by Jeff Horn, Esq.
Rubin Lublin
USFN Member (AL, GA, MS, TN)

One of the common questions that we encounter in the loan default industry is whether a lender’s security interest has priority over a homeowners’ association (“HOA”)^[i] lien for assessments or a condominium owners’ association (“COA”) lien for assessments. This article describes the statutes in Tennessee, Alabama, and Mississippi that govern lien priority for COA assessments and HOA assessments versus mortgages and other security interests.  However, in each of these states, there are situations where there are no applicable statutes that address lien priority. In those cases, it is necessary to thoroughly review the HOA or COA documents in order to determine whether a mortgage lender’s foreclosure will extinguish the lien for assessments.

In Tennessee, there are no statutes governing the priority of HOA liens versus security instruments. Therefore, it is necessary to review the HOA documents in order to determine whether the lender or the HOA has priority. It is common for HOA declarations to contain provisions making HOA assessments subordinate to first mortgages or deeds of trust on the unit recorded prior to the date on which the assessment sought to be enforced became delinquent. However, because these documents can vary, they should be reviewed carefully.

COA liens are often governed by the Tennessee Condominium Act of 2008, as amended in 2016,^[ii] which is applicable to all condominiums created within the state after January 1, 2009. The provisions of the Tennessee Condominium Act of 2008 that address lien priority also apply to condominiums created before January 1, 2009, but they only apply with respect to events and circumstances occurring after January 1, 2009 and do not invalidate or supersede existing provisions of the master deed, master lease, declaration, bylaws, or plats of those condominiums existing on January 1, 2009. In addition, condominiums existing before January 1, 2009 may elect to be governed by the Tennessee Condominium Act of 2008.

The Act provides that a COA has a lien on a unit for any assessment levied against that unit or fines imposed against its unit owner from the time the assessment or fine becomes due. A first or other contemporaneous mortgage or deed of trust on the unit recorded before the date on which the COA lien is perfected in the Register of Deeds Office has priority over a COA lien under this section.^[iii] Nevertheless, upon a foreclosure action, the COA shall be entitled to priority in the proceeds from the foreclosure sale to satisfy the COA lien up to the extent of the commons expense assessments based on the periodic budget adopted by the COA that would have become due in the absence of acceleration during the six months immediately preceding the institution of a foreclosure action, but not exceeding one percent of the maximum principal indebtedness of a lien secured by the first mortgage or deed of trust. Upon foreclosure by the holder of a superior mortgage or deed of trust, the sale and foreclosure will be subject to the COA lien up to the payment priority amount. However, the payment priority provisions of the statute can be rendered inapplicable in cases where the unit owner or lender gives proper notice of the lender’s identity and contact information to the COA and the COA fails to give written notice to the lender within thirty days of the date that six months of assessments for common expenses due from the unit became delinquent. Any foreclosure by the COA of its lien for assessments shall be subject to any prior mortgage or deed of trust encumbering the property and shall not extinguish the lien of such mortgage or deed of trust. A lien for unpaid assessments is extinguished unless proceedings to enforce the lien are instituted within six years after the date of the lien for the assessment becomes effective.    

The Alabama Homeowners’ Association Act^[iv] governs residential developments in Alabama subject to a declaration providing for an HOA recorded in the office of the judge of probate in the county in which the development, or any part thereof, is located on or after January 1, 2016. It also applies to residential HOAs formed prior to that time, provided that the HOA, by a majority vote of its members, elects to be governed by the Alabama Homeowners’ Association Act. The statute does not apply to real estate cooperatives, time-share developments, or campgrounds. The Act establishes, except as may otherwise be provided in the governing documents of the HOA, a lien for unpaid assessments arising on and from the date the assessment is due. However, mortgages and deeds of trust securing indebtedness have priority over the lien in favor of HOAs declared by the statute. For HOAs that are not governed by the Alabama Homeowners’ Association Act, it is necessary to review the governing documents for the HOA in order to ensure that the HOA assessments are not superior to the lender’s mortgage or deed of trust.

Both the Condominium Ownership Act (the “Ownership Act”)^[v] and the Alabama Uniform Condominium Act of 1991 (the “Uniform Act”)^[vi] govern COAs in Alabama. The Ownership Act existed prior to the Uniform Act and is still applicable to condominiums created before January 1, 1991, except where it has been superseded by the Uniform Act. Owners of condominiums existing under the Ownership Act are also permitted to adopt advantageous provisions of the Uniform Act to the extent that can be accomplished consistent with the procedures for amending the condominium instruments as specified in those instruments and in the Ownership Act. The Uniform Act applies to condominiums created after January 1, 1991. In addition, some of the provisions of the Uniform Act, including the section governing COA liens, apply to condominiums created before January 1, 1991. However, they apply only with respect to events and circumstances occurring after January 1, 1991 and do not invalidate existing provisions of the condominium’s governing documents. Certain condominiums created after January 1, 1991 that contain no more than four units may be created pursuant to the Uniform Act or pursuant to the Ownership Act depending on which statute the declarant of the condominium elects. 

Not only is it important to determine what statutory regime governs the attachment and priority of COA liens in Alabama, but it is also important to recognize some of the differences between the statutes. For example, under the Ownership Act, a COA lien becomes effective when a claim of lien is recorded in the public records of the county in which the unit is located. On the other hand, under the Uniform Act, the COA has a lien on a unit for any assessment or other moneys due from the time the assessment or charge becomes due. Under the Uniform Act, the COA is not required to record a claim of lien in the public records. Another key difference is that the lien created under the Ownership Act is subordinate to the lien of any mortgage of record. Yet, under the Uniform Act, only first security interests on the unit recorded before the date on which the assessment sought to be enforced became delinquent have priority over COA liens. The priority for these first security interests is limited, as the COA lien under the Uniform Act is prior to these mortgages and deeds of trust to the extent of the common expense assessment based on the periodic budget adopted by the COA that would have become due in the absence of acceleration during the six months immediately preceding the COA’s institution of a civil action to enforce its lien or a foreclosure of a mortgage or deed of trust. The Uniform Act provides that the lien for unpaid assessments is extinguished unless proceedings to enforce the lien are instituted within three years after the full amount of the assessments became due.

In Mississippi, there are no statutes governing lien priority for HOAs. Accordingly, the HOA governing documents should be reviewed thoroughly in order to confirm that HOA assessments are subordinate to the lender’s security interest.  

Mississippi condominiums are governed by the Mississippi Condominium Law.^[vii] Under the Mississippi Condominium Law, a reasonable assessment upon any condominium made in accordance with a recorded declaration of restrictions permitted by the statute shall be a debt of the owner thereof at the time the assessment is made. The amount of any such assessment plus any other charges thereon shall become a lien upon the condominium assessed when the COA causes to be recorded in the office of the chancery clerk of the county in which such condominium is located a notice of assessment.  Such lien shall be prior to all other liens recorded after the recordation of said notice of assessment except that the declaration of restrictions for the condominium may provide for the subordination thereof to any other liens and encumbrances. The COA lien shall be of no further force or effect one year from the date of recordation of the notice of assessment unless its enforcement has been initiated prior to its expiration. The COA may extend the one-year period for a period of time not to exceed one additional year by recording a written extension thereof. 

In Tennessee, Alabama, and Mississippi, priority issues between loan security interests and HOA or COA liens are not always clear. In many cases, there are no applicable statutes providing guidance on lien priority questions, so it is necessary to review the association’s declaration or other governing documents. Even in cases where there are statutes, associations and lenders might disagree on how the statutes should be interpreted and applied. As a result, instead of adopting one point of view over another, the parties might end up negotiating in order to achieve an outcome that both parties find acceptable.

Copyright © 2020 USFN. All rights reserved.

Fall 2020 USFN Report

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

Arkansas courts have had few opportunities to address statute of limitations arguments as they pertain to enforcement of security instruments. However, as can happen, when the courts have the opportunity to opine on what are viewed as consumer issues, they seem to do so with what can be described as a plebian voice. The recent case of Ocwen Loan Servicing LLC, v. Oden, 2020 Ark. App. 384 case, is an example of this tenor.

The facts of the case are fairly simple aside from multiple servicing transfers. The Odens executed a mortgage and note December 1, 2007 and made their last payment to GMAC in November of 2010. The loan was accelerated, and a notice of acceleration was sent to the Odens on March 11, 2011. A Notice of Default was filed a non-judicial foreclosure sale was scheduled. Subsequently the loan was service transferred to the Plaintiff and the foreclosure sale was cancelled. In the interim, multiple delinquency notices were sent to the Odens which made demand for payment that was less than the total amount due. A second foreclosure Notice of Default was filed on July 27, 2016 and a sale was scheduled for October 12, 2016. The loan then service transferred to Kondaur, and ultimately service transferred back to the Plaintiff, and a non-judicial foreclosure was initiated in 2017

The Odens then filed a petition for declaratory judgment. They alleged, correctly, that the statute of limitations to enforce a promissory note in Arkansas is five years. Ocwen responded that the note remained enforceable  because (1) the prior acceleration of the debt was abandoned as evidenced by subsequent attempts to collect less than the total balance ; (2) payment of taxes revived the debt; and (3) equity should prevent the borrowers from recovering a windfall as a result of their failure to pay the debt.

The Arkansas Court of Appeals first determined that there is no Arkansas law dictating that the acceleration of a debt is abandoned solely because the creditor attempts to collect less than the fully accelerated amount.  It distinguished Acala v. Deutsche Bank National Trust Co. for Long Beach Mortgage Loan Trust 2006-5, 684 F. Appx. 436 (5th Cir. 2017), which held that a noteholder may unilaterally abandon acceleration by “requesting payment on less than the full amount of the loan.” The Arkansas court ruled that the multiple delinquency notices sent after the loan was accelerated in 2011 were not unequivocal. The Court then adopted the Texas standard and held that absent "evidence of abandonment or a contrary agreement between the parties, a clear and unequivocal notice of intent to accelerate and a notice of acceleration is enough to conclusively establish acceleration and therefore accrual,” citing Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 563 (Tex. 2001). As a result, Arkansas has now adopted a standard that abandonment of acceleration must be clear and unequivocal; delinquency notices sent to the borrower for an amount less than the total does not meet this high standard. 

Unfortunately, the strongest argument for tolling the statute of limitations for the payment of annual property taxes, was refused an audience by the court. Arkansas has long recognized that the statute of limitations is restarted with the payment of taxes or insurance on behalf of another. Lueken v. Burch, 214 Ark. 921, 925-26, 219 S.W.2d 235, 238 (1949) (When a mortgagee "discharged] an obligation imposed by the mortgage on the mortgagor such as payment of taxes or the premiums for insurance to protect the property, the mortgagee ha[s] the right to add the  cost of such payments to the debt secured as part thereof, and the implied promise to repay would constitute a new point from which the statute of limitations would run."); Polster v. Langley, 201 Ark. 396, 144 S.W.Zd 1063, 1065 (1940) (as between the contracting parties, payment of taxes interrupted the running of the statute of limitations).

The Court also declined to entertain equitable arguments made by Ocwen that the Odens used their default as a “sword to evade their obligations.” The court determined that it was precluded from hearing the issue as the lower court did not rule on the same, and failure to obtain a ruling from the lower court constituted a waiver of the issue on appeal.

Copyright © 2020 USFN. All rights reserved.

Fall 2020 USFN Report

by Janice Nakano

Aldridge Pite, LLP

USFN Member (AK, CA, FL, GA, HI, ID, NY, OR, UT, WA)

USFN’s Diversity and Inclusion committee periodically spotlights professionals promoting diversity and enacting education and initiatives within the industry. Karyne Nguyen, assistant vice president, corporate social responsibility for Mr. Cooper Group, describes her approach to understanding different cultural perspectives, how to remove bias from day-to-day work and bringing positive change to the workplace.

Can you share some examples of how you championed diversity in the workplace and/or in your personal life?

My workplace diversity and inclusion journey began at the grassroots through Mr. Cooper’s Cooper Resource Teams, commonly referred to as employee resource groups (ERGs).  ERGs are voluntary, employee-led teams formed around various identities and dimensions of diversity, serving as a resource for their team members and a company or organization.

The Asians in Motion resource team launched in 2017 and I immediately got involved, first serving as the Vice President and I currently serve as the President.  In this role, I lead the team alongside my Officer Committee; we execute programs that support the Asian American community and encourage colleagues to become allies for the community.  Being a part of the team and serving in this role has been a truly incredible journey.  It has provided me an avenue to embrace my Asian roots from Vietnam, share my culture, and share the vast amount of traditions and experiences signified by other Asian cultures.  With over 40 countries and more than 50 languages represented within the Asian continent, there is so much to learn and it has been an honor to be a part of sharing the Asian community with colleagues.

I further seek to champion diversity and inclusion by supporting all of our resource teams and the communities of people they support; I am genuinely interested in learning the perspectives of my colleagues, even if I may not necessarily identify as part of that community.  For example, we have a Working Parents Group resource team and I always enjoy attending their programs and learning about their experiences; while I am not a parent, it continually helps me to learn about their points-of-view and empathize.  In my personal life, I carry over these actions and strive to learn about different cultures, backgrounds, and perspectives by attending online webinars and in-person community events where possible.

How would you advocate for diversity education and diversity initiatives with individuals who don’t see its value?

For people who do not see its value, I continue to keep the lines of conversation open and emphasize that diversity and inclusion work is something each person can make a commitment towards.  Often times you hear that diversity education and initiatives feel exclusive or a person may feel if they don’t “fit in” to a certain identity, they will not be welcome or are not sure what it has to do with them – it’s certainly the opposite!  While many initiatives are focused on communities that are historically under-represented or under-served, we need everyone to be a part of the journey, more specifically those that are part of the historically dominant communities.  Allyship is an integral part of diversity and inclusion; allies are people that take time to learn about others’ experiences (including doing their own research) and are prepared to use that knowledge to speak up and advocate for others that may not always be heard.  Participating in diversity education can admittedly be uncomfortable, but it is founded in bringing positive change for the future of our workplaces and society – and, for that, the work is worth it.

How would you handle a situation in which someone made a sexist, racist homophobic or otherwise prejudiced remark? Would that response differ based on the environment, like work vs. social settings?

When a prejudiced remark is made, it is important to be an upstander and not disregard it – not saying anything will cause those comments to be normalized and accepted.  In both workplace and social settings, I strive to lead with mutual respect and have a mature dialogue.

In a workplace setting, if I feel comfortable with the person, I would attempt to personally address it in a way that is respectful of everyone involved.  For example, approach the person who made the remark in a private setting versus calling them out in front of others, explaining how I and others feel when a comment is made; from there, it is the hope that the person is receptive to having a constructive conversation. If I am not as familiar with or comfortable with the person, I’d try to find an ally that supports me in speaking up – they may be able to bring up the concern with me.

In a social setting with those I am familiar with, I usually take a similar approach unless it is a small group where everyone is comfortable in having this type of conversation.  Otherwise, I prefer a private conversation instead of a group setting – a group setting can cause a person to feel attacked, which I try to avoid or minimize.  In a social setting with strangers, it may feel less comfortable to speak up, but I would as long as I feel safe – people seldom regret speaking up for what is right.  As Martin Luther King, Jr. stated, “The time is always right to do what is right.”

Are you actively engaged in a group or organization that promotes diversity? If yes, please share if you’d like to.

I currently work in Mr. Cooper’s Office of Diversity and Inclusion, after holding roles in servicing and compliance for many years.  By getting involved in D&I through our employee resource groups, I discovered my passion for working with people and have found a lot of purpose in making a difference for our team members and their experience at the company.

In my role as a D&I practitioner, I am involved in a few committees and groups where I enjoy learning and conversing with other professionals dedicated to D&I.  This includes:

• CEO Action for Diversity and Inclusion Financial Services Community Group: CEO Action for Diversity and Inclusion is a pledge, in which CEOs commit to advancing diversity and inclusion at their companies.Our CEO, Jay Bray, signed the commitment in 2019 and the Mr. Cooper D&I team co-chairs the Financial Services Community Group.This is an active group of D&I practitioners that has conversations about best practices, challenges, and how we can continue to advance the D&I mission within our companies.
  
  
• Ascend North Texas: Ascend is the largest, non-profit Pan-Asian membership organization for business professionals in North Texas.Especially during the pandemic, they have hosted an array of virtual programs that continue to bring together Asian Americans and all backgrounds to share their experiences and learn from one another.Following the social justice issues in 2020, they hosted a great, collaborative session on solidarity where employees from various companies came together to discuss and exchange thoughts about how we continue to respond to social justice and promote equity.

How would you ensure you are inclusive of everyone’s viewpoints and what is your approach to understanding different cultural viewpoints?

To be inclusive of more viewpoints, it is important to provide ways for people to have a voice – keeping in mind that not all people are prone to immediately “speak up” and be the loudest voice in the room.  This is especially relevant when a team is solving a business problem or working on a solution together.  To be inclusive, provide various ways for people to share their opinion and provide them an opportunity to digest the information when it’s possible – an example of this is distributing meeting materials in advance, for attendees to review before a meeting.  Some people may choose to share thoughts in writing, others are prepared to speak up in a meeting, and others may share an opinion after a meeting.  Regardless of the method, being mindful of different methods of thinking does well to promote inclusivity when operating in a team environment.

My approach to understanding different cultural perspectives is having the curiosity to learn about other people and simply asking questions – don’t be afraid to ask questions in a respectful way, instead of assuming.  While the words may not always come out correctly, if you speak with humility, the other person will usually understand.  This is especially relevant around the winter season when people may be celebrating various holidays tied to their faith or culture.  Rather than assuming that people are celebrating a prevalent U.S. holiday like Christmas, I love the idea of simply asking: “What do you celebrate around this time of year?”  It creates a baseline to learn about and connect with the person – you may learn something new about another holiday, or simply learn that people are not celebrating anything in particular.

How do you go about ensuring you are removing bias from your day to day work?

To remove or at least mitigate bias from your day-to-day work, you should first learn about the biases that you have – and, trust me, we all have them!  Bias is a tendency to think in favor or against a person and it can render both positive and negative outcomes.   There are more than 150 documented biases that operate because our brain is taking short-cuts to process information.  I highly recommend exploring and taking Harvard’s Implicit Association Tests, which are highly researched and cover a multitude of topics such as age, gender, disabilities, and race.  The tests reveal the biases that may exist in our lives and are a starting point to learn how to counteract those biases.

Once you know your biases, the best and most simple advice I have heard is to slow down and do not always trust your gut; gut instincts are often shrouded in bias and pre-determined thoughts.  Before doing an action, consider why you are thinking the way you are, the reasons behind it, and ask yourself if a bias is operating.
 

Copyright © 2020 USFN. All rights reserved.

October 2020 e-Update

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

In the world of Connecticut mortgage foreclosures, compliance with Connecticut General Statutes §§8-265ee et seq ., otherwise known as the EMAP statute, has been a “hot topic” over the last five years. Plaintiffs in foreclosure actions had long been required to attest to compliance with the relevant statute prior to the entry of judgment. However, recently, a decision in People’s Bank v. Wright^[1], may have forever changed the role the EMAP statute would play in foreclosures.  People’s Bank v. Wright ^[2] found that the statute went to subject matter jurisdiction and that proof of delivery of the notice, commonly referred to as an EMAP Notice, was required in order to establish compliance. The Connecticut Appellate Court weighed in on the issue in 2018 with Aurora Loan Services, LLC v. Condron^[3] . The Condron court, in deviation from the decision in Wright, held that the EMAP statute did not require proof of delivery of the notice to mortgagors and that evidence of mailing alone was sufficient to meet the plaintiff’s burden of establishing compliance with the statute.

What constitutes proof of mailing under the statute was further explored in the recent decision in the matter of FST-CV14-6021030-S Wells Fargo Bank, NA v. Yorfino. The trial court (Tierney, JTR), weighing in on the issue, held that a plaintiff and/or its agent may rely on the existence of a bulk mailing contract with the United States Postal Service to satisfy the requirement that notice under the EMAP statute must be sent out by registered, or certified mail, postage prepaid. The Yorfino court, having been presented with a copy of the EMAP notice, a mailing log from the servicer which sent the EMAP notice, and a return receipt containing information regarding the servicer’s G-10 bulk mailing permit, found that “it is illogical that the United States Postal Service would accept mail into its system, and then process that mail throughout the entire delivery service, assign a tracking number, code in the tracking number, prepare a delivery receipt as set forth on the first page of [the return receipt entered into evidence], and obtain the signature of some unknown individual thereby completing the mail process, all of which was done without any payment being made to the United States Postal Service.”

The Yorfino court cut through one of the remaining arguments available to defense counsel following the Condron decision. The issue raised was whether an EMAP notice on a mailing log without supporting proof of payment established that it had been mailed by registered, or certified mail, postage prepaid. This had been a lingering issue raised by defense counsel in claiming that plaintiffs had failed to comply with Connecticut General Statutes §§8-265ee et seq. While not binding, the decision in Yorfino effectively shuts down that argument as illogical. With the Yorfino decision now available to refute claims a plaintiff failed to satisfy the postage prepaid requirement under the EMAP statute, foreclosing plaintiffs may do well to include reference to their G-10 bulk mailing permit in their mailing records for EMAP notices.

[1]  2015 Conn. Super Lexis 694

[2]  2015 Conn. Super Lexis 694

[3]  181 Conn. App. 248 (2018)

October 2020 e-Update

by Ryan Bourgeois, Esq.
BDF Law Group
USFN Member (AZ, CA, CO, GA, NV, TX)

Texas Finance Code Sec. 342.106 was passed in 2011 and provides rules for provision of mortgage payoff statements, including when requested by a title company. Written requests for the payoff statement must include the name of the mortgagor, property address and the proposed closing date. Upon receipt of the request, the lender must provide a payoff quote within seven days that is valid through the proposed closing date It section also requires servicers to deliver any amended quotes to the title company at least two business days before closing, otherwise, the additional amounts could become unsecured or subordinate to a new mortgage. 

The statute requires the Texas Finance Commission to adopt rules along with a payoff statement form for mortgage companies to use when they receive requests for payoff statements from a title company. The Finance Commission is required to review its rules every four years. During its regular review this year, the Commission initially only proposed formatting changes to the payoff form. However, during the comment period, the Texas Land Title Association (TLTA) requested that the payoff statement include additional information in order to confirm the loan servicer has correctly identified the loan provided for in the payoff statement. Specifically, TLTA requested that payoff statement include the loan number and if not available, the original principal balance. The Finance Commission agreed with these suggestions and issued a final rule under 7 TAC Chapter 155, requiring these changes. 

The changes that provide for the loan number to be included in the payoff statement have caused concern on the part of many parties. Due to privacy concerns, many servicers now mask the full loan number on many documents, only providing the last four digits of the loan number. It remains unclear whether providing only the last four digits of the loan number would be sufficient to satisfy the requirements of the rule. Although the rule does allow for the servicer to provide the original principal balance  in lieu of the loan number if it is unavailable, it is unclear the servicer’s privacy concerns would satisfy the “unavailable” requirement of the rule and allow the mortgage company to provide only the original principal balance.

The safest approach for servicers to avoid violation of the new rule is to strictly comply with the law and provide the full loan number. However, if servicers have privacy concerns, a low risk compromise would be to provide both the last four of the loan number and the original principal balance. Since the purpose of the rule is to confirm the correct loan has been identified, this should provide sufficient information to a title company to confirm. 

The new rules took effect September 20, 2020 and the updated payoff form can be found here. 
 
Copyright © 2020 USFN. All rights reserved.
 
October 2020 e-Update

The Federal Housing Finance Agency (FHFA) announced August 27 that Fannie Mae and Freddie Mac will be extending their moratorium on foreclosures and evictions at least through the end of 2020. This is the third time the FHFA has extended the expiration date, after first announcing in May that the moratorium would expire on June 30 and then extending it through August 31.

The move is a continuation of a directive from the FHFA, in which Fannie Mae and Freddie Mac were originally instructed on March 18 to suspend foreclosures and evictions for at least 60 days. The FHFA had enacted the first moratorium in response to the national emergency that was declared on March 13 by President Trump due to the COVID-19 outbreak.

Additional industry, state and regional announcements related to changes in deadlines and regulatory requirements as a result of COVID-19 may be found on USFN's COVID-19 Industry Announcements and Headlines page. 

Copyright © 2020 USFN. All rights reserved.

by Wendy Lee, Esq.

McCalla Raymer Leibert Pierce, LLP

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

One good thing to come out of 2020 is the Washington State Legislature’s adoption of the long-awaited Uniform Electronic Transactions Act (“UETA”). Passed in the form of SB 6028, this law was effective on June 11, 2020, and will allow electronic signatures to replace wet-ink signatures on contract documents. It further provides that any law requiring a record be in writing or a signature be applied will be satisfied if the record is electronic or if the signature is electronically applied to that document. The law further allows an electronic signature to be notarized as long as it complies with the electronic Notary law, which was passed last year in SB 5641, with a delayed effective date of October 1, 2020.  The second good thing to happen in 2020 was the Governor’s Proclamation accelerating the effective date of the electronic Notary law. The original proclamation was set to expire after April 2020, but it has since been extended twice and is now set to expire September 1, 2020.^[1] With both major legal requirements ready and effective, it is now possible in Washington to electronically sign and execute virtually all documents in the foreclosure process at both a servicer and trustee level. 

E-Signatures and Foreclosure in Washington – the foundation has been laid
To have standing to foreclose in Washington under the non judicial foreclosure law (locally known as the Deed of Trust Act), the beneficiary must be the holder of the instrument or document evidencing the obligations secured by the deed of trust.^[2] Furthermore, the trustee must have proof that the beneficiary is the holder of any promissory note in order to proceed to setting a sale. Acceptable proof may be in the form of a declaration by the beneficiary, made under the penalty of perjury stating that the beneficiary is the holder of any promissory note or other obligation.^[3] This document is locally known as the “beneficiary declaration.” The Deed of Trust Act in Washington wasn’t specifically amended by the new electronic signature law, however Washington law, as of June 11, 2020 provides that “A record or signature may not be denied legal effect or enforceability solely because it is in electronic form” and “if a law requires a signature, an electronic signature satisfies the law.”^[4]

Washington’s Uniform Electronic Transactions law is also specifically amending the state’s Uniform Commercial Code (UCC)^[5] declaring that a person having “control of a transferable record is the holder, of the transferable record and has the same rights and defenses as a holder” and “a holder to which a negotiable document of title has been duly negotiated, or a purchaser, respectively” and that “[d]elivery, possession and endorsement are not required to obtain or exercise any of the rights under the subscription.”^[6]

By combining Washington’s UETA (SB 6028) with the state UCC and the Deed of Trust Act, there is a legal basis to allow electronically signed beneficiary declarations, and, using the same foundation, the servicer required “Foreclosure Loss Mitigation Form,” commonly known as the loss mitigation affidavit, which is required to be sent with the Notice of Default,^[7] is capable of being electronically signed. 

• Best practice in this realm is to use a secure electronic database system with password protection, for the electronic signature and electronic record of that signature.This security must be documented and capable of being explained by a corporate witness if a signature is challenged in a contested foreclosure.

E-Notary law becomes effective seven months early due to COVID-19
Washington’s Electronic Notarial Acts law passed April 2019, effective originally on October 1, 2020, but now effective due to Governor Proclamation, is modeled after the Revised Uniform Law on Notarial Acts from 2017.  It will allow a Washington licensed notary, who is authorized to conduct electronic notarial acts, to notarize a document when the signor of the document is not physically present. The following elements are required to comply with this law:

• Notary must have personal knowledge or satisfactory evidence of the identity of the remote individual
  
• Notary must confirm the record before the individual is the same as the record before the notary
• There must be an audio/visual recording of the notarial act
• The notarial certificate must indicate that the notarial act was performed electronically

This revolutionary step in electronic notary law is further supported by the more recently enacted electronic signature law described in the prior section in specifically declaring that an electronic signature may be electronically notarized consistent with SB 5641, tying all these changes in law together. 

Conclusion
While our industry is facing an unprecedented downturn due to moratoria and state law impacts on the foreclosure process, these recent changes in Washington allow us to use the rare downtime in foreclosure processes to enable this new path forward, which will create efficiencies and reduce the spread of germs and more importantly, the COVID-19 virus.

If your company would like help in devising a system to allow electronic signatures or electronic notary processes, please don’t hesitate to contact me at : wendy.lee@mccalla.com. 

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

If you watch any legal drama or crime show on television, one trend you notice is that everyone is focused on finding the best witness to prove their case. Having the correct witness with the most knowledge of the event or situation is the key to any successful litigation. When it comes to litigation involving corporations, the same is true. However, the role of a corporate witness has additional requirements and requires a different knowledge base than a witness that testifies from their own knowledge of the facts.  

Preparation and Document Collection
A corporate witness’s role does not begin in the courtroom, but rather should begin well prior to trial. A corporate witness is often an employee of the corporation with specialized access to the records of the corporation, and with enhanced knowledge of their procedures. For this reason, it is recommended that the witness be assigned, and their preparation begin as early in the trial preparation period as possible. By having additional time to review the documents the witness can be more familiar with the facts required for testimony. Moreover, from a credibility standpoint, it is always preferred that the witness be involved with the provision of the evidence. At trial, it is very common for an opposing counsel to challenge a witness’s familiarity with the evidence and try to argue that the witness has never reviewed the evidence prior to trial. For a witness to be able to testify that they not only have intimate knowledge of the contents of the evidence, but additionally were the source of the evidence, reduces the opportunity for evidentiary challenges and increases the witness credibility. 

Authentication of Evidence
Once trial begins, the first and perhaps most important role of a corporate witness is to authenticate documentary evidence so it may be admitted into the evidentiary record. Typically, any record or piece of information cannot be admitted into evidence at trial unless it is submitted by the person who personally created it and is considered hearsay. Hearsay is defined as information or evidence received from another person which cannot be substantiated. In short, until the documents are submitted by the correct person, they are considered to be of no evidentiary value as the integrity of the information is in question. With the complexity and size of many corporations, it would be impossible to bring in the actual employee or person who created each individual record or piece of information to be relied upon. It is for this reason that there is an exception to the hearsay rule, the business records exception. 

The business records exception allows a single corporate representative to authenticate any records of the corporation for submission into evidence, if the witness and the records meet certain criteria. The witness must be able to testify they have personal knowledge of the policies and procedures of the corporation utilized in making the records. The records themselves must be made in the regular course of business, and it must be regular business of the corporation to make these records. Further, the witness must be able to state the records were made by someone with personal knowledge of making the records and the records were made at or near the time of the occurrence. If the court makes a finding the witness has sufficient personal knowledge of the business practices of the corporation, then the witness can testify the records meet the above described criteria, and they will be accepted into the record as authenticated.

A qualified witness requires extensive and varied training to demonstrate sufficient personal knowledge of the business operations of a corporation. The witness should be able to testify about the names of the departments which keep the records and any record keeping technology or systems used, which improves the credibility of the witness with the court, making it easier to get evidence into the record over objection. Getting the evidence into the record is often harder than getting the factual testimony established once the evidence has been authenticated and received by the court. Despite the plethora of case law which attempts to describe or define sufficient personal knowledge as a corporate witness, courts and judges vary in what they expect, and having as much training as possible is absolutely necessary in case you face a difficult judiciary. 

Fact Testimony 
Once the evidence has been accepted by the court and is part of the evidentiary record, the witness’s job becomes one of establishing the factual record. Often in corporate and default litigation, the facts are integrated into business records which are technical or require specific knowledge to interpret. For example, evidence like payment histories, correspondence records, and other internal records often include proprietary codes or abbreviations which require specific knowledge and testimony. A witness may be required to testify about anything from dates of events, payments discrepancies, mailing of notices, as well as many other subjects. Again, the training of the witness is of the utmost importance as the court gives weight to the evidence based up on the credibility of the witness and the quality of their testimony. 

A corporate witness not only has to be subject to a direct examination to get their parties’ facts into the record, but also subject to cross examination. Cross examination is likely the most difficult part of the witness’s role in establishing a record. Generally, most cross examination is targeted at confusing the witness or getting the witness to make a mistake in their testimony which injures their credibility or the case in general. Often, the opposing counsel will ask the same question several different ways to try and create inconsistency in an answer or will twist the witness’s previous testimony to their needs. Again, a witness should have extensive training to understand how to avoid these traps, as the assistance their counsel can provide during cross-examination is limited. 

Recent Updates Affecting Corporate Witnesses
The role of the corporate witness has changed somewhat in recent months. With the COVID-19 pandemic affecting every aspect of life for most people around the world, it has also greatly affected how corporate witnesses can perform their job. One of the most common changes to a corporate witness’s job is that their appearances have been primarily remote by use of video technology. Prior to the current pandemic, a witness was required to be in-person at trial except for very rare extenuating circumstances. Appearance through video technology has changed the face of trial and created new challenges for the court, witnesses, and their counsel. One of the most difficult aspects of witness testimony while working remotely stems from inabilities to organize evidence. When appearing in person for trial, it is very easy for the counsel to hand the witness the required evidence in the correct order, as needed. Working remotely presents a challenge that each party must have pre-organized evidence books to attempt to alleviate difficulties when presenting evidence. Given that some trials rely on numerous exhibits for corporate witnesses, even into the hundreds of documents, providing an organizational scheme that keeps the judge, counsel and witnesses on the same page has been a challenge. Further, the swearing in of the witness to testify requires changes to procedure. A witness must be sworn in by the judge as a prerequisite of their testimony. However, working remotely, the courts have been requiring a notary to be present with the witness to swear them in, as a video swearing in has been considered insufficient. The logistics of having a notary present while a witness is both working from home and attempting to socially distance has provided some issues. It is hoped that as we slowly work through this new normal affecting the world, better and more consistent procedures will be identified for remote trial appearances. 

In addition to the COVID pandemic, there are continuous changes to the case law as it defines the role and responsibilities of a corporate witness. For example, recently in Florida, the Supreme Court issued a groundbreaking case , which greatly reduces the burden of responsibility and testimony of a corporate witness to qualify to testify. Previously, a corporate witness would have to testify they had personal knowledge of the policies and procedures of the corporation, and further was subject to strict testimonial scrutiny wherein they would have to prove that qualification with background facts, information and further descriptions of their training and role in the corporation. The Florida Supreme Court has shifted that burden, to the benefit of the witness. The new standard per the Florida Supreme Court states that if the witness testifies, they have personal knowledge to qualify as a valid corporate witness, they do not have any responsibility to provide backing evidence of their qualifications. Rather, it is the burden of the opposing party to prove they lack proper qualifications. Further, this case strengthens the presumption that corporate documents are authentic and authorized. This shift, per the Supreme Court’s findings, is intended to force parties to argue the substantive facts of the case, rather than get bogged down in the procedural arguments regarding qualifications of witnesses and authenticity of evidence. This case will greatly reduce the amount of work to qualify the corporate representative as an appropriate witness, and to have the evidence authenticated, which should shorten trials and lead to outcomes based on the merits of the case, not the bureaucracy of procedure.  

^{1 Jackson v. Household Finance Corp. III, Fl. SC18-357 (Fla. 2020)}

Copyright © 2020 USFN. All rights reserved.

Spring 2020 USFN Report

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

This morning, I sat through the most grueling hearing of my professional life; my client’s future hung in the balance. Losing meant loss of freedom - no car, no social life, nothing. The decision-maker hit me with questions and arguments that stung like roundhouse kicks. Was this a Supreme Court oral argument? Nope. A high stakes parole hearing? Nope. Not even close. Worse, I was at my 15-year-old son’s parent/teacher conference. Seriously. Let me guess: you want to know what this has to do with the statute of limitations for a foreclosure in New Mexico. Have patience; I’ll get there. To start, here’s a run-down of The Great Parent/Teacher Conference Inquisition of 2020:

“Your son NEVER turns his homework in on time!” one teacher exclaimed. 

“Well, I didn’t know that, and I trusted him to follow the classroom rules,” I said. 

“He can always turn in homework late for partial credit,” an administrator proclaimed. 

“I swear I turned it all in…” my son kept quietly uttering.

”Don’t you want your child to succeed?!” my last inquisitor jabbed.

“No,” I said sarcastically, “I was hoping my son could end up on that Dr. Phil show talking about how my lack of holding him accountable led him down a bad path….”

Okay, I admit I didn’t actually say that last part (despite the fact that I was vehemently thinking it at all of them), but the discussion reminded me about the statute of limitation in New Mexico. You know, New Mexico, the place where your foreclosure timelines go to die and where lenders have long asked, “When does the statute of limitation expire?” In other words, “When is the last day for my son to submit his homework for even partial credit?” We now have an answer from the New Mexico Court of Appeals in the case of LSF9 Master Participation Trust v. Moreno, No. A-1-CA-36879 (Ct. App. December 18, 2019) citing LSF9 Master Participation Trust v. Sanchez, 2019-NMCA-055, 450 P.2d 413. 

In Moreno, the initial default occurred on November 1, 2009, and the complaint was filed on December 11, 2015. The District Court held that the six-year statute of limitation expired on November 1, 2015. The complaint was deemed to be filed one month and eleven days too late and was dismissed accordingly. The Court of Appeals disagreed, finding that the statute of limitation runs from the date of each individual missed payment. Therefore, although the bank was not allowed to recover payments due more than six years from the filing date, the bank was entitled to get “partial credit” and recover payments due within the six-year window. 

Profound questions remain on this issue including those concerning de-acceleration, re-acceleration and prior dismissals (with or without prejudice). Consequently, the best practice in any case is to file within six years of the initial default date. It’s the age-old wisdom to do something the first day you can, not the last day you must. However, if faced with this issue in New Mexico, you now have permission to turn in your homework late for partial credit. 

Copyright © 2020 USFN. All rights reserved.

Spring 2020 USFN Report

by Blair Gisi, Esq. 
SouthLaw, P.C. 
USFN Member (IA, KS, MO, NE)

The Kansas Court of Appeals in In re A Purported Lien Against Prop. of Dist. at City Ctr., LLC, 2020 Kan. App. LEXIS 13 (Ct. App. Feb. 28, 2020) reversed the district court in an interesting case regarding an allegedly fraudulent mechanic’s lien.

This case began with a recognizable fact pattern where a construction company was contracted to build a mixed-use development.  The contractor then hired a subcontractor to supply steel and labor.  As is often the case, change orders began to be submitted and approved resulting in a total that exceeded the original contract terms.

Subsequently, the subcontractor filed a mechanic’s lien for unpaid labor and cost materials totaling over $400,000 – which was the difference between the value of the work the subcontractor believed it had completed and the amount already paid.  However, as part of the supporting documentation filed with the mechanic’s lien, the subcontractor failed to include itemizations evidencing the full value of the purported additional labor, leaving a gap of approximately $25,000.

Where this case takes an interesting turn is that instead of the contractor challenging the mechanic’s in the traditional way under K.S.A. §60-1108 or the subcontractor amending or foreclosing the mechanic’s lien pursuant to K.S.A. §§60-1105(a) or 60-1106, the contractor filed a motion claiming the lien was fraudulent under K.S.A. 2019 Supp. §58-4301.

K.S.A. §58-4301 was enacted to address issues with militias and “common-law type groups” who file and record fraudulent liens against properties in an effort to harass property owners and delay judicial proceedings.  The key issue to analyze under this statute with regards to whether a document is “fraudulent” is whether the document or instrument is provided for by the constitution or laws of Kansas or the United States.  Legitimacy of the actual document is not weighed or analyzed. 

The benefit to the contractor here (and presumably why this route was chosen) is that the statute provides for an expedited review and does not require a filing fee.  If there is substantial compliance with the statute, then, “the court’s findings may be made solely on a review of the documentation or instrument attached to the motion and without hearing any testimonial evidence.”  K.S.A. §58-4301(b).  The Motion can also be heard ex parte without delay or notice of any kind.

Relying on its authority to expeditiously review the matter, the district court granted the contractor’s motion removing the lien before the subcontractor could even object or otherwise respond; basing its decision on the subcontractor’s failure to account for the $25,000 in additional work and finding the mechanic’s lien insufficient to provide notice for what claims were actually owed.

The problem for the contractor (and the district court), however, was that the mechanic’s lien at issue was and is a document provided for by Kansas law, therefore, the decision to remove the lien as “fraudulent” was an error and the case was remanded.  The district court should not have even looked at whether the lien itself was sufficient or statutorily compliant.

In applying this case to the servicing industry, the important take away here is that even where a mechanic’s lien appears to be faulty or even fraudulent, the shortcut for the lien removal provided under K.S.A. §58-4301 has to be avoided.  The Court will not look at the validity of a mechanic’s lien under that statute since we now know that the mechanic’s lien is provided for under Kansas law.

Copyright © 2020 USFN. All rights reserved.

Spring 2020 USFN Report