by Sara Tussey, Esq.
Rosenberg & Associates, LLC
USFN Member (DC, MD, VA)

The COVID-19 pandemic caused a widespread economic challenge leading to millions of Americans being unable to pay rent. While the federal government wanted to avoid mass homelessness during a pandemic, it was not clear how to accomplish the task, as evictions and other enforcement of property rights are generally areas controlled by the individual states. 

Congress included a federal eviction moratorium in the CARES Act, which applied only to federally related properties. There is little argument that Congress can restrict evictions on federally related properties as part of the requirements imposed on landlords who received federally backed funds. However, there was a push for something that could halt all residential evictions. This push led to the September 4, 2020, issuance of the “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19” Order (the “CDC Order”).

The CDC Order prohibited a landlord from evicting any qualified person for nonpayment of rent if the tenant filed the required CDC declaration. It differed from the earlier CARES Act moratorium in two important ways. First, it applied to all residential evictions in the United States, not just federally backed programs or loans. Second, it included criminal penalties, which carried individual fines of up to $250,000 or one year in prison. The immediate question raised by numerous plaintiffs was whether the CDC had authority to issue such a broad order.

There have been six major federal suits questioning the validity and/or constitutionality of the CDC Order since its issuance. Five of the suits made the same argument, that the CDC acted outside of its grant of authority in issuing the CDC Order. This argument focuses on the statute the CDC relied on to issue the order. Plaintiffs argue that the statute specifically limits the CDC’s authority to implement regulations involving inspection, fumigation, disinfection, sanitation, pest extermination and destruction of animals or articles believed to be sources of infection. Plaintiffs further argue that the broader reading of this statute to include the CDC limiting evictions, was over-reaching and would assume nearly limitless authority for the CDC, which was clearly not Congress’s intent.

The District Courts for the Northern District of Georgia and the Western District of Louisiana disagreed with this argument. They both determined that the CDC Order was necessary to control the COVID-19 pandemic and denied preliminary injunction requests. See Brown v. Azar, 497 F. Supp. 3d 1270 (N.D. Ga, 2020), Chambless Enters., LLC, v. Redfield, 2020 U.S. Dist. LEXIS 241269 (W.D. La., 2020).

However, the Northern District of Ohio and Western District of Tennessee agreed with Plaintiffs. In Skyworks, Ltd. V. CDC, 2021 U.S. Dist. LEXIS 44633 (N.D. Ohio, 2021), the Northern District of Ohio reasoned that the strict limitation on the CDC’s authority did not apply to evictions because it was not an animal or article. The Ohio court noted that the CDC moratorium was allowing some evictions to proceed, specifically where there was criminal conduct, damage to property, or other reasons unrelated to nonpayment of rent. The court could not see how those evictions were less likely to spread COVID-19 than those for nonpayment of rent.

Using similar reasoning, the Western District of Tennessee granted summary judgment to the plaintiffs in Tiger Lily, LLC v. HUD, 2021 U.S. Dist. LEXIS 59100 (W.D. Tenn. 2021). When appealed to the Sixth Circuit, the appellate court denied the government’s motion to stay because it found the government was unlikely to succeed on the merits. Tiger Lily, LLC v. HUD, 992 F.3d 518 (6^th Cir. 2021).

Finally, the D.C. Circuit weighed in with its opinion in Alabama Association of Realtors v. HHS, 2021 U.S. Dist. LEXIS 85568 (D.D.C. 2021). The reasoning closely followed Skyworks and Tiger Lily and agreed the CDC had overstepped its authority in issuing the order. But the D.C. District Court went a step further than the previous courts with their remedy and issued a vacatur order, which would vacate the CDC Order in its entirety, not just in the district where the case was pending. The government immediately appealed and requested an emergency stay, which the District Court granted. The decision to stay the order was appealed all the way to the Supreme Court, which declined to remove the stay.

Meanwhile, in an outlier case, the Eastern District of Texas considered one single issue: whether Congress has the authority to invoke a nationwide eviction moratorium. In Terkel v. CDC, 2021 U.S. Dist. LEXIS 35570 (E.D. Tx, 2021), the government argued it had such power under the Commerce Clause, however, the court agreed with the Plaintiffs that Congress did not have such broad authority. The court noted that the CDC Order made it a crime for a landlord to evict a covered tenant. Further, they noted, if this power was allowed, the federal government would be able to suspend all evictions long past the end of the pandemic for any reason. The court determined these areas were clearly related to property rights, an area traditionally regulated by the states. Therefore, the court found there is no Congressional authority to impose a nationwide ban on evictions, so no such authority could be granted to the CDC.

While all six suits continue to move through the federal court system, the expiration of the CDC Order at the end of July will make these cases moot. However, they will remain as meaningful contributions to the case law regarding what steps the federal government can take against parties seeking to enforce their property rights during a large-scale economic crisis.

Copyright © 2021 USFN. All rights reserved.

Summer 2021 USFN Report

USFN is pleased to announce Schneiderman & Sherman, PC, has been selected as one of its newest members. Schneiderman & Sherman’s default practice is based in Michigan. 

“Applying for USFN membership is an extensive application and vetting process for applicants. It is experienced, reputable firms like Schneiderman & Sherman who have demonstrated success that ultimately become America’s Mortgage Banking Attorneys. We are delighted to welcome Schneiderman & Sherman as a new USFN member,” said Pamela L. Donahoo, CAE, USFN CEO. 

“Through the education and partnership provided by USFN and its members we look forward to continuing to serve our clients with excellence. Our excellence is our team and their approach to providing tailored legal services. Our reputation was built on consistency, transparency, and cost-effective legal solutions. We are thrilled to be joining our esteemed colleagues in USFN and will continue our long-standing tradition of industry participation and leadership with such an exceptional organization,” said Schneiderman & Sherman Managing Partner Neil Sherman. 

Learn more about USFN’s newest member Schneiderman & Sherman at www.sspclegal.com.

Copyright © 2021 USFN. All rights reserved.

by Shellie Wallace, Esq.
Wilson & Associates, P.L.L.C.
USFN Member (AR, MS, TN)

Last year, the Arkansas Supreme Court issued an opinion in Davis v. PennyMac Loan Services, 2020 Ark. 180, 599 S.W.3d 128 (Ark. 2020), concluding that Notices of Default in Arkansas must be very specific. The language of that opinion created upheaval in the REO market and led to litigation over foreclosures that occurred years ago.

While much of the litigation has been resolved and dismissed, the Arkansas General Assembly has now spoken on the matter. The House and Senate overwhelmingly passed a bill, AR Act 1108, that would end challenges to a statutory foreclosure for failure to strictly comply with the statute if those claims are not brought within thirty days of the foreclosure sale.  

Additionally, the bill is retroactive to 2011, the year the General Assembly created additional notice requirements within the statutory foreclosure act. AR Act 1108 became law on May 4 and goes into effect July 27, 2021.

Copyright © 2021 USFN. All rights reserved.

June 2021 e-Update

by Kevin Hildebeidel, Esq.
Cohn, Goldberg & Deutsch, LLC
USFN Member (DC, MD)

There are two separate eviction moratoriums governing the District of Columbia, one national and one local. Both have been challenged and, as of the date of this article, both remain in effect. The District Court in Washington, D.C. released a decision on May 5, 2021, in the case of Alabama Association of Realtors et al. v. United States Dep’t of Health and Human Services, et al. 20-cv-3377 (DC DC 2021), in which it found the national eviction moratorium issued by the Center for Disease Control unsupported in the applicable law. The Court indicated it would vacate that moratorium. An appeal to the U.S. Court of Appeals for the District of Columbia Circuit has been noted and an emergency motion to stay the effect of the order was filed by the Department of Health and Human Services. On May 14, 2021, that motion was granted.^[1] A few days later the Realtors stated their intention to file an application with the United States Supreme Court to vacate the stay. On June 2, 2021, the stay was sustained by the D.C. Circuit Court. The Supreme Court matter remains pending with a response to the application due by 5 P.M. June 10, 2021.^[2]

The local District of Columbia prohibition codified at D.C. Code § 16-1501(b) continues to prohibit evictions during a public health emergency and for 60 days following the end of the emergency. The emergency was recently extended for an indefinite period of time, see May 17, 2021, Order 2021-069.^[3] District of Columbia law is unclear on exactly when that will end although a vote in mid-May indicated the emergency was extended to July 25.^[4] The stated reasons for the extension were to continue to receive federal funds and aid.

The local eviction prohibition in D.C. was directly challenged on Constitutional grounds as was the 60-day period following the end of the emergency. The D.C. Superior Court combined multiple challenges and held in December 2020 that there was no rational connection and no rational purpose to prohibit evictions generally and even less reason for the 60-day period after the end of the emergency. It specifically noted the problem of tenants who commit non-monetary violations of their lease or have been foreclosed or are simply squatters and found D.C. failed to show proper cause for the denial of the Plaintiff landlords’ rights or how the dramatic relief would result in any net public benefit (although the Court did not reach the Constitutional taking issue).^[5] Accordingly, D.C. Code § 16-1501(b) was held unenforceable. Although initially favorable for landlords and lenders, those cases have been appealed and, partially at the urging of local legal aid providers,^[6] an administrative stay has been entered pending that appeal, so the law remains in effect at this time.

The D.C. City Council appears to be proceeding as if their ban will be sustained, recently passing a measure which would allow very limited evictions to proceed against persons who pose a physical risk to their neighbors. That bill is currently with the mayor for review and no other evictions were permitted. There remains a substantial likelihood that the council, Office of Attorney General and other enforcement agencies in the District will take the position that D.C. law is broken by filing any other eviction proceedings until 60 days following the end of the emergency.

It should also be noted that federal GSE moratoriums may still apply to owner-occupied residential property.

All of the foregoing factors should be considered and reviewed before deciding when to pursue evictions in the District of Columbia.  Since this is a rapidly evolving situation, consultation with knowledgeable counsel is recommended before action.

Copyright © 2021 USFN. All rights reserved.

June 2021 e-Update

<sup>[1] The trial judge found DHHS had little chance of success on the merit but appears to have been swayed by the risk of irreparable harm if the stay was not granted.

[2] See S, Ct. Case 21-5093 docket here https://www.supremecourt.gov/docket/docketfiles/html/public/20a169.html (last accessed 6/9/21).

[3]  “… the public emergency and public health emergencies first declared on March 11, 2020 by Mayor’s Orders 2020-045 and 2020-046 are extended for so long as District of Columbia law extends the emergency.”  (last accessed June 9, 2021).

[4] https://dccouncil.us/council-passes-comprehensive-plan-allows-mayor-to-extend-public-health-emergency/

[5] See decision in the consolidated cases here https://www.dccourts.gov/sites/default/files/matters-docs/General%20Order%20pdf/order-re-filing-moratorium-for-eviction-cases-12-16-20.pdf. 

[6] https://www.legalaiddc.org/wp-content/uploads/2021/02/Amici-Curiae-Filing-in-Support-of-Districts-Motion-for-Stay.pdf</sup>

Scott & Corley, P.A. (USFN Member - SC) is proud to announce that its Firm Chairman, Ronald “Ron” C. Scott, and Firm President, Reginald “Reggie” P. Corley, have been recognized by Super Lawyers Magazine® and are 2021 Super Lawyers^® selections in the practice area of Creditor-Debtor Rights.  In addition, Ron has been selected to Super Lawyers^® for five consecutive years. Reggie was previously selected to the Rising Stars list prior to his selection to the Super Lawyers^® list for 2019 - 2021. Likewise, Matthew "Matt" E. Rupert, Supervising Real Estate Attorney, has been selected to the Rising Stars list in 2020-2021 for the practice area of Real Estate. 

Super Lawyers^®, a Thomson Reuters business, rates attorneys from more than 70 practice areas and honors lawyers who have attained a high degree of peer recognition and professional achievement. Results are achieved using a patented selection process which includes peer nominations and peer evaluations.  

Scott & Corley, P.A. practices primarily in the areas of mortgage default banking, real estate closings, and creditor-debtor rights. The Firm has been named a Tier 1 firm in Columbia, South Carolina, in its primary practice area of mortgage banking and default for 2021 “Best Law Firms” by U.S. News - Best Law Firms®. Ron has been recognized for 12 consecutive years (2010-2021) and Reggie for the past four years (2018-2021) in The Best Lawyers in America^®. Ron was also selected 2018 “Lawyer of the Year” by Best Lawyers® in the Firm’s primary practice area of mortgage banking/foreclosure law. 

Ron has been awarded the Order of The Palmetto, the state’s highest civilian award for his extraordinary lifetime of service and achievements of national or state significance. He was also selected for the inaugural 2018 class of the South Carolina Lawyers Hall of Fame as well as honored as a member of the inaugural class of 10 South Carolina-based attorneys for the 2019 Diversity & Inclusion Award, both awards presented by South Carolina Lawyers Weekly^®. Reggie was also selected in 2017 for the prestigious Riley Diversity Leadership Fellows Initiative. Together with his selection to the Rising Stars list for 2021, Matt is likewise a repeat selection to Columbia Business Monthly’s Legal Elite of the Midlands.

Copyright © 2021 USFN. All rights reserved.

by Jane E. Bond, Esq.
McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NJ, NV, NY, OR, TX, WA)

As nearly every institution has done during the pandemic, courts across the country continue to adapt to keep the wheels of justice moving. While judges, attorneys, and witnesses continue to learn to use technology to work remotely during the COVID-19 crisis and effectively handle hearings and trials, some courts are starting to return to in-person hearings and in-person jury trials while following strict adherence to health and safety protocols established by the Center for Disease Control (CDC).

States have varying requirements, each based on their individual court system, as to what is allowed; and USFN member firms around the country are up to date on the current status of their courts. In Utah, New Mexico, New York, Louisiana, and Florida the courts are open, and slowly but surely, moving forward with some foreclosure cases.

Utah
by Benjamin J. Mann, Esq.
Halliday, Watkins & Mann, PC
USFN Member (CO, ID, MN, MT, NE, ND, SD, UT, WY)

As a result of stay-at-home orders connected to the COVID-19 pandemic, courts have had to adapt their current procedures. Nowhere is this more evident than in evidentiary hearings and jury trials. Utah courts are, absent "exigent circumstances", conducting all evidentiary hearings, trials and appellate hearings via Webex. The specific logistical instructions for courts and litigants are governed by a "Risk Phase Response Plan." The risk phases are "Green (new normal) ", "Yellow (low risk)" and "Red (moderate or high risk) ". Court facilities are in differing phases (currently Yellow or Red) based on county-level COVID rates.

Green Phase Response Plan Summary:

• In-Person Hearings are allowed;
• Remote Hearings can be considered when it is the most effective use of time and resources; and
• Courts will continue to consider the needs and requests of vulnerable persons and provide reasonable accommodations.

Yellow Phase Response Plan Summary:

• Courts are encouraged to conduct remote proceedings as much as feasible. In person hearings can only be held if the hearing can be conducted in a safe social distancing manner;
• Social Distancing in common areas, workspaces and courtrooms;
• Courtrooms may have new capacity limits based upon the size of the room; and
• Face covering is required for court patrons and staff.

Red Phase Response Plan Summary:

• All restrictions that apply to Yellow Phase, apply to Red Phase;
• All court proceedings are handled remotely;
• If a hearing or trial must be conducted in person, judges are encouraged to continue hearings; and
• No civil jury trials.

Almost all hearings in Utah are being conducted via Webex. No jury trials are being held in a county where "Red Phase" conditions are in effect and judges are instructed to liberally grant motions for extensions of time. Additionally, the courts have been receptive to motions to continue rather than dismiss matters for lack of prosecution.

In terms of submitting evidence, it is introduced in PDF form and all documents should be individually bates-stamped. Stipulations ahead of time regarding admissibility, authentication, designation of documents, etc. are extremely helpful and strongly encouraged. Webex allows screen-sharing so that all parties can view a document at the same time. However, most trial judges do not use this feature, and instead pull up and view exhibits and attachments on their personal computer on an as-needed basis. Witnesses testify remotely, which can create some logistical difficulties when the witness needs to review a document. Screen-sharing is usually necessary here, and this can slow the proceedings down.

New Mexico
by Jason Bousliman, Esq.
McCarthy Holthus, LLP
USFN Member (AZ, AR, CA, CO, ID, NV, NM, OR, TX, WA)

In New Mexico, the majority of civil hearings, bench trials, and mediations continue to be held via Zoom, Microsoft Teams or Google Meet. At the outset of COVID-19, the Land of Enchantment moved quickly and aggressively away from in-person hearings and away from requiring the use of Court Call for remote attendance. Each court has their own preferred platform although Google Meet seems most prevalent throughout the state. New Mexico courts have been setting up the invitation on their own and circulating the appropriate link to the parties in advance of the hearing.

It should be noted that while the United States Bankruptcy Court for the District of New Mexico has allowed telephonic appearance at preliminary hearings, it has otherwise “highly encouraged” in-person attendance for both attorneys and witnesses at final evidentiary hearings. Attorneys wishing for themselves or their clients to appear via video in bankruptcy court must submit a request for video appearance no less than two weeks in advance of the final hearing date. Introduction of evidence at video hearings has been through either a screen share or exhibit notebook submission prior to the hearing depending on the preference of the court. As COVID infection rates continue to fall, New Mexico attorneys are expecting a return to normal in-person attendance in the summer or fall of 2021.

New York
by Michelle Maccagnano, Esq.
Frenkel Lambert Weiss Weisman & Gordon LLP
USFN Member (FL, NJ, NY)

COVID-19 has had a huge impact on the New York courts. There has been little movement of foreclosure cases in New York and the slow pace is expected to continue due to the enactment of the COVID-19 Emergency Eviction and Foreclosure Act, signed into law on December 28, 2020. Despite the stays and moratoriums, the courts have adapted, and cases are moving forward.

Appellate courts have been hearing matters virtually using video conferencing primarily through Microsoft Teams. The attorney logs into the video conference, in advance of the scheduled time to check in and ensure that he/she is properly connected. Once checked in, the attorney waits in a virtual lobby until their case is called. Oral arguments are still recorded and available for review online and attorneys are still expected to be dressed appropriately despite the virtual format.

All lower court matters are conducted by video conference via Microsoft Teams. Attorneys usually have the option of calling into the conference or proceeding by video. Appearances are conducted in normal fashion before the judge, referee or law secretary. The parties have the opportunity to make arguments and respond to both their adversary and the court. Some courts place the attorney in a virtual lobby where they are forced to wait until the case is called, while others assign a specific time to the matter which has helped in reducing wait times in the virtual lobby. 

Virtual appearances in New York are proceeding well overall, but the technology is not perfect, and glitches and connectivity issues do occur. Despite these issues, which are occurring far less frequently as time goes by, the ability to practice law remains fair and effective and of course, an overwhelming benefit of the new virtual format is the elimination of travel time and commuting to court appearances.

Louisiana
by L. Graham Arceneaux, Esq.
Graham Arceneaux Allen, LLC
USFN Member (LA)

General Orders issued by the Supreme Court of Louisiana authorize and encourage remote hearings in the State of Louisiana due to the COVID-19 pandemic and most Louisiana courts are conducting electronic/virtual hearings in order to allow for safe participation by all parties.^[1] Federal Courts have mandated the use of electronic hearings until further notice^[2] and while these hearings are reducing the number of in-person court appearances, there are challenges inherent in such proceedings and new requirements which practitioners must be aware of before making a virtual appearance.

Many courts have developed rules specifying how to submit evidence for electronic/virtual hearings. Typically, evidence must be submitted electronically prior to the hearing date with copies provided to other parties. It is recommended that attorneys give themselves ample time to prepare for hearings and to call the judge’s chambers to determine how evidence is to be submitted in that specific court.

A limiting aspect of virtual hearings is the impossibility to assess the demeanor of your witness. A recent example occurred during 341(a) questioning of a husband and wife suspected of hiding a creditor’s assets, where pauses after questions and other cues made it apparent that the husband was writing the answers for the wife to recite. This was a telephonic hearing and, without video, this could not be proven.

Technical issues are also common in remote platforms. Testing the video and audio before appearing ensures any unexpected issues such as making an appearance as a cat! Attorneys can be deemed absent from electronic/virtual hearings and recorded as making no appearance due to technical difficulties such as failure to unmute audio. However, with all the potential hazards of appearing virtually, such appearances are beneficial as they save both time and costs of making in person appearances.

In Louisiana, litigation is taking place based on a Zoom hearing. An appeal is pending where the borrower claims the Zoom hearing prejudiced his right to present evidence, but there has been no ruling as of the date of this article.

Florida
by Jane E. Bond, Esq.
McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NJ, NV, NY, OR, TX, WA)

Florida hearings and trials are continuing on remote platforms, with specific Judges requesting in-person hearings. Upon request by a party, the Judges will usually allow a remote appearance if, due to COVID-19, there is an objection raised as to safety. Foreclosure trials are moving forward on remote platforms with some learning curve for all involved. Trials may take longer with the presenting of evidence on a shared screen, with some trials taking up to six hours or more.

There are no moratoria in Florida on the filing of a foreclosure or eviction, other than the investor moratoria. Some judges in Florida are beginning to become less patient with the lengthy moratoria and are becoming concerned with the backlogs of cases. Addressing a legislative committee in January 2021, Florida Supreme Court Chief Justice Charles T. Canady reported Florida courts are on track to dispose of 2.8 million cases this year despite the pandemic, largely with the help of remote technology. But the courts still expect to face 1.1 million pending cases by the end of June, not counting an additional 145,000, pandemic-generated cases, including evictions and foreclosures, according to Justice Canady. “When we get to things that are more like normal, there’s going to be a pile of work,” he said. “It’s a challenge that’s not going to be met in just six months.”

To move their dockets, a few judges, on their own initiative, are starting to send Notices of Trial without any party requesting the same. In response, motions to continue the trial are filed, sometimes granted and sometimes denied, as there seems to be no uniformity even within the same judicial circuit.

Denying requests to stay cases and Lack of Prosecution notices are now becoming more frequent with no movement on pending cases for over one year. As the moratoria continue, servicers will need to start making the choice whether to move forward with a case or dismiss a case as there may be no other option. Keep in mind, attorneys’ fees may be due to opposing counsel upon the dismissal of a case, if a responsive pleading was filed. This can be costly to the servicer, a risk factor that should be considered before dismissing a case.

New issues will arise in 2021 as the moratoria continue to provide homeowners relief under the pandemic. The remote platforms are a welcome addition as an alternative to in-person hearings and trials, and many courts will continue the remote hearings into the future with or without the pandemic. Most agree, remote hearings are here to stay for routine non-evidentiary hearings. For evidentiary hearings and trials, courts will vary, and many will start to require in-person hearings as the pandemic wanes.

Copyright © 2021 USFN. All rights reserved.

Spring 2021 USFN Report

by Ryan Bourgeois, Esq.
Barrett Daffin Frappier Turner & Engel, LLP
USFN Member (AZ, CA, CO, GA, NV, TX)

The Texas Supreme Court handed mortgage lenders a significant victory in Texas over statute of limitations claims by borrowers. The court ruled in PNC Mortg. v. Howard, ___ ‎S.W.3d ___, 2021 WL 297579, at *1 (Tex. 2021) (per curiam) that despite a mortgagee’s deed of trust being barred by the statute limitations, the mortgagee may still assert equitable subrogation rights in a separate action.

The borrowers in this case purchased their house in 2003 with two purchase money loans. In 2008, the borrowers refinanced their home with Bank of Indiana and paid off the two purchase money loans. The loan was later assigned to National City Mortgage which later merged with PNC, eventually defaulted, and Bank of Indiana foreclosed on the property. The borrower sued alleging Bank of Indiana did not have standing to sue since the loan had been assigned to National City Mortgage. The trial court voided the foreclosure, leaving only the borrowers remaining claims.

PNC then counterclaimed for judicial foreclosure, but due to concerns over the statute of limitations, added a claim for foreclosure under its equitable subrogation rights. PNC argued that, under Texas Law, a lender which pays off a prior lien on a property steps into the shoes of that prior lender up to the amount advanced to pay off the prior lien. The lender may exercise the same rights the prior lender may have had in that prior lien. However, the trial court held that PNC’s right to foreclose was barred by the statute of limitations including its rights under equitable subrogation which was barred when the underlying lien became unenforceable. The appeals court later confirmed this decision.

After the appellate court issued its ruling, the Texas Supreme Court in Fed. Home Loan Mortg. Corp. v. Zepeda, 601 S.W.3d 763, 764 (Tex. 2020) ruled that a lender was entitled to enforce a lien based on equitable subrogation even when the lender had failed to cure a fatal defect in a Texas Home Equity Loan. Based on this ruling, PNC appealed to the Supreme Court arguing that the appellate court decision should be reversed based on the opinion in Zepeda.

The Supreme Court agreed with PNC and held that the equitable subrogation claims of PNC were not barred by the statute of limitations having run on the underlying loan. Based on its ruling in Zepda, the court held that equitable subrogation rights are fixed at the time the proceeds are used to discharge an earlier lien. A lender’s failure to protect its own lien does preclude the lender of its rights in equity to bring claims under an earlier lien that was satisfied from the proceeds of its lien. The court reasoned that allowing equitable subrogation provides a hedge to lenders against the risk of paying of prior liens thereby increasing the availability of credit to borrowers.

This ruling gives lenders additional protections should their lien become unenforceable by the statute of limitations. In order to enforce the equitable subrogation rights, the lender will need to file a separate action again the borrower. Their rights would also only be protected up to the amount they advanced to pay off prior liens and lenders should consult with local counsel on how best to enforce these new rights on qualifying loans.

Copyright © 2021 USFN. All rights reserved.

Spring 2021 USFN Report

by Keith Abramson, Esq.

Frenkel Lambert Weiss Weisman & Gordon, LLP

USFN Member (FL, NJ, NY)

On February 18, 2021, the New York State Court of Appeals issued an opinion in four cases involving the application of New York’s statute of limitations with respect to mortgage foreclosure claims.  This article focuses on the issues raised in two of those cases: Wells Fargo v. Ferrato and Vargas v. Deutsche Bank. 

General Principles
The central focus of the opinion in both Wells Fargo v. Ferrato and Vargas v. Deutsche Bank is on the event of acceleration, a contractual right typically enjoyed by noteholders upon a default by the borrower, whereby the noteholder may demand immediate payment in full of the entire balance of the loan, and which permits the noteholder to commence an action seeking the remedy of foreclosure. 

The option to exercise this contractual right (of acceleration) is typically a matter within the noteholder’s discretion and requires an “unequivocal overt act” such as the filing of a foreclosure complaint demanding repayment of the entire outstanding debt.  Because a cause of action to recover the entire balance of the debt accrues at the time the loan is accelerated, it is the event of acceleration that triggers the six-year statute of limitations to commence a foreclosure action.

Wells Fargo v. Ferrato and Vargas v. Deutsche Bank each involves a dispute as to whether, and when, a valid acceleration of the debt occurred, triggering the six-year limitations period to commence a foreclosure claim. 

Wells Fargo Bank N.A. v. Ferrato (Modifications and Motivations)

The central issue in Wells Fargo Bank v. Ferrato was whether the commencement of either of two prior foreclosure actions, where the plaintiff sought to foreclose upon the original note and mortgage – without reference to a 2008 loan modification – was sufficient to accelerate the mortgage debt. 

The case at bar concerns no less than five foreclosure actions involving the same property, the last of which was commenced in December 2017.  Ferrato moved to dismiss the 2017 action, arguing that the debt was accelerated by the commencement of a prior foreclosure action (the second) in September 2009, and that the statute of limitations expired in September 2015, rendering the 2017 action untimely. 

It was undisputed “that the parties modified the original loan in 2008 after Ferrato’s initial default, changing the terms by altering the interest rate and increasing the principal amount of the loan by more than $60,000.”  Nevertheless, in two prior foreclosure actions (the second and third), Wells Fargo attached only the original note and mortgage to the complaint and failed to acknowledge the existence of the modification agreement (“the only oblique evidence of a modification was in an attached schedule stating a principal dollar amount consistent with the modified debt”).  Notably, Ferrato successfully moved to dismiss both prior actions based on these deficiencies. 

While it is well settled that the filing of a verified foreclosure complaint may evince an election to accelerate, the Court of Appeals, in Wells Fargo, held:

[H]ere the filings did not accelerate the modified loan (underlying the foreclosure action) because the bank failed to attach the modified agreements or otherwise acknowledge those documents, which had materially distinct terms.  Under these circumstances – where the deficiencies in the complaints were not merely technical or de minimis and rendered it unclear what debt was being accelerated – the commencement of these actions did not validly accelerate the modified loan. 

Thus, while the Wells Fargo opinion was favorable to the plaintiff in terms of statute of limitations implications, foreclosing plaintiffs should be forewarned that a failure to reference modifications to the original note and mortgage in the complaint renders the complaint subject to dismissal as insufficient to accelerate the mortgage debt.

The Court addressed one more issue in Wells Fargo v. Ferrato, where, in another prior action (the fourth), Wells Fargo had moved to both voluntarily discontinue the action and to revoke the acceleration of the loan.  The trial court granted the motion to discontinue but denied revocation, stating, without explanation, that “the acceleration of the subject loan is NOT revoked””.  Affirming the trial court’s order, the Appellate Division held “that Wells Fargo could not de-accelerate because it “admitted that its primary reason for revoking acceleration of the mortgage debt was to avoid the statute of limitations””. 

The Court of Appeals reversed, expressly rejecting the theory reflected in several Appellate Division and Supreme Court decisions, “that a lender should be barred from revoking acceleration if the motive of the revocation was to avoid the expiration of the statute of limitations on the accelerated debt.”  To the contrary, the Court of Appeals held that a noteholder’s motivation for exercising a contractual right is generally irrelevant. 

Finally, the Court noted that a noteholder may be equitably estopped from revoking its election to accelerate, but only upon a showing that the defendant materially changed her position in detrimental reliance upon the loan acceleration. 

Juan Vargas v. Deutsche Bank National Trust Company (Statements of Future Intent)
In Vargas, an action pursuant to RPAPL 1501(4) to discharge a mortgage as time-barred, the parties disputed whether a default letter issued by the bank’s predecessor in interest validly accelerated the debt.  The Court acknowledged, consistent with settled case law, “that the acceleration of a mortgage debt may occur by means other than the commencement of a foreclosure action, such as through an unequivocal acceleration notice transmitted to the borrower.”

The issue before the Court was whether the language of the default letter was sufficiently unequivocal to constitute a valid election to accelerate.

The Court’s decision in Vargas was heavily fact-dependent and relied upon a thorough examination of the default letter.  The letter at issue informed Vargas that his loan was in serious default because he hadn’t made his required payments, but that he could cure the default by paying approximately $8,000 “on or before 32 days from the date of [the] letter.”  The letter further advised that, should he fail to cure his default, the noteholder “will accelerate [his] mortgage with the full amount remaining accelerated and becoming due and payable in full, and foreclosure proceedings will be initiated at that time” [emphasis added]. 

However, the letter went on to warn that the “[f]ailure to cure your default may result in the foreclosure and sale of your property” [emphasis added]. 

On these facts, the Court of Appeals held that the letter “did not seek immediate payment of the entire, outstanding loan, but referred to acceleration only as a future event”.  Nor, according to the Court, was the letter “a pledge that acceleration would immediately or automatically occur upon expiration of the 32-day cure period.” The Court noted that the letter “subsequently makes clear that the failure to cure “may” result in the foreclosure of the property, indicating that it was far from certain that either the acceleration or foreclosure action would follow, let alone ensue immediately at the close of the 32-day period.” 

It is clear from the holding in Vargas that acceleration may be accomplished through an unequivocal acceleration notice transmitted to the borrower, and a different result may have been reached if not for the inconsistent and somewhat ambiguous language contained in the default letter in Vargas. Accordingly, lenders must be careful to avoid the use of unequivocal language of acceleration in their default letters unless it is their intention to accelerate the debt by such notice. 

Copyright © 2021 USFN. All rights reserved.

Spring 2021 USFN Report

by William R. Dziedzic, Esq.
Bendett & McHugh, P.C.
USFN Member (CT, MA, ME, NH, RI, VT)

The Connecticut Appellate Court in Bank of New York Mellon v. Achyut Tope Et al, 202 Conn. App. 540 (2021), affirmed a judgment of foreclosure where the appellant sought to open and vacate a judgment based on a lack of subject matter jurisdiction. In Connecticut, the rules of practice allow for an attack on subject matter jurisdiction at any time.  The trial court denied the motion.  In affirming the judgment, the appellate court reasoned that Defendant’s post judgment motion constituted an impermissible collateral attack on the foreclosure judgment.

According to the record, the defendant filed a motion to open and vacate the foreclosure judgment on the grounds that the plaintiff did not have standing. In denying the motion, the trial court reasoned that the court will not continue to revisit issues that have been previously decided and that constitute the law of the case. The trial court had previously ruled on the issue of standing in granting summary judgment and ruling on a similar motion to open the judgment.

On appeal, the defendant claimed the trial court erred in denying his motion. The appellate court disagreed and reasoned that the defendant was afforded multiple opportunities to present his arguments in full to the trial court. And absent facts and circumstances that constitute the exceptional case in which the lack of jurisdiction was so manifest as to warrant review it declined to consider the collateral attack to the subject matter jurisdiction of the court.

This decision by the Connecticut Appellate Court puts a limitation on a foreclosure defendant’s ability to continue to challenge subject matter jurisdiction vis-`a-vis lack of standing. Absent facts or circumstances showing that the trial court’s lack of subject matter jurisdiction is obvious it will be considered an impermissible collateral attack on the foreclosure judgment.

There was a dissenting opinion. The dissent reasoned that because the challenge to standing implicated the court’s subject matter jurisdiction, it would reverse the judgment and remand the case for a determination on the jurisdictional issue. With this split decision it is possible the Connecticut Supreme Court will examine the issue in the future.

Copyright © 2021 USFN. All rights reserved.

Spring 2021 USFN Report

We loved being Re:United with you, albeit virtually, in March as we mixed it up and learned some little-known facts about our colleagues all in the name of charity. Thanks to you, $5,000 was raised and donated to the winning charity, The Ruth Cheatham Foundation.

While it was certainly not the same as being in-person like our inaugural Bankruptcy Issues Seminar last year, 27 members and 30 servicers still enjoyed a timely, relevant, and information-packed virtual event this year on February 25. In-depth sessions focused on the bankruptcy challenges of a pandemic world, while short brain breaks allowed for networking and additional Q&A time.

Additionally, we expanded our Issues Seminar lineup this year to include the all-new Technology & Remote Work Issues Seminar online on April 14. USFN members, associate members, and servicers discussed remote employment, new technologies, anticipated changes to audit/oversight standards, and the silver lining to it all.

Next up on the Issues stage is USFN’s signature Legal Issues Seminar on July 13 & 14. While the in-person event will return to Chicago in Summer 2022, this year’s two-day online seminar will still feature CLE, panels on hot litigation topics, ethics and compliance strategies, and speaker and member roundtables that you have come to expect from this go-to annual event. 

Then finally, an REO/Eviction Issues Seminar will round out the Issues events this fall on October 20. 

To date, more than 600 people have viewed the recordings from the October 2020 Learning Lab series. If you haven't watched these educational videos, there's still time. While you can still register to watch the video series though December 2021, watching them sooner rather than later will help prepare you for the May launch of Learning Lab 2.0, an all-new series that takes a deeper dive into default servicing operations. Register your team today to put default processing under the microscope in Learning Lab 2.0 on May 5, 12, 19 & 26. This four-part series is designed for those who have completed all eight Learning Lab: Core Concept modules or have 1 to 4 years of default servicing experience.

As we prepare for the remainder of our 2021 education calendar, the USFN team, Board of Directors, and Education Committee continue to review the possibilities of future in-person events, though the health and safety of all our members and servicers remain our highest priority. Be sure to bookmark USFNevents.org as your go-to resource for more information as we finalize events and watch your USFN email for updates and announcements.

Copyright © 2021 USFN. All rights reserved.
 
April 2021 e-Update
 

by James E. Clarke, Esq.
Orlans PC
USFN Member (DC, DE, MA, MD, MI, NH, RI, VA)

Several changes will impact Virginia foreclosure procedure related to owner-occupied properties.  First, the Notice of Sale must be sent 60 days prior to sale rather than 14 days. Correspondingly, lien holders entitled to notice (HOA/COA, subordinate mortgage/deeds of trust) must be on record 75 days prior to the sale to be entitled to notice.  Second, the Notice of Sale must include the website for HUD Office of Housing Counseling Agencies in addition to the phone number and website for the statewide legal aid center.  

Additionally, the notice must contain a warning that the notice is not a notice to vacate and to encourage the recipient to contact an attorney, legal aid, or counseling agency. Third, the Notice of Sale sent to the homeowner must include 1.) the date last payment was received, 2.) the amount of that payment, 3.) a reinstatement, and 4.) a payoff.  Fourth, the party mailing the Homeowner Notice, must execute an affidavit that the notice was sent along with a copy of the notice. Fifth, prior to sale, the trustee must provide copies of the affidavit and homeowner notice with financial data redacted, to each potential bidder at the sale. For non-owner-occupied properties, no changes are required.  

Absent direct evidence the property is not owner-occupied (e.g. vacant/abandoned/boarded or confirmation from the homeowner) we recommend treating any occupied property as owner occupied.  Changes will take effect July 1, 2021 with portions delayed until October 1, 2021. A copy of the legislation can be found at legp604.exe (virginia.gov).
 
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April 2021 e-Update

BWW Law Group, LLC (USFN Member - DC, MD, VA) is proud to celebrate our 25th Anniversary!

We would like to take this opportunity to thank our clients, industry partners, colleagues, and friends for being instrumental to our company’s success over the last 25 years.

We look forward to continuing our partnerships for years to come.

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