify all software, web service, remote vendor connections to the information system
   
   
9. Identify the service providers that interact with the infrastructure, or your organizational user and client have account with or access to.

Using these steps, which are periodically reviewed, the team identifies a prioritized list of assets that are most important and potentially most likely to be the things that can be attacked or compromised. This list is based on the type of data being handled and the users and systems this critical information or service resides on or interacts with.

In some cases where information is being outsourced for storage or processed by a vendor, the service license agreement (SLA) must be reviewed to establish potential risk of data loss or release.

To effectively protect assets, the next steps fall under the risk management process, where network management and system configurations controls are refined. It should be noted that additional monitoring of logs and network traffic may be recommended. Along with these technical controls it is highly likely the risk management process will require stronger password control policies addressing lengthening the reused password list, as well as shortening time a password can be used. It is rare the management process does not refine or direct user awareness training in the areas of protections from malware ingestions to response and procedures for suspected phishing attacks.

Establishing Policies
While insider threats are regarded as being a big risk to information security, they remain one of the weakest aspects of most risk management processes. While it doesn't address all the concerns of insider threats, the establishing and monitoring of a "least privilege” policy for all users can help to mitigate some risks from insider threats.

A least privilege policy reduces cyber security risk by limiting user access to IT resources based on position, functions, and or need. An example of least privilege: If only 2 of 100 users have access to the payroll system the risk of a weak password being exposed and resulting in an attack is lower than if 10 of 100 users have account privileges.  Most contemporary software systems allow for limited users privileges where some users have only read access or can only see information and or files. This nuanced privilege management approach greatly reduces the chance a file or data can be altered intentionally or otherwise. Data integrity risks are reduced when the number of users that can alter or edit the data is limited to those who absolutely need to.

This same concept is applied every day when we restrict access to physical locations in our facilities. Least privileges reduce our exposure to attack or compromise.

In a least privilege environment, all users are treated as if they should not have access or privileges unless there is a clearly justified and defined need. As an example, new users, by default are given access to corporate network with word processing, spread sheet applications and an email.  Then based on position and or organizational assignments (team, group, or business unit) a user is granted additional accesses to resources.

User training programs that focus on protecting information through use of separation of duty principals, least privileges where users are trained to recognize phishing emails, and the procedures for handling suspected attempts can help minimize risk, as will the maintenance of software and hardware with appropriate patches installed as available.

While these ideas are neither new nor cover every aspect of risk assessment, this type of approach offers organizations a way approach to cybersecurity and steps to implement understandable and low-cost policies and procedures.

Dan McCarroll has over thirty-five years as a system engineer and network administration across the Department of Defense. He currently consults on supply chain security and cybersecurity with emphasis in the Department of Defense Cybersecurity Maturity Model (CMMC). Dan is a CISSP and PMP with a MS in Cybersecurity, Fordham University.

Copyright © 2021 USFN. All rights reserved.

Fall 2021 USFN Report

by Bruce J. Bergman, Esq.
Berkman, Henoch, Peterson, Peddy & Fenchel, P.C.
USFN Member (NY)

Is it conceivable that as of January 1, 2022, it will become impossible in New York to both issue a home loan mortgage and foreclose upon it?

The odds are that it will happen because Bill 2502-A has passed both houses of the New York legislature and has been sent to the Governor for signature. One problem, though, is that the true effect of this new statute is not so obvious to most observers – one has to prosecute mortgage foreclosures regularly and with dedication to appreciate what these provisions actually mean and what they will do. In short, the new law – an amendment to RPAPL § 1302 – imposes subprime and high-cost home loan constraints and prohibitions upon all home loans, even those not in the subprime or high-cost category.

Current RPAPL § 1302

This section, entitled “Foreclosure of high-cost home loans and subprime home loans”, provides at subsection 1 that any complaint in a foreclosure relating to a high-cost home loan or a subprime home loan must contain an affirmative allegation that at commencement the plaintiff is the owner and holder of the mortgage and note (or has been delegated that authority) and has complied with all the provisions of section 595-a of the Banking Law, related regulations, and section six-l or six-m of the Banking Law.

Subsection 2 states that it shall be a defense to a foreclosure of either a high-cost home loan or a subprime home loan that the terms of the subject loan or the actions of the lender violate any provision of six-l or six-m of the Banking Law (or RPAPL § 1304 which is the 90-day pre-foreclosure notice). The key consideration is that § 1302, as currently constituted, applies solely and specifically to high-cost home loans and subprime home loans. The considerable impositions of Banking Law section six-l or six-m, as the case may be,  have never had any involvement with all other variety of residential or home loan mortgages – or commercial mortgages.

The Danger of High-Cost and Subprime Home Loan Rules (Banking Law § six-l and six-m)
Most of these requirements have no relationship to the typical residential or home loan mortgage. These statutes require (among other directives) no application of default interest, no fees if a loan is restructured or modified, determination of a borrower’s ability to repay as a condition of the loan, a prohibition against the loan issuing without counselling with a delineation of counselors, no employment of prepayment penalties and a mandatory escrow for taxes and insurance (even though many creditworthy borrowers want to pay their own taxes).

Threat of Statute as Amended

The new version removes from the title “high-cost home loans and subprime home loans” and substitutes “certain residential mortgages”. Subsection 1 accordingly

provides that a foreclosure of a residential mortgage covering a one-to-four family dwelling must contain the same affirmative allegations as had applied to the statute before amendment. As to compliance with the provisions of Banking Law section six-l or six-m (which of course presently apply exclusively to high-cost home loans and subprime home loans) the statute adds as clarification application “for loans governed by those provisions”. This is acceptable and not a problem.

The peril, however, comes in section 2. There, in stating what shall be a defense to an action to foreclose “a mortgage” (an exceptionally broad category), it removes, or neglects to include, the limiting words “for a high-cost home loan or a subprime home loan”. It goes on the say that it will be a defense to foreclosure that the terms of the home loan or the actions of the lender violate any provision of six-l and six-m.

Conclusion

The previous review does not even mention the considerable confusion in the statute in the loose use of terms: residential mortgage, mortgage and home loan mortgage. It is impossible to determine with precision what the provisions actually refer to, although it is at least home loans with the possibility of being broader. In the end, though, if every home loan needed to adhere to subprime and high-cost loan dictates, it is reasonable to conclude that lenders would not make the loans. And if the loans were made (wildly remote though that is) because not adhering to all the mandates would be a defense to foreclosure, borrowers will assert the defense in every case. Lenders will be further bogged down in litigating cases which have already become unmanageable.

More than serious trouble is in store for mortgage lenders and servicers in New York.

Copyright © 2021 USFN. All rights reserved.

Fall 2021 USFN Report

by Robert Wichowski, Esq.
Bendett & McHugh, P.C.
USFN Member (CT, MA, ME, NH, RI, VT)

In the case of Gibson v. Jefferson Woods Community, Inc., Et. Al., 206 Conn. App 303 (2021), the Connecticut Appellate Court affirmed an order of the trial court dismissing an underlying foreclosure action and, thereby ratifying a prior foreclosure done by a condominium association.

In the instant case, the condominium association Defendant (Jefferson Woods) began and completed a prior judicial foreclosure action in which it foreclosed on its nine-month super priority statutory amount due. One of the Defendants in the case was defaulted for failure to appear. This particular Defendant had an interest in the property by virtue of a mortgage executed in favor of him by the then property owner. After Jefferson Woods filed its Lis Pendens on the land records, and after the foreclosure had begun, this mortgagee assigned all of his right and title to the mortgage to Gibson. Gibson recorded the assignment on the land records after judgment entered in favor of Jefferson Woods, but just prior to the date title was set to vest in plaintiff by virtue of a judgment of strict foreclosure. Since none of the Defendants in the foreclosure redeemed the judgment debt on or before their deadline to do so, title to the property vested absolutely in Jefferson Woods. Gibson however, never appeared in the foreclosure nor did she redeem the debt. She likewise did not challenge the entry of judgment or the foreclosure in general, at any point.

Nearly three years after the completion of the foreclosure and the subsequent sale of the property to a bona fide third-party purchaser, Gibson began the instant foreclosure against Jefferson Woods claiming a foreclosure of the mortgage as well as unjust enrichment. Jefferson Woods filed a motion to dismiss the foreclosure claiming that Gibson lacked standing to pursue her foreclosure because the prior foreclosure extinguished the mortgage. The trial court granted the motion to dismiss, and Gibson appealed.

The Appellate Court affirmed the dismissal of the foreclosure, ruling that since the foreclosure was completed and title to the property had become absolute in Jefferson Woods by virtue of Connecticut’s strict foreclosure mechanism, any interest that was subsequent in right to the one being foreclosed was extinguished. Because the assignment of the mortgage occurred after the filing of the lis pendens on the land records, Gibson took title to the mortgage subject to the foreclosure by Jefferson Woods. Further, even though Gibson attempted to challenge the Jefferson Woods foreclosure in her separate suit by claiming that the statutory requirements of the foreclosure were not met, the Appellate Court held that collateral attacks on judgments are specifically disfavored in Connecticut unless it is obvious from the record that the judgment is “entirely invalid.” Since the claimed defect was not obvious from a review of the record, the appellate court affirmed the granting of the motion to dismiss.

Regarding Gibson’s claim of unjust enrichment, since she claimed unjust enrichment by virtue of her interest in the mortgage, when the mortgage was found to be extinguished, her ability to claim unjust enrichment also was extinguished.

This case illustrates two very important notes for foreclosure practice in Connecticut: 1) since Connecticut employs a strict foreclosure mechanism and condominium associations can avail themselves of a nine month super priority lien, it is not uncommon that mortgagees can find their mortgage extinguished unless these suits are quickly forwarded to local counsel for handling, and 2) If there is a case that has been completed, it is very difficult to unwind or undo that case absent an extreme showing from the record that the judgment in the case was “entirely invalid.”

Copyright © 2021 USFN. All rights reserved.

Fall 2021 USFN Report

Three attorneys from Baer & Timberlake, PC (USFN Member – OK) were recently named to several lists by The Best Lawyers in America® organization.

Baer & Timberlake, PC attorney Donald J. Timberlake was recently recognized by Best Lawyers® as the 2022 "Lawyer of the Year" for Mortgage Banking Foreclosure Law.

Only a single lawyer in each practice area and designated metropolitan area is honored as the "Lawyer of the Year," making this accolade particularly significant. These lawyers are selected based on particularly impressive voting averages received during the peer review assessments.

Receiving this designation reflects the high level of respect a lawyer has earned among other leading lawyers in the same communities and the same practice areas for their abilities, their professionalism and their integrity.

In addition to the "Lawyer of the Year" award, Donald J. Timberlake was also listed in the 2022 edition of The Best Lawyers in America® in the following practice areas:

• Banking and Finance Law
  
  
• Litigation – Bankruptcy 

Since it was first published in 1983, Best Lawyers has become universally regarded as the definitive guide to legal excellence.

Baer & Timberlake, PC is pleased to announce that one lawyer has been included in the 2022 Edition of Best Lawyers: Ones to Watch.

Best Lawyers: Ones to Watch recognizes associates and other lawyers who are earlier in their careers for their outstanding professional excellence in private practice in the United States.

"Best Lawyers was founded in 1981 with the purpose of recognizing extraordinary lawyers in private practice through an exhaustive peer-review process. Nearly 40 years later, we are proud to expand our scope, while maintaining the same methodology, to recognize a different demographic of talented and deserving lawyers in Best Lawyers: Ones to Watch," says Phil Greer, CEO of Best Lawyers.

Lawyers recognized in Best Lawyers: Ones to Watch are divided by geographic region and practice areas. They are reviewed by their peers on the basis of professional expertise and undergo an authentication process to make sure they are in current practice and in good standing.

Baer & Timberlake, PC would like to congratulate the following lawyer recognized in the 2022 Edition of Best Lawyers: Ones to Watch:

• Kim Jenkins - Banking and Finance Law and Real Estate Law

Baer & Timberlake, PC is pleased to announce that two lawyers have been included in the 2022 edition of The Best Lawyers in America®. Since it was first published in 1983, Best Lawyers has become universally regarded as the definitive guide to legal excellence.

"Best Lawyers was founded in 1981 with the purpose of highlighting the extraordinary accomplishments of those in the legal profession," said Best Lawyers CEO Phillip Greer. "We are proud to continue to serve as the most reliable, unbiased source of legal referrals worldwide."

Best Lawyers has earned the respect of the profession, the media and the public as the most reliable, unbiased source of legal referrals. Its first international list was published in 2006 and since then has grown to provide lists in over 75 countries.

Lawyers on The Best Lawyers in America list are divided by geographic region and practice areas. They are reviewed by their peers based on professional expertise and undergo an authentication process to make sure they are in current practice and in good standing.

Baer & Timberlake, PC would like to congratulate the following lawyers named to 2022 The Best Lawyers in America list:

• Blake Parrott - Litigation - Real Estate
  
  
• Donald J. Timberlake - Banking and Finance Law, Litigation - Bankruptcy, and Mortgage Banking Foreclosure Law

Copyright © 2021 USFN. All rights reserved.

by Lisa Gordon, Esq.
Frenkel Lambert Weiss Weisman & Gordon LLP

USFN Member (FL, NJ, NY)

The Governor of New York signed into law legislation voted on in an “extraordinary” session of the legislature held on 9/1/21.  Below we highlight the most relevant aspects of the law as it pertains to residential foreclosures and evictions:

Residential Foreclosures:
Most of the provisions of this new statute are identical to the Emergency Eviction and Foreclosure Act initially enacted on 12/28/20 and thereafter extended in May 2021.   Submission of a hardship declaration will impose a stay of foreclosure through 1/15/22 but with this statute, mortgagees can challenge the validity of the hardship.

Applicability:

The statute applies to all residential real property provided the owner or mortgagor is a natural person and uses a unit as his/her primary residence and co-ops are also covered by this statute. The statute does not apply to vacant / abandoned properties as defined in RPAPL 1309(2), which were listed on the statewide registry prior to 3/7/20 and remain on the registry.   

New Actions/Pre-Complaint:

A hardship declaration must be included with every RPAPL §1303 and §1304 notice.  The new form of hardship declaration includes the following language: “If a foreclosure action is filed against you and you provide this form to the plaintiff or the court, the action will be postponed until January 15, 2022 unless the plaintiff moves to challenge your declaration of hardship.  If the court finds your hardship claim valid, the foreclosure action will be postponed until after January 15, 2022. While the action is postponed, you may remain in possession.” 

No court shall accept for filing any action to foreclose a mortgage without an affidavit, from the foreclosing party, attesting to service of the hardship declaration, the manner in which it was served and, that at the time of the complaint filing, no hardship declaration was received by plaintiff or its agent.  

Alternatively, the affidavit may assert that at the time the complaint is filed, a hardship declaration was received from the mortgagor, but the foreclosing party believes, in good faith, that a hardship does not exist.  This is the new provision added to the legislation that did not previously exist.  A plaintiff may now challenge a claim of financial hardship by filing a motion, on notice to the mortgagor, for which the court must schedule a hearing to determine the validity of the hardship. If after a hearing, the court determines defendant’s claim is valid, the stay continues through at least 1/15/22.  If the court determines defendant’s claim to be invalid, the action shall continue to a determination on the merits.A form of the new hardship declaration is attached as Exhibit A.

At the earliest possible time, a court must seek confirmation that the mortgagor has received a copy of the hardship declaration and whether the mortgagor has returned the hardship to the foreclosing party or its agent.  If the court determines that the mortgagor has not received the hardship declaration, it shall stay the proceeding for a reasonable period of time, at least 10 business days. to ensure that the mortgagor has had an opportunity to receive and fully consider whether to submit the hardship declaration.

Post Complaint:

If a judgment of foreclosure and sale has not been signed, as of the effective date of the act, the action is stayed until 1/15/22 if the mortgagor returns a completed hardship declaration and same is not successfully challenged as being invalid.

Any action, in which a judgment of foreclosure and sale has been signed/granted prior to the effective date of the act, is stayed at least until the court holds a status conference with the parties.  If a hardship declaration is returned by the mortgagor, the action is stayed until 1/15/22 unless successfully challenged as being invalid.

General Provisions:

The Office of Court Administration shall translate the hardship declaration into other languages. Unless a court determines a mortgagor’s hardship claim invalid, the hardship declaration creates a rebuttable presumption of financial hardship in any judicial or administrative proceeding for purposes of establishing a defense under an executive order of the Governor or any other local or state law, order or regulation restricting actions to foreclose a mortgage. 

Residential Evictions:

Most of the provisions of this new statute are identical to the Emergency Eviction and Foreclosure Act initially enacted on 12/28/20 and thereafter extended in May 2021.   Submission of a hardship declaration will impose a stay of eviction through 1/15/22 but with this statute, a landlord/owner can challenge the validity of the hardship.

Applicability:

Any summary proceeding to recover possession of real property under Article 7 of the Real Property Actions and Proceedings Law (“RPAPL”) relating to a residential dwelling unit or any other judicial proceeding to recover possession of real property relating to a residential dwelling unit. 

Definitions:

Landlord - landlord, owner of residential property and any other person with a legal right to pursue eviction, a possessory action or a money judgment. 

Tenant - a residential tenant, lawful occupant of a dwelling unit, or any other person responsible for paying rent, use and occupancy, or any other financial obligation under a residential lease or tenancy agreement.  Does not include a residential tenant or lawful occupant with a seasonal lease where such tenant has a primary residence to which to return

Hardship: Either (a) an inability to pay rent or other financial obligations due in full pursuant to a lease or rental agreement or obtain alternative suitable permanent housing due to one or more of the following reasons where public assistance, including employment insurance, pandemic unemployment assistance, disability insurance, or paid family lease, does not fully make up for the loss of household income or increased expenses: 

1)      Significant loss of household income during pandemic; or

2)      Increase in necessary out of pocket expenses related to performance of essential work or related to health impacts during pandemic; or

3)      Childcare responsibilities or responsibilities to care for an elderly, disabled or sick family member which negatively affected ability to obtain meaningful employment or earn income; or

4)      Increased necessary out of pocket expenses; or

5)      Moving expenses and related difficulty in securing alternative housing make it a hardship to relocate; or

6)      Other circumstances related to pandemic have significantly reduced household income or significantly increased expenses

-OR-

(b) inability to vacate the premises and move into new permanent housing because doing so would pose a significant risk of severe illness or death from COVID-19 that a tenant or household member would face due to being over the age of sixty-five, having a disability or having an underlying medical condition, which may include but is not limited to being immune compromised.  

New Actions:

A hardship declaration must be served with every written demand for rent made, with any other written notice required by the lease or tenancy agreement, law or rule to be provided prior to commencement of an eviction proceeding and with every notice of petition served on a tenant.  The form of the hardship declaration has been revised to add the following language: “I further understand that my landlord may request a hearing to challenge the certification of hardship made herein, and that I will have the opportunity to participate in any proceedings regarding my tenancy.”  A form ofthe new hardship declaration is attached as Exhibit B.

No court shall accept for filing any petition to commence an eviction proceeding without an affidavit, from the petitioner, attesting to service of the hardship declaration, the manner in which it was served and, that at the time of the petition filing, no hardship declaration was received by petitioner or its agent.

Alternatively, the affidavit may assert that at the time the petition is filed, a hardship declaration was received from the tenant, but the landlord believes, in good faith, that a hardship does not exist.  This is the new provision added to the legislation that did not previously exist.  A petitioner may now challenge a claim of financial hardship by filing a motion, on notice to the tenant, for which the court must schedule a hearing to determine the validity of the hardship. If after a hearing, the court determines tenant’s claim is valid, the stay continues through at least 1/15/22.  If the court determines tenant’s claim to be invalid, the action shall continue to a determination on the merits.  

Notwithstanding all the above, if a tenant a) intentionally caused significant damage to the property; or b) is persistently and unreasonably engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard to others, an eviction proceeding can move forward.  A new petition will be required if such behavior was not previously alleged or if such behavior was alleged in a pending petition, the court the court shall hold a hearing to determine if the tenant is continuing to intentionally cause significant damage to the property or infringe on the use and enjoyment of other occupants. 

Post Petition/Pending Proceedings:

No warrant issued: If a hardship declaration is filed by a respondent, the matter is stayed through 1/15/22 unless the hardship is successfully challenged by petitioner. 

Post Warrant Cases: Execution of the warrant is stayed at least until the court has held a status conference with the parties.  However, if a hardship declaration is filed by the respondent, execution of warrant is stayed until 1/15/22 unless the hardship is successfully challenged by the petitioner.

Pre-Default: No court shall issue a default judgment in any proceeding authorizing a warrant of eviction against a respondent who has defaulted without first holding a hearing, after the effective date of this act, upon motion of the petitioner.  

In any proceeding where a warrant has been issued, including any proceeding filed on or before 3/7/20, the warrant issued will not be effective unless specific additional language is contained in the warrant.  Such language pertains to service of the hardship declaration and lack of receipt by the petitioner or the ineligibility for a stay because the court determined respondent’s hardship claim was invalid or the eviction is being pursued due to the respondent causing significant damage to the property or engaging in behavior that substantially infringes on the use and enjoyment of other occupants. 

Other relevant provisions of the statute:

Evictions and Emergency Rental Assistance Program:

• Evictions are prohibited from being commenced or continued if an eligible occupant has applied for rental assistance pending a determination of eligibility
  
  
• Eviction may proceed if a tenant intentionally causes significant damage to the property or is persistently and unreasonably engaging in behavior that substantially infringes on the use and enjoyment of other tenants or occupants or causes a substantial safety hazard

Lending institutions must not discriminate in the determination of credit decisions because of a stay of mortgage foreclosure proceedings or that an owner of residential real property is currently in arrears and has filed a hardship declaration. 

The granting of a stay of mortgage foreclosure proceedings, or that an owner of residential real property is currently in arrears and has filed a hardship declaration shall not be negatively reported to any credit reporting agency.

 
Copyright © 2021 USFN. All rights reserved.

Copyright © 2021 USFN. All rights reserved.

by Joseph Dunaj, Esq.
McCalla Raymer Leibert Pierce, LLP
USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY, OR, WA)

The Connecticut Supreme Court recently issued an opinion affirming the ability of defendants to open a judgment of strict foreclosure on equitable grounds, even after title has vested to the foreclosing Plaintiff. Although the decision will most likely give rise to an increased amount of litigation in foreclosure cases, the Supreme Court’s opinion provides foreclosing plaintiffs a rudimentary framework to assess such arguments and defend against such arguments.

In US Bank NA v Rothermel, SC 20463, 2021 Conn. LEXIS 173, the Supreme Court addressed the ability of a trial court to consider equitable arguments after title has vested to a foreclosing plaintiff, and of the ability of the Appellate Court to address appeals from those decisions. In general, Conn. Gen. Stat. § 49-15 allows a trial court to open a judgment of strict foreclosure for cause shown, but it prohibits opening a judgment once title has vested absolutely in an encumbrancer. However, there is a limited line of cases that support the notion that a trial court, sitting in equity, may open a judgment after vesting in certain rare and exceptional circumstances. The case law, however, has been limited and has not provided direction as to the limits of such equitable claims.

In Rothermel, the trial court rendered a judgment of strict foreclosure and set law days. The court then, over a period of five years, extended the law days after multiple motions to open, some filed by the plaintiff, and some filed by the defendant. The court set the law day ultimately for March 12, 2019, with title to vest to the plaintiff on March 13, 2019. The defendant filed a motion to open judgment on March 13, 2019, after title vested, claiming that she was misled by correspondence from the mortgage servicer, and that she believed the law day would be extended again due to ongoing loss mitigation discussions.

The trial court conducted an evidentiary hearing and, after briefing, determined that the defendant failed to present any evidence that would warrant opening of the judgment. The trial court noted that although the mortgage servicer had extended the law day multiple times in the past, and the loss mitigation correspondence had erroneously referred to the law day as a sale date, the defendant was not misled as to the nature of the law day. She was also represented by counsel, had filed her own motions to open in the past, and she could have easily filed a motion to open judgment before her law day expired. The defendant appealed the decision to the Appellate Court, but the Appellate Court summarily dismissed the appeal as moot because the law days had run, without adjudicating the underlying merits of the appeal. The defendant then petitioned the Supreme Court, which was granted.

The Supreme Court ultimately determined that the Appellate Court was incorrect in dismissing the appeal as moot, but the trial court was correct in denying the motion to open judgment. The Supreme Court upheld the prior case law that a trial court has continuing jurisdiction to open a judgment of strict foreclosure, despite the limitations of Conn. Gen. Stat. § 49-15, in certain rare and exceptional circumstances, where a defendant has presented a colorable equitable claim that, if factually supported, would provide practical relief. The Appellate Court retained jurisdiction to consider the appeal because the claim presented was a colorable equitable claim. However, the Supreme Court affirmed that the trial court’s decision was correct, finding that the facts presented did not support the defendant’s equitable claim, and that the trial court properly denied the Motion.

It is likely that the Supreme Court’s decision will serve to increase litigation by foreclosure defendants after plaintiffs have taken title. However, being mindful of the Supreme Court’s opinion, a foreclosing plaintiff can utilize the opinion’s analysis in defending against such litigation. The Supreme Court, in anticipation of potential litigation in other cases, stressed in Footnotes 11 & 15 that although the development of what constitutes a colorable equitable claim in a given case is best left to the discretion of a trial court, such claims must be rare and exceptional, and based on a particularized set of facts. In addition, the trial court and Appellate Court may still dismiss such cases as moot, provided that the defendant has had the chance to respond.

When faced with a post-vesting motion, a plaintiff should always preliminarily invoke § 49-15 and argue that the trial court lacks authority to open the judgment. Then, a plaintiff should analyze and attack the legal and factual merits of a defendant’s claim: whether the defendant has presented a proper factual basis, whether the defendant’s claim is equitable in nature, whether a defendant’s claim is rare and exceptional, and whether there are any aggravating factors that militate against opening a judgment. If an appeal is filed, a plaintiff should immediately move to dismiss on mootness grounds, and also seek dismissal on frivolousness grounds, arguing that the defendant does not present a colorable equitable claim. By taking this approach, a foreclosing plaintiff should hopefully be able to succeed in a quick enough manner so that eviction and REO efforts are not delayed, and litigation costs are kept to a minimum.

Copyright © 2021 USFN. All rights reserved.

August 2021 e-Update

by Wendy Lee, Esq.

McCalla Raymer Leibert Pierce, LLP

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

On June 28, 2021, the Consumer Financial Protection Bureau released its Final Rule amending the loss mitigation procedures contained within Regulation X, making it effective on August 31, 2021. These amendments are a huge focus for our industry at the moment. Servicers, investors and industry participants are still digesting the 208 pages, operationalizing the concepts and trying their best to allow the movement of compliant cases through the loss mitigation and eventually the foreclosure process. It is no easy feat to do this while the laws, regulations, executive orders, and pretty much every other aspect of the legal foundations we base our operations on are changing. Never has there been a more daunting time to be a mortgage servicing professional and never have the stakes been higher on all sides. With rising home prices, the exit strategies are not easy for the distressed homeowner who might be able to obtain a great price for their house, but the options to rent or downsize to a less expensive house are not easy to navigate. Servicers will have extreme pressure from investors to make perfect decisions without perfect information for these quickly promulgated rules.

The Temporary Safeguards
The first question many clients ask: “Is there a private right of action for borrowers to enforce the loss mitigation procedures contained within Reg X?” The answer is yes and with that said, according to the Bureau’s small entity compliance guide, the rules weren’t intended to allow a particular loss mitigation option, but only to provide the borrower with a guarantee of process. That is something to keep in mind as servicers look at moving from forbearance relief into permanent modifications, however it shouldn’t change the compliance focus of the operation. If a safeguard or exception isn’t properly applied, there is a risk of private litigation as well as regulatory enforcement.

Because the safeguards aren’t effective until the end of the month, and they are only effective until December 31, 2021, there is a huge investment being made to move cases through for a three- or four-month timeline advantage. But that investment is likely to pay off as the process for restarting will be slow, vendors need a chance to ramp up and our industry risks losing talent who may never return to this instable area of law.

The safeguards are simple on the surface: 1. Loans where the borrower was evaluated for loss mitigation based upon a complete application and didn’t otherwise qualify, 2. Loans secured by currently abandoned property, and 3. Loans where the borrower is unresponsive to servicer outreach.

The Excluded Loans
There are some loans that aren’t subject to the safeguards, or the enhanced loss mitigation solicitation requirements. The safeguards and other restrictions on proceeding to first notice or filing are not required in the following circumstances:

o   Foreclosure process begins on or after January 1, 2022.

o   Borrower was more than 120 days delinquent prior to March 1, 2020.

o   The applicable statute of limitations will expire before January 1, 2022.

o   The foreclosure process began before August 31, 2021.

o   The loan is otherwise exempt from the general foreclosure protection requirements including HELOCs, reverse mortgages and any loan secured by property that isn’t a borrower’s principal residence (to name the most prominent exclusion categories).

Documentation Requirements
The Bureau describes in its compliance guide that servicers should consider maintaining call logs, servicing notes, other systems of record cataloguing communications showing the absence of contact from the borrower during the relevant period. Also, the record of payments including escrow transactions are relevant during this time frame as well. Consider further that the opinions on an expiring statute of limitations as a necessary artifact could be helpful in the process.

Conclusion
While the real-world scenarios are starting to refer their way into our law firm and trustee organizations, we need to be reviewing closely, paying attention to which safeguard, or exclusion is being utilized to allow the case to move forward into first notice or filing. Even seemingly minor differences like whether a loan needed to be due for October 31, 2019, or November 1, 2019 to meet the exclusion for loans more than 120 days delinquent prior to March 1, 2020 could make a difference.

According to the Bureau, it is able to take questions at its regulatory inquiry site and will be publishing and updating its FAQ to respond to some of these technical questions that were not contemplated with the interpretations. I anticipate we will see something updated before the end of the month as everyone is taking a close look at their portfolios to see where and how these rules land.

Copyright © 2021 USFN. All rights reserved.

August 2021 e-Update

Greenville Business Magazine, Columbia Business Monthly, and Charleston Business Magazine have named all nine Scott & Corley, PA (USFN Member – SC) attorneys to the 2021 Edition of Legal Elite®. The recognition honors attorneys throughout South Carolina whom their peers consider outstanding in their respective practice areas.  They were recognized in the following categories:

Ronald Scott – Government, Business Litigation

Reginald Corley – Bankruptcy & Creditor’s Rights, Banking & Finance

Angelia Grant - Banking & Finance

Matthew Rupert – Residential Real Estate, Commercial Real Estate

Louise Johnson – Bankruptcy & Creditor’s Rights

Guyton Murrell – Business Litigation

Kevin Brown - Bankruptcy & Creditor's Rights, Business Litigation

Allison Heffernan – Residential Real Estate

Jordan Beumer - Bankruptcy & Creditor's Rights

Copyright © 2021 USFN. All rights reserved.

by Bret Chaness, Esq.
Rubin Lublin, LLC
USFN Member (AL, GA, MS, TN)

In a decision that sent shock waves through the debt collection industry, the 11th Circuit held on April 21 that the seemingly benign act of electronically sending information to a letter vendor for inclusion in a standard form dunning letter violated the Fair Debt Collection Practices Act (“FDCPA”). The case – Hunstein v. Preferred Collection and Mgmt. Servs., Inc., 994 F.3d 1341 (11th Cir. 2021) – involved a debt collector that “electronically transmitted to Compumail [its mailing vendor] certain information about [him], including, among other things: (1) his status as a debtor, (2) the exact balance of his debt, (3) the entity to which he owed the debt, (4) that his debt concerned his son’s medical treatment, and (5) his son’s name. Compumail used that information to generate and send a dunning letter to Hunstein.”

Hunstein sued Preferred, alleging a violation of 15 U.S.C. § 1692c(b), which prohibits, with few exceptions, communications with third parties in connection with the collection of any debt. Specifically, the statute provides that, 

without the prior consent of the consumer given directly to the debt collector . . . a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

The district court dismissed the case, concluding that Preferred’s communications to Compumail were not “in connection with the collection of any debt.” Relying on prior 11th Circuit cases, the district court noted that for a communication to be “in connection with the collection of any debt,” the communication must “[make] an express or implied demand for payment.” Since the information that Preferred sent to Compumail did not demand payment of a debt, the district court held that it was not “in connection with the collection of any debt.”

On appeal, the 11th Circuit first addressed the ever-present issue in FDCPA litigation of subject matter jurisdiction, which was not raised in the district court. Hunstein did not allege that he suffered any tangible harm, but the Court of Appeals held that he had Article III standing because a bare violation of Section 1692b(c) was a concrete harm.

With the standing issue behind it, the Court of Appeals then analyzed whether the district court correctly concluded that the communication to Compumail was not “in connection with the collection of a debt.” The Court disagreed that such a communication must “[make] an express or implied demand for payment” because the cases that came to such a conclusion were based upon violations of Section 1692e, not 1692b(c). Section 1692e concerns communications to consumers, while Section 1692b(c) concerns communications with third parties. Because communications with third parties would never demand payment from the debtor, the Court concluded that the term “in connection with the collection of a debt” does not have the same meaning in both sections.

Instead, the Court held that the term should be given its plain meaning, looking at the meaning of “the phrase ‘in connection with’ and its cognate word, ‘connection.’”

Dictionaries have adopted broad definitions of both. Webster's Third defines “connection” to mean “relationship or association.” Connection, Webster's Third International Dictionary at 481 (1961), and the Oxford Dictionary of English defines the key phrase “in connection with” to mean “with reference to [or] concerning,” In Connection With, Oxford Dictionary of English at 369 (2010). Usage authorities further explain that the phrase “in connection with” is “invariably a vague, loose connective.” Bryan A. Garner, Garner's Dictionary of Legal Usage 440 (3d ed. 2011).

Based on this broad definition, the Court stated that “[i]t seems inescapable that Preferred’s communication to Compumail at least ‘concerned,’ was ‘with reference to,’ and bore a ‘relationship [or] association to its collection of Hunstein’s debt” and “[held] that Hunstein has alleged a communication ‘in connection with the collection of any debt’ as that phrase is commonly understood.”
The Court recognized the broad reaching impact its holding may have, concluding that,

It's not lost on us that our interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry. We presume that, in the ordinary course of business, debt collectors share information about consumers not only with dunning vendors like Compumail, but also with other third-party entities. Our reading of § 1692c(b) may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost. We recognize, as well, that those costs may not purchase much in the way of “real” consumer privacy, as we doubt that the Compumails of the world routinely read, care about, or abuse the information that debt collectors transmit to them. Even so, our obligation is to interpret the law as written, whether or not we think the resulting consequences are particularly sensible or desirable. Needless to say, if Congress thinks that we've misread § 1692c(b)—or even that we've properly read it but that it should be amended—it can say so.

While Congress has yet to weigh in on whether it thinks the Court properly read Section 1692c(b), it appears that the Consumer Financial Protection Bureau (CFPB) may have been caught off guard by the holding. The CFPB – which has rulemaking authority under the FDCPA – is soon implementing its long-awaited Regulation F on November 21, 2021. The comments to Regulation F frequently discuss the use of third-party vendors to send letters and note that “over 85 percent of debt collectors surveyed by the Bureau reported using letter vendors.” Despite this knowledge, the CFPB is not implementing any rule prohibiting this practice. One rule even expressly contemplates the use of letter vendors, providing that a debt collector can use a vendor to receive disputes from consumers and may use the vendor’s mailing address in its correspondences.

It is yet to be seen whether Hunstein will remain good law, as Preferred filed a Petition for Rehearing En Banc on May 26. Numerous creditors’ rights groups have since moved for leave of court to file amicus briefs in support of the petition. At least one brief has argued that the 11th Circuit’s interpretation of Section 1692c(b) runs afoul of the First Amendment.

Unless and until the decision is reversed by an en banc court or a successful appeal to the Supreme Court, Hunstein is likely to significantly impact the debt collection industry. For starters, legal fees are sure to increase, as the National Creditors Bar Association claims in its amicus brief that Hunstein “has already generated over 100 federal court lawsuits across the country, mostly class actions,” and that “[n]o appellate decision in decades (and possible none, ever) has sparked such a flood of FDCPA litigation in so short a time.”

Perhaps more pressing, though, is the impact that Hunstein may have on the everyday business operations of those who qualify as debt collectors under the FDCPA. The court’s expansive definition of “in connection with the collection of any debt” has the potential to make some tasks next to impossible. A review of the amicus briefs shows the grave concerns facing the industry. One brief suggests that the FDCPA may now prohibit simply filing and serving a lawsuit to collect a debt, since lawyers and their staff – who work at firms that may qualify as debt collectors – must communicate with court staff, judges, process servers, and others to effectively prosecute a case. Another brief argues that “loan servicers will have to reconsider whether they can engage third parties such as housing counselors, tax-and-insurance monitoring services, and property maintenance companies without violating the FDCPA.” The same brief goes on to suggest that even transferring service rights might run afoul of the FDCPA because communications with the new servicer could violate Section 1692c(b).

Although Hunstein is the law only in Florida, Georgia, and Alabama, there is no telling how many judges in other circuits may choose to follow its holding. Additionally, there are concerns for some entities who are not considered debt collectors under the FDCPA, as states such as California have incorporated many FDCPA provisions – including Section 1692c(b) – into state collection laws, but greatly expanded the definition of debt collector to include creditors collecting their own debts and “any person who composes and sells, or offers to compose and sell, forms, letters, and other collection media used or intended to be used for debt collection.”

Aside from the uncertainty surrounding how judges in other states and circuits may rule, it is likely difficult, if not impossible, to insource all operations in only three states. For the time being, debt collectors and creditors around the country will need to evaluate their operations to determine if any changes should be made in light of Hunstein.

Copyright © 2021 USFN. All rights reserved.

Summer 2021 USFN Report

by Shawn Spielberg, Esq.

Frenkel Lambert Weiss Weisman & Gordon LLP

USFN Member (FL, NJ, NY)

Historically in New York, proving the plaintiff is the noteholder in a foreclosure proceeding, has always been viewed as a question regarding whether the plaintiff has standing to commence an action. Based on a recent statutory enactment and a concurring opinion from an associate judge of the Court of Appeals, noteholder status may, in fact, become an element of a prima facia residential mortgage foreclosure action plaintiffs must plead. 

Most courts in the State of New York, interpret defenses related to whether a plaintiff is the noteholder, a note’s owner, or in possession of the note, as standing defenses. New York’s Supreme Courts and the four Appellate Divisions have held such defenses to be waivable pursuant to New York Civil Practice Law and Rules (“CPLR”) § 3211(e). CPLR § 3211(e) requires a standing defense to be alleged in an answer or a timely motion to dismiss, or else the defense is waived. 

A commonly cited case, supporting this interpretation, is Wells Fargo Bank Minnesota, Nat. Ass'n v Mastropaolo, 42 A.D.3d 239 (2d Dept. 2007) wherein the appellate court held that the defendant waived the defense of standing, pursuant to CPLR § 3211(e), after the defendant argued in opposition to the plaintiff’s motion for summary judgment that the plaintiff was not the legal titleholder of the mortgage at the time of commencement. 

This interpretation was recently questioned by the Hon. Rowan D. Wilson, an Associate Judge of the New York State Court of Appeals, the highest court in the State of New York.  In his concurring opinion in US Bank N.A. v Nelson, 36 N.Y.3d 998, 163 N.E.3d 49 (N.Y. 2020), Judge Wilson states that whether a plaintiff can sue for breach of contract is not a question of standing, but rather a question of whether the plaintiff possesses the note and, thus, a cause of action.  The Judge further states that a fundamental requirement for a breach of contract action is an allegation that the plaintiff is a party to the contract or has acquired the rights of a party.

The Judge briefly discusses the doctrine of standing and how it is utilized when parties aim to enforce public, not private, rights, which ultimately lead him to conclude that courts have erroneously described a failure by a defendant to affirmatively plead plaintiff is not a noteholder as an issue of standing.  According to the Judge, the New York State legislature intervened to undo the confusion with the enactment of Real Property Actions and Proceedings Law (“RPAPL”) § 1302-a.

In December 2019, the New York State legislature removed the waiver of standing as a defense in residential foreclosure actions by enacting RPAPL § 1302-a, which provides that, notwithstanding CPLR § 3211(e), standing is not waived in a foreclosing proceeding if a defendant fails to raise said defense in a responsive pleading or pre-answer motion to dismiss. The statute also permits a defendant to challenge standing after a judgment of foreclosure and sale is signed and even post-foreclosure sale, provided the judgment was issued upon default.

In light of the enactment of RPAPL § 1302-a, coupled with the concurring opinion of Associate Judge Rowan D.  Wilson, foreclosing plaintiffs may want to plead plaintiff as a noteholder in their complaints and thereafter prove they are the noteholders during the pendency of the foreclosure action. Failure to do so may prevent an enforceable judgment of foreclosure and sale from being obtained.

Copyright © 2021 USFN. All rights reserved.

Summer 2021 USFN Report

by Donna Case-Rossato
McCalla Raymer Leibert Pierce, LLC
(USFN Member - AL, CA, CT, FL, GA, IL, MS, NJ, NV, NY, OR, TX, WA)

The 2021 Legislative Session in Connecticut has concluded and the major mortgage banking-oriented legislation that passed impacts the existing Foreclosure Mediation Program and Emergency Mortgage Assistance Program.

Foreclosure Mediation Program
During this session, the Legislature once again addressed the state’s Foreclosure Mediation Program via Public Act 21-44, formerly Substitute Senate Bill No. 891.  The following sections were amended:

1.       C.G.S. Sec. 49-31l(a):  Mediation sunset date was extended to July 1, 2029.

2.       C.G.S. Sec. 49-31l(d):  An additional requirement for a “federally backed loan” was approved wherein the following must be provided so the Mediator can include them in their pre-mediation report:

a.       The history of the mortgagee’s compliance with any obligation to notify the mortgagor of loss mitigation or foreclosure alterative options available for that loan type; and

b.       The history of foreclosure avoidance efforts voluntarily undertaken by the mortgagee with respect to the mortgagor.

There has not been any guidance as what will satisfy the history of any obligation to notify or history of voluntary foreclosure avoidance efforts.  While loss mitigation history has been an optional inclusion in the past, it is one where details and documents have been infrequently provided.  Now that it is required, there will be a needle to thread for servicers and their counsel between providing sufficient information to satisfy the statutory requirement and not disclosing the mortgagor’s non-public financial information, as it is not clear how public the mediators will make this information through their public-record reports.

3.       C.G.S. Sec 49-31n(b):  The mediator now has the ability to conduct the mediation session on a virtual platform or grant a request for same, versus in-person appearances as previously required by statute.   It is anticipated that this will be widely granted due to the ease and efficiency of a remote hearing.

4.       C.G.S. Sec. 49-31n(b)(4)(I):  The history required to comply with Sec. 49-31i(d) for federally backed loans and included in the pre-mediation report will also be required to be included in the Mediator’s Reports.

Emergency Mortgage Assistance Program (“EMAP”)
Surprisingly, this act also amended certain sections of C.G.S. Sec. 8-265cc to 8-265kk, governing the Emergency Mortgage Assistance Program (“EMAP”) and notices required under that act. In what appears to be an attempt to ensure additional rights for surviving spouses, certain definitional sections were changed.  Specifically, throughout the statutes governing EMAP, the term “homeowner” is now being used versus “mortgagor.”  The definition of “mortgagor” was changed to “a homeowner who is also the borrower under a mortgage encumbering such real property.”  “Homeowner “is defined as the owner-occupant of residential real property. 

Most important is the addition of reverse mortgages and HECMS to this section.  Specifically, “Mortgage” was amended to include a reverse mortgage or home equity conversion mortgage on residential real property. 

Another change is the impact on the EMAP letter itself.  Under C.G.S. Sec. 8-265ee, as amended, the EMAP letter must now be sent to “each homeowner who is a mortgagor”.  Recall that a “homeowner” is the owner-occupant of residential real property.

The legislation has been signed by the Governor and these changes are effective October 1, 2021.

A link to the full text of the act:  https://www.cga.ct.gov/2021/ACT/PA/PDF/2021PA-00044-R00SB-00891-PA.PDF

Overall, this legislative session saw more things introduced and not emerge from committee (or emerge only to die on the floor of the General Assembly) than passed legislation that impacts our industry.

Copyright © 2021 USFN. All rights reserved.

Summer 2021 USFN Report