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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by John M. Thomas
RCO Legal, P.S.
USFN Member (Alaska, Oregon, Washington)
Oregon’s legislature was relatively quiet during its non-regular 2016 session with regard to foreclosure legislation. On the other hand, there is judicial news to address. Two notable Oregon appellate cases have been issued in the past year: Hucke set forth certain parameters to prevail on MERS assignment challenges; and Wolf partially opened the door to certain post-sale challenges in potentially requiring some trial court evidentiary record to be made in the face of a borrower’s lawsuit challenging a nonjudicial foreclosure – specifically as to who held the promissory note or, alternatively, MERS’s authority to act for the loan beneficiary.
Hucke — In this case, the Court of Appeals reversed the trial court’s judgment voiding a trustee’s sale, holding that the fact that an assignment of the trust deed was not recorded did not preclude nonjudicial foreclosure. [Hucke v. BAC Home Loans Servicing, L.P., 272 Or. App. 94 (2015)]. Background: the borrower filed suit, asserting that the recorded assignment of the trust deed from MERS, as beneficiary, to Fannie Mae was not effective because MERS was not a “beneficiary” under the Oregon Trust Deed Act (OTDA). However, because the trial court record demonstrated that the originator (GreenPoint Mortgage Funding, Inc.) assigned the trust deed to Fannie Mae when it transferred the promissory note to Fannie Mae, and because that transfer was not a formal, recordable assignment, it did not need to be recorded. Applying the Oregon Supreme Court’s 2013 rulings in Niday and Brandrup on the issue, the appellate court found that transfers of promissory notes need not be recorded before nonjudicial foreclosures can proceed.
As a result, the appellate court determined that Fannie Mae was a successor beneficiary under the OTDA. Fannie Mae, therefore, could appoint a successor trustee and initiate foreclosure proceedings, and the MERS assignment to Fannie Mae was inconsequential to the validity of the foreclosure sale.
Wolf — ORS § 86.797 (1) provides that the property interest of a person, such as a borrower, who received proper notice of a trustee’s sale is foreclosed and terminated by the trustee’s sale. A number of Oregon state and federal courts have concluded that the statute bars post-sale challenges by borrowers who had proper notice of the sale but did not file suit to challenge it pre-sale. Recently, however, the Oregon Court of Appeals held that this statutory bar applies only to a “trustee’s sale” and, thus, does not necessarily preclude a post-sale challenge to the sale of a borrower’s property by someone who was not, in fact, the trustee. [Wolf v. GMAC Mortgage, 276 Or. App. 541 (2016)].
The borrower in Wolf filed suit after the sale but during the eviction efforts, contending that the appointment of LSI Title Company by MERS was invalid because MERS was neither the beneficiary nor did it have authority to make the appointment. The borrower also asserted that LSI was not qualified as a “trustee.” In initially ruling for the lender, the trial court appeared to rely solely on the post-sale statutory bar, and not an analysis of whether the trustee had authority to foreclose. Arguably, though, Wolf is limited to its facts, as the appellate court stated: “We need not resolve, however, whether [ORS 86.797] requires strict compliance with every provision of the [Oregon Trust Deed Act] before a person’s property interests will be terminated by a trustee’s sale.”
Notably, the appellate court did not address the rights of bona fide purchasers in post-sale challenges. Wolf’s contours may be refined further before the end of 2016 because there is at least one other case in the Oregon Court of Appeals concerning the scope of the statutory bar to post-sale challenges.
Hucke and Wolf underscore the importance for trustees, servicers, and lenders of ensuring that the standing of the foreclosing entity can be established and withstand judicial scrutiny. These cases also demonstrate that it is possible to establish the validity of a nonjudicial foreclosure challenged post-sale through other evidence that may not have been apparent in the public title records.
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by Brian H. Liebo
Usset, Weingarden & Liebo, PLLP
USFN Member (Minnesota)
The Minnesota Mortgage Foreclosure Dual Tracking law was enacted in 2013 and codified as Minn. Stat. § 582.043. The relatively new law is comparable to the rules of the Consumer Financial Protection Bureau (CFPB) on dual tracking — with a large difference often initially overlooked by mortgage servicers. While the CFPB rules give borrowers a deadline to apply for loss mitigation of thirty-seven days before the foreclosure sale to qualify for dual tracking protections, the Minnesota statute gives borrowers a more generous deadline of up to seven days prior to the date of the foreclosure sale. Unlike the Minnesota statute, the CFPB dual tracking rules also exclude more borrowers from protection (e.g., borrowers who received bankruptcy relief or who have already gone through the loss mitigation application process, among others).
Since the inception of the dual tracking law, the biggest question that Minnesota practitioners have had is how far “dual tracking” activity would be limited. While some language of the statute is relatively clear, other provisions are more ambiguous. Recent case law may provide some clarification for those latter provisions. Unfortunately, the trend among the courts analyzing the Minnesota dual tracking statute is unfavorable to mortgage servicers and is contrary to initial (and reasonable) interpretations of the statute’s provisions.
Statutory Language — The Minnesota dual tracking statute primarily addresses three different points in a foreclosure: (1) prior to the time that a mortgage servicer refers a loan to an attorney for foreclosure; (2) after a loan has been referred to an attorney for foreclosure but prior to the time that a foreclosure sale has been scheduled; and (3) after a foreclosure sale has been scheduled by a foreclosure attorney but before midnight on the seventh business day prior to a foreclosure sale date.
During each of these three periods, the statute prohibits a mortgage servicer from moving forward with foreclosure activity unless:
• The servicer determines that the mortgagor is not eligible for a loss mitigation option, the servicer informs the mortgagor of this determination in writing, and the applicable appeal period has expired without an appeal or the appeal has been properly denied;
• Where a written offer is made and a written acceptance is required, the mortgagor fails to accept the loss mitigation offer within the time specified in the offer or within 14 days after the date of the offer, whichever is longer; or
• The mortgagor declines a loss mitigation offer in writing.
The statute also prohibits a mortgagee from conducting a foreclosure sale while the mortgagor is complying with the terms of a trial or permanent loan modification (or another loss mitigation option, including where short sale approval has been granted by all necessary parties and proof of funds or financing has been provided to the servicer).
Parsing out the statutory language, it is clear that if a mortgage servicer has received a loss mitigation application before a foreclosure has been referred to an attorney, the servicer must not refer the foreclosure until the terms of the statute have been satisfied. In contrast, the statute appears less clear as to what steps the mortgage servicer can take after a loan has already been referred to an attorney for foreclosure and an application is then received. After that point, the statute provides that if loss mitigation activity is pending, the servicer “shall not move for an order of foreclosure, seek a foreclosure judgment, or conduct a foreclosure sale.” Further, if the servicer receives a loss mitigation application after the foreclosure sale has been scheduled, but before midnight on the seventh business day prior to the foreclosure sale date, the servicer must “halt the foreclosure sale” and evaluate the application.
Although judicial foreclosures can occur in Minnesota, the predominant method of foreclosing mortgages is through nonjudicial foreclosure by advertisement proceedings. That method involves serving various notices and publishing a notice of foreclosure sale for six consecutive weeks. The final point of the foreclosure sale can be postponed to later dates by publishing the postponements and serving additional notices.
The dual tracking statute contains the vague phrase, “halt the foreclosure sale,” which is not contained in any other foreclosure statute and is undefined. However, the statute does appear to indicate that the operative point of a foreclosure where action must be taken to stop the dual activities of loss mitigation and mortgage foreclosure is the time of the foreclosure sale, rather than earlier in the foreclosure proceedings. That interpretation would be consistent with the other statutory provision prohibiting a servicer from “conducting a foreclosure sale” when a loss mitigation application is pending.
Nowhere does the dual tracking statute explicitly prohibit mortgage servicers from commencing or continuing “foreclosure proceedings” after referral while loss mitigation activities are occurring. Instead, the statutory language appears to focus solely on the point of the foreclosure sale with respect to nonjudicial foreclosures. On the other hand, since Minnesota is a “stop and restart state” for foreclosures, halting the foreclosure sale could also mean that the foreclosure sale must be cancelled altogether, and then foreclosure proceedings be restarted later with a new foreclosure sale date. But, given that the legislature could have easily written language requiring that the mortgage foreclosure proceedings be halted in their entirety — instead of just the foreclosure sale — it would appear more reasonable to interpret the statute to allow mortgage servicers to postpone sheriff’s sales if a loss mitigation application is received after a foreclosure referral, rather than require that servicers scrap the whole foreclosure process during the application review period.
Based on the statutory language, mortgage servicers believed they could delay the foreclosure sale by postponing it if they needed more time to complete a loss mitigation application review and denial process. Borrowers’ attorneys also accepted the rationale that a foreclosure sale could be postponed for loss mitigation review, and would routinely request that postponement accommodation while citing the dual tracking statute.
Case Law — Recent cases, however, appear to defy this reasonable interpretation of the statute and indicate that foreclosure proceedings must be cancelled in their entirety (instead of at just the point of foreclosure sale) if timely loss mitigation applications are submitted to mortgage servicers. In Hall v. The Bank of New York Mellon, 2016 U.S. Dist. LEXIS 66642 (D. Minn. 2016), a federal district court appears to have misquoted the dual tracking statute in holding that nonjudicial foreclosure proceedings must be stopped in their entirety once a loss mitigation application is timely submitted. In that case, the borrowers submitted a loan modification application to the mortgage servicer and then received a notice of foreclosure sale two days later.
Prior to the date of the foreclosure sale, the mortgage servicer denied the application and gave the borrowers 30 days to appeal the decision. The borrowers filed an appeal with the mortgage servicer, and the servicer had the sale conducted during the appeal period. While the court in Hall properly identified that “[t]he statute states that servicers must ‘halt’ the foreclosure sale” after receiving timely loss mitigation applications, the court later identified that “the statute requires servicers to ‘halt’ the foreclosure, which means that all proceedings should be suspended or stopped pending an application review” (emphasis added). Hall ultimately held that the borrowers’ allegation that the mortgage servicer “continued to pursue foreclosure” after receiving the loan modification application stated a viable claim for a violation of the dual tracking statute. The broader holding in Hall and the court’s analysis of the statute was surprising given that the court could have focused solely on the fact that the foreclosure sale was held during the alleged appeal period in contravention of the plain language of the statute.
While the Hall decision appears to have resulted from a possible misreading of the Minnesota dual tracking statute, that court may not be alone in interpreting the statute to require the termination of foreclosure proceedings in their entirety upon the submission of a timely loss mitigation application by a borrower. The Hall court cited Mann v. Nationstar Mortgage, LLC, 2015 U.S. Dist. LEXIS 87772 (D. Minn. 2015). However the borrowers in Mann did not claim that the mortgage servicer was required to stop all foreclosure proceedings after they submitted their loss mitigation application for review. Instead, the borrowers asserted that the servicer violated the dual tracking statute “based on its failure to postpone the Sheriff’s Sale” despite having timely received a loan modification application. Notwithstanding that narrow claim, the Mann court made a ruling broader than the exact language of the dual tracking statute, stating that “the purpose of the dual tracking statute is to prevent mortgage servicers from having it both ways: a servicer cannot ‘pursue mortgage foreclosure’ while also considering a borrower’s timely submitted application.” Regardless, the Mann court ultimately focused on whether the foreclosure sale should have been halted or conducted, whereas the Hall court also looked to whether the entire foreclosure proceedings should have been stopped.
The Minnesota Court of Appeals has also looked at this issue and appears to be consistent with the federal district courts. In an unpublished decision, the Court of Appeals wrote, “when a servicer receives a loss-mitigation application, it must halt ‘foreclosure proceedings’ until the application has been processed.” Wells Fargo Bank, N.A. v. Lansing, 2015 Minn. App. Unpub. LEXIS 132 (Minn. Ct. App. 2015). That court also appears to have disregarded that language of the Minnesota dual tracking statute requiring the halting of the foreclosure sale, rather than the halting of the foreclosure proceedings.
None of the foregoing cases is actually binding precedent in Minnesota, being that they are either federal district court level decisions or unreported state court decisions. Still, they are highly illustrative of how the courts are viewing the Minnesota dual tracking laws. Although they may not always be precise in how they are citing the language of the dual tracking statute, the courts do set forth logical reasoning in how they are interpreting the more vague statutory portions. Considering the title of the statute at issue, it is clear that the original purpose of the statute is to prevent mortgage servicers from pursuing two activities at the same time; i.e., processing loss mitigation applications and foreclosure proceedings simultaneously.
In the current environment, the safest approach for servicers would be to stop foreclosure proceedings in their entirety during the pendency of loss mitigation applications or other activities, given the tone of the cited cases, and until binding precedent holds otherwise. Failure to take this conservative route could result in an invalidated foreclosure and an award of attorneys’ fees to borrowers under the dual tracking statute.
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by Regina M. Slowey
Orlans Associates, P.C.
USFN Member (Michigan)
On April 13, 2016 the Michigan Supreme Court handed down an opinion in Bank of America, NA v. First American Title Insurance Company, which resulted in a ruling favorable to lenders.
The main issues in the case were threefold: (1) whether the full credit bid rule, as a matter of law, precludes lenders or their assigns from contract claims against non-borrower third parties; (2) whether closing instructions issued to title closing agents constitute a distinct contract between the closing agent and the lenders, unmodified by a closing protection letter (CPL) issued by the agent’s underwriter; and (3) whether the change in wording of the closing protection letter by one word — “in” — is enough to broaden the scope of possible actions required to be indemnified by the underwriter.
Most importantly, to the extent that it conflicts with Bank of America v. First American, the Michigan Supreme Court overruled precedent established in New Freedom Mortgage Corporation v. Globe Mortgage Corporation, 281 Mich. App. 63 (2008). The New Freedom case held that when a mortgagee takes title to a property pursuant to a full credit bid, the mortgagee (or any assigns) are barred from pursuing claims against non-borrower third parties, including actions of fraud or breach of contract against a closing agent or its underwriter via a CPL.
In Bank of America v. First American, the Michigan Supreme Court held that no justification exists to alter the rights and remedies between a mortgagee and non-borrower third parties. Thus, the lender is free to bring an action for damages resulting in the breach of the closing instructions to the closing agent, and for indemnification pursuant to the terms of the closing protection letter issued by the agent’s underwriter.
The Court went on to strengthen the lender’s ability to enforce its rights via closing instructions to the closing agents, ruling that closing instructions are contracts upon which a breach of contract action may lie and, further, that the closing instructions are not altered or truncated by the underwriter’s CPL. This was in direct contradiction to the lower court’s ruling.
Finally, the Court decided that the wording of the closing protection letter should be scrutinized. In the subject case, the underwriter had a broader liability than the underwriter in New Freedom. In New Freedom, the Court stated that the underwriter was not liable because the CPL stated that the insurer was liable only for “fraud or dishonesty of the issuing agent in handling the funds or documents in connection with the closings, which the Court took to limit the liability of the agent to the actions directly connected to handling the funds.”
In contrast, the CPL at issue in Bank of America v. First American Title Insurance Company indicated that the insurer was liable for “fraud or dishonesty of the issuing agent handling the funds or documents in connection with the closings.” The simple lack of the word “in” broadened the liability so that the insurer may become liable for any damages caused by the dishonesty of the agent, despite the fact that the agent did not misappropriate the funds.
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by Richard Ullstrom
RCO Legal – Alaska, Inc.
USFN Member (Alaska, Oregon, Washington)
This article is expanded from one that appeared in the USFN e-Update (April 2016 Ed.).
A divided Alaska Supreme Court has ruled that nonjudicial foreclosures constitute “debt collection” under the federal Fair Debt Collection Practices Act (FDCPA), making a foreclosure trustee a “debt collector” even if it confined its activities solely to those required to process the foreclosure. The Court also held that an FDCPA violation was per se a violation of the Alaska Unfair Trade Practices Act (UTPA), departing from established case law holding that the UTPA did not apply to transactions involving real property, including nonjudicial foreclosures.
In Alaska Trustee v. Ambridge, the foreclosure trustee sent the Ambridges a statutorily-required notice of default (NOD) that fully complied with Alaska law. However, the NOD did not state the total amount of the debt as required by the FDCPA for a first communication with the debtor, and was not followed up within five days by a statement of the total amount due. The Ambridges sued both the foreclosure trustee and its owner, who was not personally involved in the sending of the NOD. The Ambridges claimed that the NOD violated the FDCPA and UTPA, even though they had not been harmed or deceived by it in any way. The trial court ruled in favor of the Ambridges, and the Alaska Supreme Court affirmed.
On the FDCPA claim, although the weight of authority at the federal district court level was to the contrary, the Supreme Court chose to follow the line of cases holding that foreclosure constituted “debt collection” even when no demand for payment of the debt was made and the actions of the foreclosure trustee were only those needed to enforce the creditor’s security interest in the collateral. The dissenting opinion contended that this nullified the exclusion of enforcers of security interests from most of the FDCPA, but the majority reasoned that this exclusion applied only to auto repossession agencies and similar entities. The Supreme Court did reverse the trial court as to the liability of the owner of the trustee company, ruling that personal involvement in the violation was necessary to give rise to liability.
On the UTPA claim, the majority ruled that the FDCPA violation also breached the UTPA because the FDCPA provided that a violation was to be considered an unfair or deceptive act or practice in violation of the Federal Trade Commission Act (FTCA). The Alaska UTPA, in turn, prohibits unfair or deceptive acts or practices and requires that the Alaska courts give consideration to interpretations of the FTCA in applying the UTPA. Thus, even though the NOD was not objectively unfair or deceptive, it was considered a UTPA violation simply because it violated the FDCPA. In reaching this result, the Court distinguished longstanding precedent that the UTPA did not apply to real property transactions including foreclosures by noting that “there are different avenues to coverage under the UTPA.”
This judicial ruling is significant because the UTPA provides for an award of full attorney fees to a successful plaintiff, which will encourage borrowers’ attorneys to assert violations of the FDCPA or federal laws with similar provisions, such as the Truth in Lending Act. The Ambridge opinion is available at http://www.courtrecords.alaska.gov/webdocs/opinions/ops/sp-7084.pdf.
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by Jillian H. Wilson
Wilson & Associates, P.L.L.C.
USFN Member (Arkansas, Mississippi, Tennessee)
The reverse mortgage is one of the more powerful financial tools available to seniors due to its ability to increase their monthly income at a dramatic rate. However, management of the product can be difficult due to complex requirements from both the consumer and industry perspectives. Reverse mortgages are the subject of some criticism as a result of these management issues, but the ability to identify and resolve them makes the product stronger every year.
Surviving Non-Borrower Spouse
To illustrate one concern, we can point to the common anecdote of the surviving non-borrower spouse who quickly discovers a dramatically reduced income (as well as foreclosure notices in the mail) upon the death of his or her significant other. To handle this situation, HUD amended its reverse mortgage program in 2014 to better protect individuals in this scenario by providing some guidelines for a non-borrower spouse to remain in the home with the mortgage in place. The primary changes are: (1) the surviving spouse and borrowing spouse must have been married at the time the loan closed and until the borrowing spouse’s death; (2) the non-borrowing spouse was properly disclosed to the lender during origination and named as such in the mortgage documents; and (3) the surviving non-borrowing spouse must use the property as his or her principal residence.
Occupancy
A primary issue today is the occupancy requirement. Currently for a reverse mortgage, the property must be the borrower’s primary residence. Absences for illness are limited to twelve months. Many lenders satisfy the occupancy requirement with an annual “occupancy certification.” The borrower must complete and return to the lender a certification as evidence that the borrower occupies the property. However, a problem lies in the fact that the security instrument does not discuss or require this occupancy certification; it is merely a procedure used by servicers to determine the occupancy status of the borrower.
Borrowers have encountered trouble satisfying the annual certification due to lack of knowledge, confusion as to this requirement, or a failure to complete it on an annual basis. Moreover, borrowers misplace mail regularly; they become ill and require care for longer than one year; and some lose the ability to read effectively. Any of these factors gives rise to legitimate concern regarding foreclosure based on non-occupancy — particularly when it can lead to an inadvertent finding of non-occupancy. This inadvertence can trigger a foreclosure in conflict with the terms of the security instrument, and subsequently nullify a foreclosure and require proceedings to re-instate the mortgage. These are costs that the mortgage industry would like to avoid.
Is there a better way to determine occupancy with regard to reverse mortgages?
One solution is to conduct an annual inspection, including an occupancy determination. The borrower could have the opportunity to prove his or her occupancy status. This would provide lenders with a more concrete basis for initiation of foreclosure due to non-occupancy. Inspection costs are far less than those incurred in defending a lawsuit for unlawful foreclosure, and would better serve as a lender’s due diligence in loan servicing practices.
Alternatively, lenders proceeding with foreclosure based on non-occupancy could instruct process servers to examine the subject property for proof of occupancy — and, particularly, for evidence of the individuals who are residing there. Many process servers and realtors already have the skills to investigate this information by reviewing utility and mail records. The process server is in the position to deliver a letter describing the occupancy requirement and a copy of the lender’s occupancy certification document to the occupant/borrower. If the occupant is the borrower, the process server can easily make certain that the certification paper is completed and returned to the lender. If the certification matches, foreclosure proceedings can be discontinued, and the borrower can be educated as to the importance of the occupancy certification.
In jurisdictions that employ nonjudicial foreclosures, where no process server is utilized, lenders can modify the certification procedure. For example, lenders can ensure that the certification document uses plain language and states, conspicuously, that the repercussions for not completing the certification process can result in foreclosure. Lenders can also consider making the certification paper the size of a response card with a return envelope, so that it stands out to the recipient and provides a simple means of satisfying the occupancy condition. And finally, lenders in nonjudicial jurisdictions can institute skip trace procedures when non-occupancy is declared on a property. If the current address indicates that the borrowers still occupy the property, additional inspections could be initiated to confirm occupancy and prevent an inappropriate foreclosure.
Lately, the industry has observed an increase in successfully contested foreclosures of reverse mortgages when based on improper findings of non-occupancy. These contested actions are expensive and discredit the financial tools from which many consumers could benefit. In order to maintain a positive consumer/business relationship, it is imperative that these concerns be addressed by ensuring that our industry fulfills a high level of quality across the board.
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2106
by Pamela King
Sirote & Permutt, P.C.
USFN Member (Alabama)
On May 26, 2015 the Alabama Legislature passed the Alabama Homeowners’ Association Act (Act), which is codified in the Alabama Code §§ 35-20-1 through 14. This is the first Alabama law specifically addressing homeowners’ associations (HOAs). The law applies to HOAs created on or after January 1, 2016. HOAs existing prior to January 1, 2016 may elect to be governed by the Act.
The Act requires an HOA to be organized as a nonprofit corporation, under the Alabama Nonprofit Corporation Act. As a result, HOAs are required to file association documents with the secretary of state’s office, and the secretary of state must maintain the documents in a publicly searchable database. In return, the HOAs are provided statutory basis for adopting and enforcing rules regarding use of common areas, tenant-related issues, and assessments and liens.
The Act specifies the procedures for filing and enforcing assessment liens. Most notable is the lien priority information. The Act does not create a super-lien priority for HOA assessment liens. The statute provides that the lien has priority over subsequent liens, except as to state and county ad valorem taxes, municipal improvement assessments, UCC fixture filings, mortgages, and deeds of trust securing indebtedness.
Procedurally, the applicable HOAs shall have liens for unpaid assessments that arise on and from the date the assessment is due. Written notice of the assessment and lien must be given to the owner, by personal delivery or first-class mail, and the association must record a verified statement of lien within twelve months from the date that the assessment becomes due. The lien may be enforced or foreclosed as set forth in the declaration, the governing documents, or Section 12 of the Act. The HOA may bring an action in court to enforce a lien, and that court may enforce the lien by a sale of the property. Notice of the sale shall be by publication once a week for three consecutive weeks in the counties in which the property is located.
Until now, Alabama law regarding HOAs has been very uncertain. Many HOAs have attempted to create their own “super-priority” status in their individual declarations. These HOAs aggressively pursue all HOA dues after the foreclosure regardless of assessment date. If the dues are not paid after foreclosure, the HOAs will try to collect the delinquent dues from the REO purchaser — which often brings the REO purchaser back to the title underwriter or the closing attorney for resolution. As a result, many title underwriters in Alabama require HOA dues to be paid at REO to avoid the aforementioned scenario. Practically speaking, paying the delinquent HOA dues at the REO point is often times more cost-effective than incurring legal fees to challenge the HOA’s position.
The effects of the Act may take some time to settle in. The Act is not retroactive, and only governs HOAs created after January 1, 2016, and existing HOAs that elect to be governed by the Act. Therefore, it is likely that many HOAs will still assert their contractual “super-priority.” Existing HOAs may elect to maintain the status quo until such time as newly created HOAs begin to exhibit the benefits of the Act. Moving forward, the industry should benefit from the statutory guidance as to the super-priority status, as well as the availability of current and searchable HOA records.
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by Susana Chambers
RCO Legal, P.S.
USFN Member (Alaska, Oregon, Washington)
This article appeared in the USFN e-Update (June 2016 ed.) and is reprinted here for those readers who missed it.
There are two recent changes to the Washington Foreclosure Fairness Act: one affects how the foreclosure tax is obtained from beneficiaries, reducing overall exemptions from the foreclosure tax; and the second increases the required fee to participate in mediation.
Changes to the Foreclosure Fairness Account —Legislation enacted in 2011 created the Foreclosure Fairness Account (Account) and imposed a “foreclosure tax” that required payment by any beneficiary issuing a notice of default on owner-occupied real property in Washington. For each owner-occupied residential real property for which a notice of default was issued, the beneficiary is required to remit $250 to the Department of Commerce (Commerce). Certain exceptions applied to the foreclosure tax and excluded any beneficiary or loan servicer that is FDIC-insured, and certifies under penalty of perjury that it has issued less than 250 notices of default in the preceding year.
Funds from the account are allocated among various agencies including Commerce, housing counselor agencies, the attorney general’s Consumer Protection Division, Office of Civil Legal Aid, and the Department of Financial Institutions.
RCW 61.24.172 was amended to change the allocation of the funds in the Foreclosure Fairness Account, redistributing the funds amongst the agencies mentioned above, increasing the portion for some agencies and decreasing the distribution to others.
The statute was further amended to change the foreclosure tax to a tax on the notice of trustee’s sale, rather than the notice of default. Since July 1, 2016 every beneficiary on whose behalf a notice of trustee’s sale for residential real property has been recorded in the county records must:
1. Report to Commerce the number of notices of trustee’s sale recorded for each residential property during the previous quarter. Commerce has confirmed that the report and payment for the 2016 second quarter (April-June) is due by August 14, 2016 and is based on the number of notices of trustee’s sale, rather than notices of default.
2. Remit $250 for every notice of trustee’s sale recorded for each residential property during the previous quarter to Commerce to be deposited into the Foreclosure Fairness Account. The total amount due must be remitted in a lump sum each quarter.
3. Report and update beneficiary contact information for the person and work-group responsible for the beneficiary’s compliance with these requirements.
There are still several exceptions to the foreclosure tax, including:
1. The $250 payment does not apply to the recording of an amended notice of trustee’s sale.
2. If the beneficiary previously made a payment under RCW 61.24.174 as it existed prior to the effective date of the amendment for a notice of default supporting the recorded notice of trustee’s sale, no additional payment is required.
3. The foreclosure tax does not apply to any beneficiary or loan servicer that is FDIC-insured and certifies under penalty of perjury that fewer than 50 notices of trustee’s sale were recorded on its behalf in the preceding year. Commerce has confirmed that beneficiaries will need to recertify their status to be exempt from paying the fees for the remainder of 2016. New exemption forms are available on Commerce’s website: http://www.commerce.wa.gov/.
Failure to comply with the statute is considered an unfair or deceptive act in trade or commerce and an unfair method of competition in violation of the Consumer Protection Act, Chapter 19.86 RCW.
Increase of Mediator Fees — Since 2011, mediation fees charged by the mediator have been capped at $400 (split evenly between the borrower and beneficiary) for up to three hours of mediation. The statute also included a vague reference to “reasonable” fees that mediators were permitted to charge for rescheduling mediation sessions, or for mediations lasting longer than three hours.
Effective May 1, 2016 Commerce has used its statutory authority to increase mediation fees, as published in the Foreclosure Fairness Program Guidelines, available at: http://classic.commerce.wa.gov/Documents/FFP%20Guidelines%201-20-2015.pdf. The new mediation fee is $600 (split evenly between the borrower and beneficiary), and up to $300 for a rescheduling fee.
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by J. Scott Lundberg
Lundberg & Associates, PC
USFN Member (Utah)
The 2016 Utah legislature passed two bills affecting Utah foreclosures and evictions. The effective date for both bills was May 10, 2016.
Senate Bill 0022, Foreclosure of Residential Rental Property, created state law protections for tenants of foreclosed residential rental property.
Senate Bill 0220, Nonjudicial Foreclosure Amendments, made a number of helpful changes, including an amendment to last year’s Utah Reverse Mortgage Act that eliminates the challenge of ensuring that a deceased borrower receives the required pre-foreclosure notice.
Tenant Protection — Senate Bill 0022 enacts certain protections for tenants occupying foreclosed property following foreclosure sale. New Utah Code section 57-1-25.5 allows a “bona fide tenant” to remain in the foreclosed property for up to one year after foreclosure, subject to the right of the new owner to terminate the tenancy upon 45 days’ notice, if the new owner (immediate purchaser of the foreclosed property only) intends to occupy the property as the new owner’s primary residence.
A “bona fide tenant” is defined as an individual who is not a child, spouse, or parent of the trustor of the foreclosed deed of trust, whose rental agreement or lease was entered into in an arm’s-length transaction before foreclosure was commenced, and whose rent is not substantially less than fair market rent for the property.
As a practical matter, the period of time during which a tenant will be able to remain in the property after foreclosure will be much less than a year. To meet the “bona fide” qualification, the lease cannot be for a period longer than a year and it had to have been entered into prior to the commencement of foreclosure. Since foreclosure requires four and one-half to five months, the actual amount of time that a tenant will typically be able to remain in a foreclosed property is limited to six or seven months at the most. [This new section (57-1-25.5) will sunset on July 1, 2018.]
Foreclosure Amendments — As indicated, Senate Bill 0220 made a number of helpful changes to statutes governing different aspects of nonjudicial foreclosures. Two of the most beneficial were a modification to the statute of limitations for nonjudicial foreclosures, and a revision to the requirements for giving pre-foreclosure notice to reverse mortgage borrowers.
Statute of Limitations: Utah Code section 57-1-34, which previously required that a nonjudicial foreclosure be completed within the six-year statute of limitations, now requires only that the foreclosure be commenced within that time period. This change will be useful to mortgage servicers in light of the increasing number of loans facing statute of limitations issues as a result of multiple loss mitigation or foreclosure relief applications.
Pre-Foreclosure Notice to Reverse Mortgage Borrowers: Utah Code section 57-28-304, enacted in 2015, required that before foreclosure proceedings could be commenced for a reverse mortgage, the servicer had to send the borrower written notice, and give the borrower 30 days after the day that the borrower received the notice to cure the default. The event of default is the borrower’s death for many reverse mortgage loans. Since a deceased borrower could not receive the notice, servicers were — for all intents and purposes — unable to proceed with foreclosure with confidence that the property would be insurable following foreclosure. Senate Bill 0220 changed the statute to only require that the servicer give the borrower 30 days after the day on which the servicer sends the notice to cure the default. This is a welcome change for reverse mortgage lenders and servicers.
Senate Bill 0220 made a number of other changes to Utah’s nonjudicial foreclosure statutes. A short summary follows:
• The statute now affirmatively allows the appointment of a trustee for a deed of trust where the original trustee was not eligible to serve as a trustee or where no trustee was named in the original deed of trust. (Utah Code § 57-1-22)
• A new code section provides that a party to a legal action involving a deed of trust need not join the trustee as a party unless the action pertains to a breach of the trustee’s obligations. If a party does join the trustee and the trustee is able to have itself dismissed from the action, the trustee is entitled to reasonable attorney fees resulting from its having been joined. (Utah Code § 57-1-22.1)
• Successful third-party bidders at nonjudicial foreclosure sales who fail to pay the bid price will forfeit their bidder’s deposit. The forfeited funds will be treated as additional sale proceeds. Previously, defaulting bidders were only liable for any loss resulting from their refusal to pay the bid price. This change should effectively eliminate defaulting bidders in the future. (Utah Code § 57-1-27)
• A clarifying change was made to the provisions regarding postponement of scheduled nonjudicial foreclosure sales. Previously, it was unclear whether the trustee could make multiple postponements without re-noticing the sale so long as each postponement did not exceed 45 days from the last scheduled sale date. As amended by the bill, the statute now provides that postponement can only be for a period of up to 45 days after the date designated in the original notice of sale. Beyond that, the sale must be re-noticed. (Utah Code § 57-1-27)
• The bill repealed former Utah Code section 57-1-24.5, which required a foreclosure trustee to give the borrower notice if the servicer did not delay foreclosure proceedings while engaging in loss mitigation or foreclosure relief efforts. With the ban on dual tracking found in the CFPB’s regulations beginning January 2014, that requirement was no longer needed.
Copyright © 2016 USFN. All rights reserved.
Summer USFN Report
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by Andrew Top
Lerner, Sampson & Rothfuss
USFN Member (Ohio)
On May 25th the Ohio Legislature passed Substitute House Bill 390, which modifies the state’s foreclosure sales process and authorizes expedited foreclosures on property deemed to be vacant and abandoned.
This bill incorporates many of the same provisions included in House Bill 134. (HB 134 was discussed in the Ohio Legislative Update feature in the spring USFN Report, and that article is posted in the article library at www.usfn.org.) The similar provisions include the types of proof needed to submit to the court to establish a residence as vacant and abandoned, and a shortened time period for the judgment and the foreclosure sale. HB 390 also adopts a second sale provision and a streamlined way of dealing with real estate taxes.
Additionally, this bill authorizes the use of a private selling officer as an alternative to the county sheriff and allows auctions of foreclosed properties to be conducted online, with electronic bids submitted up to seven days in advance of the sale date. HB 390 was signed by Governor Kasich on June 28th; the bill becomes law in 90 days.
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Summer USFN Report
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by James Pocklington
and Richard Leibert
Hunt Leibert
USFN Member (Connecticut)
On May 3, 2016 the Connecticut Legislature adopted a comprehensive piece of legislation that created three new types of loss mitigation foreclosure judgments, heavily modified a fourth, altered the way mortgage servicers account for and process escrow funds, and slightly changed the mediation statute. On May 26, 2016 the governor signed Public Act 16-65 into law. The effective date of the new law is October 1, 2016 for the matters related to foreclosure, and July 1, 2016 for the matters related to escrow.
The highlights and intention of this legislation, as they relate to foreclosures, are to provide in a judicial foreclosure proceeding: mortgage modification, deed-in-lieu, and short sale loss mitigation options in the form of a judgment of loss mitigation. This form of judgment will be available to mortgagors and mortgagees on a voluntary basis when there are junior lienholders who otherwise might challenge priority to the foreclosing mortgagee or refuse to release or subordinate subsequent liens.
All three options necessitate a formal agreement with written consent of both the mortgagee and mortgagor, require that the mortgage be a first mortgage and not a reverse annuity, require that a property be underwater as to the first mortgage and any other liens which are prior to the first mortgage, and that the mortgagor have limited net liquid assets (less than $100,000; excluding retirement and health savings plans). The court will then hold a hearing to determine the debt and fair market value, as well as to ascertain whether the property is underwater and whether the net liquid asset test is satisfied.
Mortgage Modification — A judgment of loss mitigation by modification has the effect of automatically subordinating any junior liens as a matter of law to the modified (and presumably increased) principal balance of the senior mortgage. The legislation does not distinguish between types of junior liens and expressly does not invalidate the underlying debt or judgment associated with an affected junior lien. A judgment of loss mitigation that modifies the mortgage must be recorded on the land records after the 20-day appeal period has run.
Deed-in-Lieu — A judgment of loss mitigation by conveyance has the effect of conveying all ownership interest in the subject property, except for those interests reserved to the mortgagor in the transfer agreement, interests held by encumbrancers prior in right to the subject mortgage, and interests held by junior lienholders who are not named as parties to the action or subject to Connecticut’s lis pendens statute to the mortgagee. This form of transfer agreement is permitted to include a cash contribution or promissory note from one party in favor of the other, permitting both relocation assistance for a mortgagor, separate consideration for the mortgagee, and may be in full or partial satisfaction of the debt owed to the foreclosing plaintiff. If the court approves the deed-in-lieu, the liens — but not the debt of junior lienholders — are eliminated, allowing the conveyance to occur. A judgment of loss mitigation that conveys the mortgage property by deed-in-lieu must be recorded on the land records after the 20-day appeal period has run.
Short Sale — A judgment of loss mitigation by sale conveys all ownership interest in the subject property (except for those interests discussed above) to a third party, for full or partial satisfaction of the underwater mortgage. This form of transfer agreement is permitted to include a cash contribution or promissory note from one party in favor of the other, permitting both relocation assistance for a mortgagor and separate consideration for the mortgagee. The sale is to occur by the date specified in the transfer agreement, which may be voluntarily extended by the parties. If the court approves the short sale, the liens — but not the debt of junior lienholders — are eliminated, allowing the conveyance to occur. A judgment of loss mitigation that conveys the mortgage property by short sale must be recorded on the land records.
Foreclosure by Market Sale — The legislation significantly alters the timelines for this relatively recent and, to date, rarely used foreclosure alternative. Previously, the market sale option existed only pre-foreclosure, and a foreclosing mortgagee was required to issue a notice of market sale (pre-foreclosure) to the mortgagor and file an affidavit regarding its efforts if the mortgagor failed to choose a market sale to dispose of his or her property. The legislation removes the pre-foreclosure notice and affidavit requirements. Now, market sale may be chosen as an option during an already pending action. There has been additional language added to the foreclosure by market sale statute that solidifies the voluntary nature of the program. The legislation also eliminated the notice requirement of the little utilized application from protection from foreclosure, which was provided in or along with the complaint.
Further, the Act alters the timelines in relation to the execution of an “execution of ejectment.” The state marshal is charged with executing an ejectment to gain possession of the premises after completion of a foreclosure. Under the legislation, in order to eject those parties that can be ejected without commencing a summary process action in housing court (typically borrowers and mortgagors), the state marshal must provide 24 hours’ notice to the chief executive officer of the applicable town and — at least five business days before giving that notice — must use reasonable efforts to locate and notify the persons in possession of the premises of the date and time of the ejectment.
The Act also makes slight, but important, changes to Connecticut’s foreclosure mediation program. Mortgagors that are relevant and necessary to the mediation and to any agreement being contemplated in connection with the mediation will need to attend and participate in the mediation. The mediator may excuse a mortgagor from attending a mediation, provided the mortgagor shows good cause for not attending (such as no longer owning and residing in the home due to a divorce) and not being a necessary party to any agreement being contemplated in connection with the mediation. The bill also eliminates the requirement of a mortgagee to provide a certificate of good standing, upon request, to a mortgagor who has completed the foreclosure mediation program and remained current on the payments for three years.
Finally, the legislation requires that whenever a mortgage servicer who is licensed to service mortgages in the state of Connecticut receives funds from a mortgagor to be held in escrow for the payment of taxes and insurance, the mortgage servicer must deposit those funds in one or more segregated deposit or trust accounts, and be reconciled monthly. The funds are not to be commingled with any other funds and may not be used to pay operating expenses.
Authors’ Note: Contributions to this article by Bendett & McHugh, P.C. are appreciated.
Copyright © 2016 USFN. All rights reserved.
Summer USFN Report
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Posted By USFN,
Monday, August 1, 2016
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August 1, 2016
by Mary Spitz,
Jessica Owens,
Nisha B. Parikh,
and Crystal (Sava) Caceres
Anselmo Lindberg Oliver, LLC
USFN Member (Illinois)
Each month that goes by seems to bring a further example of courts applying the Fair Debt Collection Practices Act (FDCPA) in unexpected ways, and expanding lender liability in an unforeseen manner. In May, the Eleventh Circuit Court of Appeals provided the latest example when it held that lenders following bankruptcy rules were, nevertheless, liable under the FDCPA. The decision came in a combined appeal in the cases of Johnson v. Midland Funding, LLC and Brock v. Resurgent Capital Services, L.P., 2016 U.S. App. LEXIS 9478 (11th Cir. May 24, 2016).
In Johnson, the Eleventh Circuit held that debt collectors who file a bankruptcy proof of claim on a debt barred by the statute of limitations are subject to liability under the FDCPA, even though applicable bankruptcy rules permit such filing. The court’s decision hinged on its discussion of the interplay between the Bankruptcy Code (Code) and the FDCPA — a discussion that was touched on but never fully resolved — in the case of Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1261 (11th Cir. 2014). In Crawford, the Eleventh Circuit held that a debt collector violates the FDCPA by filing a proof of claim in a bankruptcy case on a debt that was known to be barred by the statute of limitations. (The Crawford decision was discussed in the Bankruptcy Update column of the winter 2016 USFN Report. That article is posted in the article library at www.usfn.org.)
The underlying court in Johnson found the FDCPA and the Code in “irreconcilable conflict” because the Code allows all creditors to file a proof of claim on any debt, even if that debt is barred by the statute of limitations, whereas the FDCPA prohibits a “debt collector” from “us[ing] any false, deceptive, or misleading representation or means in connection with the collection of any debt,” including attempting to collect a debt that is not “expressly authorized by the agreement creating the debt or permitted by law” (i.e., a debt barred by the statute of limitations). See also 15 U.S.C. § 1692e, 1692f(1).
The Eleventh Circuit reversed, holding that the Code and the FDCPA can be read in harmony where a creditor meets the FDCPA definition of “debt collector” and the borrower corresponds to the FDCPA definition of “consumer.” In such cases, normal bankruptcy rules do not apply, even though the FDCPA does not expressly supersede the Code. The court stated, “The Bankruptcy Code does not preclude an FDCPA claim in the context of a Chapter 13 bankruptcy when a debt collector files a proof of claim it knows to be [barred by the statute of limitations].” Further, “the Code allows creditors to file proofs of claim that appear on their face to be barred by the statute of limitations. However, when a particular type of creditor — a designated ‘debt collector’ under the FDCPA — files a knowingly time-barred proof of claim in a debtor’s Chapter 13 bankruptcy, that debt collector will be vulnerable to a claim under the FDCPA.” In other words, although the Code allows a proof of claim for a debt barred by the statute of limitations to be filed, the FDCPA considers such claims to be a violation when filed specifically by a “debt collector.”
The court portrayed its ruling as narrow, applying only to “debt collectors.” Nonetheless, the FDCPA’s definition of “debt collector” is extraordinarily broad, defining the term to mean “any person who . . . regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6). The court further restricted its holding such “that the claim be filed by a ‘debt collector’ and that the claim be ‘knowingly’ time-barred.” This logic does little to limit the court’s decision, however. The larger point is that a lender cannot simply follow bankruptcy procedures in bankruptcy court but must instead consider whether the vague standards of the FDCPA apply to impose hidden liabilities upon otherwise lawful conduct specifically sanctioned by the rules of court.
What does this mean going forward and how do creditors proceed in light of this case?
Although the Eleventh Circuit’s ruling specifically pertains to debt barred by the statute of limitations, debt collectors should also be prepared to address potential FDCPA liability in situations where a debt is no longer collectible against a debtor.
• The first question that must be asked prior to filing a proof of claim is, “Are you considered a ‘debt collector’?” If not, the holding in Johnson does not apply as it only extends liability under the FDCPA to “debt collectors.” Still, when and whether mortgage servicers are “debt collectors” under the FDCPA is an undeveloped area of law that can quickly get confusing. Owners of mortgage loans and their servicers are generally not considered to be debt collectors under the FDCPA. However, when loans are acquired in default, the FDCPA does apply to the new owner of that loan. Therefore, lenders and servicers are hard-pressed to ignore the FDCPA in this context without clear legal authority that it is safe to do so. Such authority does not currently exist. When in doubt as to whether you are a debt collector for FDCPA purposes in any context, seek legal advice.
• Once you determine that you are a “debt collector” pursuant to the FDCPA, the second question that must be asked will be, “Is this claim enforceable against the debtor?” In some situations, a debt may not be enforceable against a debtor because it is time-barred by the statute of limitations, as discussed in the Eleventh Circuit’s ruling. A time-barred debt is distinguished from a debt that was discharged in a previously filed bankruptcy; a time-barred debt cannot be collected under state law, whereas a discharged debt releases the borrower’s personal liability on said debt. Reach out to your local counsel to determine the time period of the statute of limitations as it differs state to state.
In other circumstances, the debtor’s liability on a debt may have been discharged in a prior bankruptcy filing. Specifically, if a debtor has filed a Chapter 7 bankruptcy, a signed reaffirmation agreement for the secured debt was not filed and accepted by the court, and the debtor received a Chapter 7 discharge, then the debtor is no longer personally liable on that debt. Keep in mind that this does not preclude a creditor from filing a proof of claim in a subsequent Chapter 13 bankruptcy. (See Johnson v. Home State Bank, 501 U.S. 78 (1991), where the U.S. Supreme Court held that even after the debtor’s personal liability is discharged, the secured creditor still “retains a ‘right to payment’ in the form of its right to the proceeds from the sale of the debtor’s property.”) By filing a proof of claim in a subsequent Chapter 13 bankruptcy, the creditor is entitled to preserve its interest in the property of the estate. However, legal counsel should be consulted to assess the nature of the debt and its enforceability against the debtor prior to filing a proof of claim to ensure the creditor is not violating the FDCPA, as discussed below.
• In situations where a debt is no longer enforceable against a debtor, the third question that should be asked is, “How can a debt collector protect its secured interest in a lien without violating the FDCPA?” Consider situations when a debtor has filed a Chapter 13 bankruptcy and that same debtor’s personal liability on a debt was discharged in a prior bankruptcy. If the debtor has filed a Chapter 13 plan, proposing to maintain the property and cure any pre-petition default, a debt collector must be aware that filing a proof of claim may be a violation of the FDCPA and must take action to prevent potential liability. In those circumstances, a debt collector may want to include disclaimer language on the proof of claim, which acknowledges that the proof of claim is being filed for informational purposes only and that the creditor is not seeking to enforce the debt against the debtor personally, and is merely asserting its lien against the subject property. However, this specific scenario has not been litigated, and the disclaimer language is not a guaranteed approach of negating liability. Alternatively, if the debtor’s Chapter 13 plan calls for surrender of the property that is encumbered by an unenforceable lien, it is recommended that the debt collector file a motion for relief from the automatic stay.
Late-breaking Development in the Eighth Circuit — As this USFN Report was going to print, a decision was filed in Nelson v. Midland Credit Management, Inc., No. 15-2984 (8th Cir. July 11, 2016), which reached a conclusion different from that of the Eleventh Circuit in Johnson v. Midland Funding, LLC. Specifically, in Nelson, the “court rejects extending the FDCPA to time-barred proofs of claim. An accurate and complete proof of claim on a time-barred debt is not false, deceptive, misleading, unfair, or unconscionable under the FDCPA. The district court properly dismissed for failure to state a claim.”
Consequently, there is a split of authority within the circuits. The Eleventh Circuit (Johnson v. Midland Funding decision) encompasses Alabama, Florida, and Georgia. The Eighth Circuit (Nelson decision) is comprised of Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota.
Copyright © 2016 USFN. All rights reserved.
Summer USFN Report
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Posted By USFN,
Thursday, June 30, 2016
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May 12, 2015
by Scott W. Neal
Orlans Associates, P.C. – USFN Member (Michigan)
Recently, the Michigan Court of Appeals ruled against the plaintiff bank regarding a foreclosed property in which the mortgage had been assigned to the plaintiff. [OneWest Bank v. Jaunese, Case No. 320037 (Mar. 19, 2015)].
Some background: After foreclosure and expiration of the statutory redemption period, a previous holder of the mortgage, Financial Freedom Acquisition, LLC (FFA), discovered an error in the mortgage’s legal description. The description only covered 2.5 acres of property — instead of 106 acres, which had been the intent of the original mortgagee. More than a year after the redemption period had expired, FFA executed an affidavit of scrivener’s error to correct the legal description. FFA also executed an affidavit to expunge the sheriff’s deed about six months later, acknowledging the sheriff’s sale but stating that FFA would “not rely on said foreclosure sale” and “wishes this affidavit to … correct record title and to show that the Sheriff’s Deed on Mortgage Sale … is of no force or effect.” FFA then assigned the now-defunct mortgage to OneWest Bank, referencing the affidavit with the correct legal description.
More than a year since the assignment, and nearly three years after the sheriff’s sale had occurred, OneWest filed a complaint for reformation of the mortgage and to quiet title to the property. The plaintiff alleged that the mortgage contained an incomplete legal description due to mutual mistake.
The Court of Appeals, relying on Bryan v. JP Morgan Chase Bank, 304 Mich. App. 708; 848 N.W.2d 482 (2014), stated that once the redemption period has expired, absent fraud or irregularity, all of the plaintiff’s rights in, and title to, the property have been extinguished by the foreclosure. In order to maintain such rights, the plaintiff or its predecessor-in-interest would have needed to challenge the foreclosure and/or execute the affidavit of scrivener’s error and affidavit to expunge the sheriff’s deed prior to expiration of the redemption period. Once the redemption period expires, neither the mortgagor nor mortgagee can challenge the validity of the sale.
Practice Tip: This case illustrates why it is incredibly important to ensure clean title prior to foreclosing on a mortgage.
©Copyright 2015 USFN. All rights reserved.
May e-Update
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Posted By USFN,
Tuesday, June 14, 2016
Updated: Wednesday, May 18, 2016
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June 14, 2016
by Graham H. Kidner
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)
A recent unpublished opinion from the North Carolina Court of Appeals serves as an important reminder with respect to who has the right to enforce a note. In U.S. Bank, N.A. v. Pinkney, 2016 WL 2647709 (N.C. App. May 10, 2016), U.S. Bank filed a foreclosure complaint against the Pinkneys who signed a note to Ford Consumer Finance. Ford indorsed the note to Credit Asset. Instead of indorsing the note, however, Credit Asset recorded an assignment of the note to U.S. Bank as the Indenture Trustee under a securitized indenture. U.S. Bank, Indenture Trustee, purported to indorse the note to U.S. Bank.
Affirming the superior court’s order dismissing the complaint for failure to state a claim, and rejecting U.S. Bank’s standing claim, the Court of Appeals held that a party seeking foreclosure must establish holder status according to North Carolina’s adoption of the Uniform Commercial Code. N.C.G.S. § 45-21.16(d); In re Rawls, 777 S.E.2d 796, 798-99 (2015).
Finding that neither the complaint nor the note evidenced the necessary indorsement from Credit Asset to U.S. Bank, and rejecting U.S. Bank’s contention that the assignment fulfilled the function of an indorsement based on a state statute enacted prior to North Carolina’s adoption of the UCC, the appellate court stated: “The UCC is clear that if a party in possession of a note is not the original holder, if the instrument is payable to an identified person, there needs to be an indorsement by each and every previous holder.” Pinkney, at *5. The court rejected the bank’s alternate note enforcement theory that it was a “nonholder in possession of the instrument who has the rights of a holder” pursuant to N.C.G.S. § 25-3-301(ii) because the bank did not allege this theory in its complaint.
The lessons here: Before foreclosure is commenced, the servicer must locate the original note and confirm that the chain of indorsements is complete. The servicer should be prepared to prove nonholder in possession status, if necessary, which will require adducing evidence that it is authorized to act for the holder.
The with-prejudice dismissal in this case is not the game-ender that it might appear to be. North Carolina recently adopted the Florida Supreme Court’s logic in Singleton v. Greymar, 882 So. 2d 1004 (Fla. 2004), holding that a noteholder is not barred by the doctrine of res judicata from filing a third power-of-sale foreclosure proceeding after two voluntary dismissals of prior foreclosure cases, notwithstanding the “two dismissal rule” found in N.C. R. Civ. P. 41(a). In re Foreclosure of Beasley, 773 S.E.2d 101 (N.C. App. 2015) (North Carolina courts “have required the strictest factual identity between the original claim, and the new action, which must be based upon the same claim … as the original action” and held that, because each foreclosure was based on a different period of default and a different amount owed, neither of the two dismissals implicated the two dismissal rule). Id. at 107. By extension, res judicata should not be a bar to refiling a judicial foreclosure case based on a new event of default.
© Copyright 2016 USFN and Hutchens Law Firm. All rights reserved.
June e-Update
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Posted By USFN,
Tuesday, June 14, 2016
Updated: Wednesday, May 18, 2016
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June 14, 2016
by Graham H. Kidner
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)
The recent opinion of the U.S. Court of Appeals for the Eleventh Circuit in Prescott v. Seterus, Inc., 2015 WL 7769235 (11th Cir. Dec. 3, 2015) has caused much consternation among servicers and their default services law firms because the decision arguably punishes debt collectors for providing consumers with a reinstatement or payoff quote that is actually useful. While the court appears to have applied a hyper-technical interpretation of the Fair Debt Collection Practices Act (FDCPA) in Prescott, it knew where to draw the line in the recent unpublished decision in Kinlock v. Wells Fargo Bank, N.A., 2016 WL 758797 (11th Cir. Feb. 26, 2016).
In Kinlock, following foreclosure of a residential property by Wells Fargo, one of its agents delivered a cash-for-keys letter to the former borrower (including placing a copy in his mailbox and posting it to the front door). This was done in order to provide for an amicable turnover of the property — a practice in universal use for many years that works to the mutual benefit of the property occupant and REO purchaser. Acting pro se, the borrower filed suit alleging that these actions violated the FDCPA and the Florida Consumer Collection Practices Act (FCCPA), analogous to the federal law.
FDCPA — The appellate court, in affirming the district court’s order dismissing the complaint for failure to state a claim, provided a thoughtful explanation of how a debt collector may violate the FDCPA in its communications with the consumer, even without making a direct demand for payment. Specifically, “A demand for payment need not be express. A demand may be implicit. An example of the latter is a letter that indicates that it is being sent to collect a debt, states the amount of the debt, describes how the debt may be paid, and provides the address to which the payment should be sent and a phone number.” Kinlock, at *1, citing Caceres v. McCalla Raymer, LLC, 755 F.3d 1299, 1302 (11th Cir. 2014).
FCCPA — Turning to the Florida statute, the court observed that using threats or force in the course of collecting a debt, and disclosing information concerning the existence of a debt known to be reasonably disputed, may violate state law. Kinlock, at *2, citing FLA. STAT. §§ 559.72(2) and (6).
Conclusion
The court held that the complaint failed to allege any facts showing that Wells Fargo had made a demand of any sort, or that Wells Fargo was attempting to collect a consumer debt. Cash-for-keys offers are usually at least grudgingly accepted, even by former borrowers. This case has to be an extreme example of the saying: “no good deed goes unpunished.” Unfortunately, the concept is not unheard of in the world of mortgage servicing when well-intended acts of a servicer or lender can land those parties in hot water. In navigating the several consumer financial protection laws applicable to servicers and debt collectors, it is advisable to adhere closely to their requirements and keep track of judicial developments interpreting those laws and their associated regulations.
© Copyright 2016 USFN and Hutchens Law Firm. All rights reserved.
June e-Update
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Posted By USFN,
Tuesday, June 14, 2016
Updated: Monday, May 23, 2016
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June 14, 2016
by Jennifer Wyse
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)
Recent reports issued by the Government Accountability Office (GAO) and the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) recommend increased regulatory oversight of non-bank mortgage servicers as a response to their increased role in the mortgage market.
Over the past few years, the $10 trillion mortgage servicing industry has changed as non-bank specialty servicers have assumed a much larger share of the market. Non-bank institutions include a diverse range of companies that facilitate financial services, but are neither regulated nor organized similarly to banks. According to the GAO, non-bank servicers’ market share in outstanding mortgage loans has risen from 6.8 percent in 2012 to 24.2 percent in June 2015.
The GAO report analyzed the effects of the growth of non-bank servicers in the mortgage market, noting that these servicers have specialized expertise, better high-touch servicing capabilities, and an improved capacity to monitor delinquent loans. However, the report also recognized certain risks to Fannie Mae, Freddie Mac, and consumers that non-bank servicers pose relative to banks: immature infrastructure systems for managing risks, regulatory compliance, and internal controls; large acquisitions of mortgage servicing rights, which are complicated by errors in servicer transfers; liquidity risks due to dependence on a small number of investors and reliance on short-term credit facilities; and lack of diversification, which increases the volatility in pricing of master servicing rights.
While recognizing that non-bank mortgage servicers are already extensively regulated at the state and federal levels, the report identified gaps in that oversight. The GAO observed that the Consumer Financial Protection Bureau (CFPB) lacked any type of mechanism to collect comprehensive data on the identity and number of non-bank mortgage servicers, and recommended that CFPB take action to require registration of non-bank entities. Additionally, the GAO report found that the Federal Housing Finance Agency (FHFA)’s lack of authority to examine non-bank mortgage servicers was inconsistent with its mission to ensure the safety and soundness of Fannie Mae and Freddie Mac.
The GAO recommended that Congressional action be taken to grant the FHFA power to examine non-bank servicers with an authority similar to that of bank regulators when examining servicers who act on behalf of supervised banks. U.S. Senator Warren and Congressman Cummings responded to the GAO report by issuing a letter to the Director of the CFPB, requesting that he immediately provide a plan to effectuate these recommendations.
SIGTARP’s report likewise recommended increased regulation for non-bank servicers, but focused on the increase of non-bank servicers’ participation in HAMP. According to SIGTARP, non-bank servicers’ role in HAMP has increased correspondingly with their growth in mortgage market shares. Taxpayers have already funded $1 billion to non-bank servicers, and will continue to fund more, given the non-bank servicers’ enhanced involvement in HAMP.
In 2010, 65 percent of HAMP loans were serviced by large banks. Today, the large bank share has declined to 35 percent, while 56 percent of loans modified through HAMP are serviced by non-bank firms. “As non-bank servicers increase their role in HAMP, the risk to homeowners has also increased,” the SIGTARP report stated.
Previous reports from SIGTARP have found that service transfers conducted by non-bank mortgage servicers, as well as their treatment of homeowners, violated HAMP’s rules. “Violations of the law and HAMP rules raise risks to homeowners,” the report advised. “With less regulation, non-bank servicers making decisions in HAMP need strong oversight to ensure homeowners and this TARP program are protected.”
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June e-Update
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Posted By USFN,
Tuesday, June 14, 2016
Updated: Tuesday, May 24, 2016
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June 14, 2016
by Susana Chambers
RCO Legal, P.S. – USFN Member (Alaska, Oregon, Washington)
There are two recent changes to the Washington Foreclosure Fairness Act: (1) affecting how the foreclosure tax is obtained from beneficiaries, reducing overall exemptions from the foreclosure tax; and (2) increasing the required fee to participate in mediation.
Washington Substitute House Bill 2876 – Changes to the Foreclosure Fairness Account
Legislation enacted in 2011 created the Foreclosure Fairness Account (Account) and imposed a “foreclosure tax,” which required payment by any beneficiary issuing a notice of default on owner-occupied real property in Washington. For each owner-occupied residential real property for which a notice of default was issued, the beneficiary is required to remit $250 to the Department of Commerce (Commerce). Certain exceptions applied to the foreclosure tax, and excluded any beneficiary or loan servicer that is FDIC-insured and certifies under penalty of perjury that it has issued less than 250 notices of default in the preceding year.
Funds from the account are allocated among various agencies including Commerce, housing counselor agencies, the attorney general’s Consumer Protection Division, Office of Civil Legal Aid, and the Department of Financial Institutions.
RCW 61.24.172 was amended to change the allocation of the funds in the Foreclosure Fairness Account, redistributing the funds amongst the agencies mentioned above, increasing the portion for some agencies and decreasing the distribution to others.
The statute was further amended to change the foreclosure tax to a tax on the notice of trustee’s sale, rather than the notice of default. Beginning July 1, 2016 every beneficiary on whose behalf a notice of trustee’s sale for residential real property has been recorded in the county records must:
1. Report to Commerce the number of notices of trustee’s sale recorded for each residential property during the previous quarter. Commerce has confirmed that the report and payment for the 2016 second quarter (April-June) is due by August 14, 2016 and is based on the number of notices of trustee’s sale, rather than notices of default.
2. Remit $250 for every notice of trustee’s sale recorded for each residential property during the previous quarter to Commerce to be deposited into the Foreclosure Fairness Account. The total amount due must be remitted in a lump sum each quarter.
3. Report and update beneficiary contact information for the person and work group responsible for the beneficiary’s compliance with these requirements.
There are still several exceptions to the foreclosure tax, including:
1. The $250 payment does not apply to the recording of an amended notice of trustee’s sale.
2. If the beneficiary previously made a payment under RCW 61.24.174 as it existed prior to the effective date of the amendment for a notice of default supporting the recorded notice of trustee’s sale, no additional payment is required.
3. The foreclosure tax does not apply to any beneficiary or loan servicer that is FDIC-insured and certifies under penalty of perjury that fewer than 50 notices of trustee’s sale were recorded on its behalf in the preceding year. Commerce has confirmed that beneficiaries will need to recertify their status to be exempt from paying the fees for the remainder of 2016. New exemption forms are available on Commerce’s website.
Failure to comply with the statute is considered an unfair or deceptive act in trade or commerce and an unfair method of competition in violation of the Consumer Protection Act, Chapter 19.86 RCW.
Washington Department of Commerce Increases Mediator Fees
Since 2011, mediation fees charged by the mediator have been capped at $400 — split evenly between the borrower and beneficiary — for up to three hours of mediation. The statute also included a vague reference to “reasonable” fees that mediators were permitted to charge for rescheduling mediation sessions, or for mediations lasting longer than three hours.
Effective May 1, 2016: Commerce has used its statutory authority to increase mediation fees, as published in the Foreclosure Fairness Program Guidelines, available at: http://classic.commerce.wa.gov/Documents/FFP%20Guidelines%201-20-2015.pdf. The new mediation fee is $600 (split evenly between the beneficiary and borrower), and up to $300 for a rescheduling fee.
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June e-Update
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Posted By USFN,
Tuesday, June 14, 2016
Updated: Friday, June 10, 2016
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June 14, 2016
by Kevin Dobie and Paul Weingarden
Usset, Weingarden & Liebo PLLP – USFN Member (Minnesota)
Ever since the decision in Jackson v. MERS, 770 N.W.2d 487 (Minn. 2009), which reintroduced the notion of strict compliance in Minnesota’s nonjudicial mortgage foreclosure proceedings, borrowers have used this heightened standard to attack foreclosures for any perceived waver from the statute, including the section requiring that all assignments be recorded prior to commencing the foreclosure. Where the mortgagee defends against these strict compliance claims by asserting that the borrower lacks standing to challenge the foreclosure, mortgagees have obtained somewhat differing results. On occasion, the difference has turned on whether the case is before a state versus a federal court.
Federal
In Brown v. Green Tree Servicing, LLC, __ F.3d __ (8th Cir. Apr. 20, 2016), the Eighth Circuit recently ruled that plaintiff-homeowners did not have Article III standing to challenge an allegedly invalid mortgage assignment between creditors as they were not injured by the assignment, and any harm to them was not fairly traceable to the allegedly invalid assignment. (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota comprise the Eighth Circuit.)
Confirming in Brown that the borrowers must have standing to challenge the assignment before they can contest a foreclosure for a defective assignment, the Eighth Circuit held:
“We first address whether the Browns have Article III standing to challenge an allegedly invalid mortgage assignment between creditors. See U.S. Const. art. III, § 2, cl. 1; Brown v. Medtronic, Inc., 628 F.3d 451, 455 (8th Cir. 2010). To establish standing to raise their assignment claim, the Browns must show they have “suffered a concrete and particularized injury that is fairly traceable to the challenged conduct, and is likely to be redressed by a favorable judicial decision.” Hollingsworth v. Perry, 570 U.S. __, __, 133 S. Ct. 2652, 2661 (2013). The Browns have not done that.
The Brownsʼ invalid assignment claim is nearly identical to the claim two homeowners asserted against a foreclosing lender in Quale v. Aurora Loan Services, LLC, 561 F. App’x 582, 582-83 (8th Cir. 2014) (unpublished per curiam). In Quale, we determined the homeowners did not have standing to raise such a claim because they “were not injured by the assignment” and any harm to the homeowners was not fairly traceable to the allegedly invalid assignment. Id. at 583 (noting the assignor, not the homeowner, is ‘[t]he party injured by an improper or fraudulent assignment’). We reach the same conclusion here.” [See also Novak v. JPMorgan Chase Bank, N.A., No. 12-00589, 2012 U.S. Dist. LEXIS 119382 (D. Minn. 2012), and Gerlich v. Countrywide Home Loans, Inc., No. 10-4520, 2011 U.S. Dist. LEXIS 100844 (D. Minn. 2011)].
State
How would state courts hold on this issue? There is no clear answer, but a few cases are instructive. In Oppong-Agyei v. Chase Home Finance, A12-2325, 2013 Minn. App. Unpub. LEXIS (unpublished), the Minnesota Court of Appeals said that assignments in blank and stray assignments were ineffective and of no concern to the validity of the foreclosure. In Wollmering v. JPMorgan Chase Bank, A12-1926, 2013 Minn. App. Unpub. LEXIS (unpublished), the Minnesota Court of Appeals rejected the allegation of an unrecorded mortgage interest — holding that any dispute between the mortgagee and an assignee of the mortgage interest or promissory note would not affect appellants’ status in foreclosure-by-advertisement proceedings. Id. at *18 (citing Jackson, 770 N.W.2d at 501). (“In essence, any disputes that arise between the mortgagee holding legal title and the assignee of the promissory note holding equitable title do not affect the status of the mortgagor for purposes of foreclosure by advertisement.”)
Creditors are hopeful that such language would apply to an attack on the validity of assignments in state courts, but until that precise factual question is considered and a precedential decision is published, each state court’s determination is unknown.
Challenge the Borrower’s Standing
Thus, it is extremely important that practitioners assert standing as a defense in cases where borrowers claim that a mortgagee wavered from strict compliance with the foreclosure statutes, and the failure to assert such a lack of standing may lose the case. For example, in Badrawi v.Wells Fargo Home Mortgage, 718 F.3d 756 (8th Cir. 2013), the Eighth Circuit said that the mortgagor could not challenge the recording of a notice of pendency prior to the first date of publication as required by Minn. Stat. section 580.032. The court cited a 19th Century Minnesota Supreme Court case where a lessee tried to challenge the foreclosure based on the mortgagee’s failure to serve the lessee, but the court said that the service on the mortgagor was sufficient and the lessee was not part of the protected class; i.e., did not have standing.
The mortgagee in Badrawi contended, and the court agreed, that Minn. Stat. § 580.032 protects only those with “a redeemable interest in real property” who “request notice of a mortgage foreclosure by advertisement,” Minn. Stat. § 580.032, subd. 1, and that Badrawi had not requested such notice because “as the mortgagor and occupant of the relevant property” she had received direct notice. Since Minn. Stat. § 580.032, subd. 3 could not have been “prescribed for [Badrawi’s] benefit,” her claim to relief under that statute failed and strict compliance was ignored. Badrawi, 718 F.3d at 758 (citing Holmes v. Crummett, 13 N.W. 924 (Minn. 1882)).
The Eighth Circuit also recognized that its conclusion conflicted with Ruiz v. 1st Fidelity Loan Servicing, LLC, A11-1081, 2012 Minn. App. Unpub. LEXIS 203, (unpublished) affirmed on other grounds 829 N.W.2d 53 (Minn. 2013), in which a panel of the Minnesota Court of Appeals granted a homeowner relief on a similar claim based on the same statute. Badrawi, 718 F.3d at 760. The Eighth Circuit stated that the appellate decision in Ruiz was unpublished and was neither controlling nor persuasive. Furthermore, the Eighth Circuit explained that the mortgagee did not present the protected class-standing defense in Ruiz and, in a split panel, it elected to not follow the Ruiz reasoning.
Accordingly, it seems that challenges to a foreclosure in Minnesota can turn on whether the case is heard in federal or state court and whether the mortgagee raises the standing defense. Practitioners should be wary of these distinctions.
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June e-Update
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Posted By USFN,
Tuesday, June 14, 2016
Updated: Friday, June 10, 2016
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June 14, 2016
by Ben Staskiewicz
Hunt Leibert – USFN Member (Connecticut)
The Superior Court issued a twenty-page Memorandum of Decision on April 29, 2016 granting the plaintiff judgment of foreclosure and reformation of the mortgage (the word “Corporation” was left off lender’s name) after a two-day trial in PHH Mortgage Corporation v. Cameron, HHD-CV-10-6012369-S.
The court referenced the protracted and tortuous history of litigation between the parties going back to a prior dismissed foreclosure action in 2008 where the plaintiff utilized a lost note affidavit. Subsequent to the new action being started in 2010, the original note was located by the servicer.
The defendants alleged 18 special defenses and a counterclaim, focusing on: (1) the borrower’s claim of adding a clause to the note at the loan closing, which stated that if the note was lost then it was not enforceable; (2) the lender’s name as listed on the mortgage; (3) FNMA’s status; (4) the plaintiff’s holder in due course status; and (5) the validity of a written notice of default. The counterclaim related to the alteration of the note by the defendant. The defendants claimed that they obtained a copy of the note, which contained the additional clause, from the closing attorney’s office in 2009.
Among the plaintiff’s trial witnesses was a partner from the closing attorney’s office to address those claims. The trial court reviewed the original note, and a copy of the original note without the alleged additional clause was introduced as a trial exhibit, contradicting the alleged defenses. The plaintiff also introduced a second copy of the note without the alleged additional clause from the loan origination package, which copy bore a “true and accurate” stamp by the trial witness. The copy also contained a stamped “received date.” The stamped date was shortly after loan origination.
The trial court made fourteen pages of factual findings, including that the defendant went to the closing attorney’s office in 2009 and modified the copy of the note in the file by inserting the additional clause about enforceability, and replaced the accurate copy with the altered version. Further, the defendant’s conduct was “not simply untruthful and fraudulent, but constitutes committing perjury under oath. The court concludes that the defendant deliberately engaged in a fraudulent attempt to manufacture the evidence.” The trial court attached no weight to the testimony of either defendant, found that two of the defendants’ witnesses through their testimony committed outright perjury, and rejected all of the defendants’ special defenses and the counterclaim.
In order to uphold the integrity of the court and the judicial process, the plaintiff’s counsel requested the court to take sua sponte action against the offending parties. The trial court agreed, stating “action is not only warranted but obligatory.”
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June e-Update
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Posted By USFN,
Tuesday, June 14, 2016
Updated: Friday, June 10, 2016
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June 14, 2016
by Eric D. Cook and Orin J. Kipp
Wilford, Geske & Cook, P.A. – USFN Member (Minnesota)
In 2013 the Minnesota legislature enacted Minn. Stat. § 582.043 (the Statute) which, in part, prohibits dual tracking and creates a private cause of action against servicers for dual tracking a loss mitigation application with a scheduled foreclosure sale. Unfortunately, the Statute is ambiguous in many ways when it comes to assisting servicers regarding developing processes and assessing business risks. As we approach the three-year anniversary of the Statute’s effective date, the dark clouds of uncertainty remain, with no clear direction from Minnesota courts or amendments from the Minnesota legislature.
The most difficult part of the Statute provides that if a foreclosure sale has been scheduled (“first legal”), and the servicer receives a loss mitigation application before midnight on the seventh business day prior to the sale, the servicer must “halt” the foreclosure sale and evaluate the application. Minn. Stat. § 582.043, subd. 6(c) (2016). The obligation to halt the foreclosure sale is in addition to the CFPB-like obligations not to move for an order of foreclosure, seek a foreclosure judgment, or conduct a foreclosure sale.
The term “halt” is not defined, and the CFPB is not helpful since it does not speak in terms of “halting” a foreclosure sale. The Minnesota legislature appears to require something more from a servicer beyond existing CFPB obligations; but what are those additional state law obligations in Minnesota? Hall v. The Bank of New York Mellon, No. 16-cv-00167 (D. Minn. May 19, 2016), sheds just a flicker of light on how Minnesota courts may interpret this essential terminology.
In Hall, the servicer asserted that the Statute allows a lender to continue publishing a foreclosure notice while evaluating the application. The court disagreed, stating that “the Statute requires servicers to ‘halt’ the foreclosure, which means that all proceedings should be suspended or stopped pending an application review.” The court apparently views continued publication as going too far, but since the court was merely denying a motion to dismiss, a further order of the court may provide additional guidance in the future.
An important question that is likely to remain unanswered is, can a servicer publish a postponement of a sale to maintain the status quo while evaluating the application? Under the Official Bureau Interpretation to § 1024.41(g) of the CFPB Regs, the answer is clearly “Yes,” while under the Hall decision, the answer is likely “No.” Therefore, maintaining the status quo by finishing an existing publication, or postponing a sale date to a new sale date, could lead to a non-compliance ruling against a servicer. Servicers have struggled with this postponement question in Minnesota since cancelling and re-starting (the conservative approach) departs from CFPB-designed processes.
Most national servicers have established procedures in place to postpone foreclosure sales while they evaluate pending loss mitigation applications. Again, that’s fine under CFPB regulations and the Official Commentary; however, it remains an unanswered question in Minnesota. A servicer choosing to postpone a scheduled foreclosure sale while evaluating an application assumes a business risk of making bad case law in Minnesota, should a court determine that actively postponing a foreclosure is a failure to halt the foreclosure sale. The decision in Hall suggests that the continued publication of a foreclosure sale may be a statutory violation. The consequences of non-compliance could be significant since the statute expressly provides for injunctive relief, setting aside the sale, and recovery of attorney fees and costs.
The court in Hall relied on last year’s decision in Mann v. Nationstar Mortgage, LLC, No. 14-cv-00099, 2015 WL 40942009 (D. Minn. July 2015). The Mann decision provided only a faint ray of light clarifying another essential, yet undefined, term in the Statute: “loss mitigation application.” The Statute, unlike the CFPB regulations, does not necessitate a complete application before requiring the servicer to halt the sale. In Mann, the court did not define what constitutes a “loss mitigation application” but noted that receipt of “core documents” with the application would likely allow a servicer to undertake analysis of the application which would be sufficient. The skies remain cloudy in Minnesota on this issue.
Only one clear ray of light appears under the Statute from a Minnesota Federal District Court decision that actually was a ruling in favor of a servicer. Litterer v. Rushmore Loan Management Services, LLC, No. 15-cv-01638 (D. Minn. June 2, 2016). The Statute requires a lis pendens be recorded before the end of the borrower’s redemption period to assert a claim for non-compliance. The Statute goes further and states that “[t]he failure to record the lis pendens creates a conclusive presumption that the servicer has complied with this section.” Minn. Stat. § 582.043, subd. 7 (2016). On a motion for summary judgment, the court dismissed the entire case on statute of limitation grounds. The claims of non-compliance were extensive, but the notice of lis pendens was filed two months late, and the court concluded that not even excusable neglect was excepted from the conclusive presumption under the Statute.
At some point, a Minnesota court may expound on the many ambiguities in the Statute and provide clarity for servicers to design processes and procedures. Until then, it is best to consult with your local attorneys on these issues to assess risks based on the specific facts of each case.
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June e-Update
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Posted By USFN,
Tuesday, June 14, 2016
Updated: Friday, June 10, 2016
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June 14, 2016
by James Bergstrom and Joel Giddens
Wilson & Associates, P.L.L.C. – USFN Member (Arkansas, Tennessee)
It is said that experience is the best teacher. In the context of the bankruptcy law, this is especially true. Tennessee has three bankruptcy districts (Western, Middle, and Eastern) and practices under a “uniform” federal bankruptcy code that is anything but uniform. As demonstrated below, having local bankruptcy counsel is especially important in this area of the law.
“Conduit” Trustee Payments
All three districts in Tennessee provide for “conduit” trustee payments of mortgage payments and arrears but have different practices in how they do it. In the Western and Eastern Districts, mortgages are generally provided conduit treatment (i.e., “inside the plan”) only if loans are delinquent at the time of filing. While this is the general rule in practice, there are case-by-case exceptions making individual plan review critical. By contrast, debtors in the Middle District (which is one of the few jurisdictions that has adopted the proposed Uniform Model Plan) are required to pay their ongoing mortgage payments through the trustee’s office regardless of the status of the mortgage account.
There is also a difference in practice regarding the first payment to be made through the plan. In the Middle and Eastern Districts, the first payment made by the chapter 13 trustee will be the first month after the filing date. In the Western District, the first payment will generally be the second or third month after the filing date (the exact month is determined by the debtor’s plan). Those payments are “gap” payments — post-petition installment payments that will not be paid through the plan as post-petition maintenance payments.
In the Western District, mortgage servicers must include the gap payments in the arrearage claim even though they are post-petition payments. This has caused some difficulty because the Proof of Claim Form (Form 410) and the Mortgage Proof of Claim Attachment (Form 410A) were designed to include only amounts due as of the petition date. The best practice to deal with “gap” payments is to modify the form by adding a line to Part 3 (Arrearage as of Date of the Petition) on the Mortgage Proof of Claim Attachment (Form 410A) to list the full post-petition payment(s) (i.e., principal, interest, and escrow) in the claim.
Proofs of Claim
Other areas of difference among the districts in Tennessee are the commencement date for payments to mortgage servicers and the enforcement of the proof of claim (POC) bar date by the chapter 13 trustees. Pursuant to Fed. R. Bank. P. 3002, a proof of claim is filed timely if it is filed within 90 days after the first date set for the § 341 Meeting of Creditors, approximately 120-140 days after the bankruptcy is filed. Plan confirmation often occurs before the proof of claim bar date, resulting in confirmation of the plan before the mortgage servicer’s POC is filed.
In both the Middle and Eastern districts, the chapter 13 trustee will not commence making any payments to mortgage servicers until a proof of claim is filed, meaning that even though a plan is confirmed, payments will be held by the trustee. The Western District, by contrast, is a pay upon confirmation jurisdiction and the chapter 13 trustee will commence making the post-petition maintenance payment (but not payments on the pre-petition arrearage) pursuant to the terms of the confirmed plan. This sometimes leads to payments to the incorrect mortgage servicer if, for example, there has been a loan service transfer at or after the filing of the bankruptcy case, and to accounting issues for both the trustee and servicer.
Practices in regard to objections to untimely mortgage servicer proofs of claim are different even within districts in Tennessee. In the Western District and the Southern (Chattanooga) and Winchester divisions of the Eastern District, the chapter 13 trustees do not typically object to late-filed mortgage servicer proofs of claim. This “soft bar date” philosophy appears to be due to the belief that it is more beneficial for debtors to pay the servicer-filed claims, even though late, so that their mortgage will be current upon completion of the plan.
In the Middle District and the Northern (Knoxville) and Northeastern (Greeneville) divisions of the Eastern District, the chapter 13 trustees object to, and seek the disallowance of, any late-filed mortgage servicer POC. To date, no bankruptcy judge in the Middle or Eastern District of Tennessee has ruled that mortgage proofs of claim are excepted from the proof of claim bar date. Even though there is a risk that no payments will be made on a mortgage through the plan and that the loan will fall even further behind, the chapter 13 trustees in these jurisdictions believe that the bankruptcy code/rules and the confirmed plan do not authorize payment of a late-filed claim. In many (but not all) instances, debtors’ attorneys will file a POC on behalf of mortgage servicers so that payments are made on the claim and the funds are not disbursed to other creditors.
Much more could be written about chapter 13 practice differences within Tennessee bankruptcy courts. Even the few examples provided above show that having experienced local bankruptcy counsel is important to servicers to avoid pitfalls and to successfully participate in the bankruptcy process.
© Copyright 2016 USFN. All rights reserved.
June e-Update
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Posted By USFN,
Tuesday, May 10, 2016
Updated: Monday, May 2, 2016
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May 10, 2016
by Caleb J. Shureb
Orlans Associates, P.C. – USFN Member (Michigan)
Michigan property tax foreclosure occurs when the property owner fails to pay their annual property tax assessment for three years. For example, delinquent 2013 property taxes would be foreclosed in 2016. As the delinquency progresses, the county treasurer is obligated to provide notice to both property owners and others who maintain interests in the property (such as mortgagees) through first-class, certified letters; newspaper notices; personal property visits; and postings upon the subject property. Lawsuits have been, on behalf of homeowners, asserting allegations that Wayne County failed to provide the required notices of tax foreclosure.
The Wayne County treasurer’s office has processed more than 100,000 tax foreclosures in the last decade. Often, mortgagees are not in the best position to determine if they have received all of the tax foreclosure notices under the law. While a lienholder will endeavor to protect its position from a tax foreclosure, it is not inconceivable that a security interest can be lost due to a homeowner’s failure to pay their property taxes. When this occurs, local legal counsel should be consulted.
The first step in determining whether the proper notices have been submitted by the county is the submission of a Freedom of Information Act (FOIA) request. Once those results are received, legal counsel can advise whether a post-foreclosure settlement is possible; whether a civil action should be filed; or if attendance at the auction to reclaim the property as the new owner is the best remaining option.
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May e-Update
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Posted By USFN,
Tuesday, May 10, 2016
Updated: Monday, May 2, 2016
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May 10, 2016
by Christene M. Richter
Orlans Associates, P.C. – USFN Member (Michigan)
A case currently pending before the Michigan Court of Appeals seeks to determine whether the foreclosing mortgagee is entitled to receive third-party overbid proceeds from a sheriff’s sale where the mortgagee submitted a specified bid for less than the total debt owed on its mortgage. [In Re Surplus Proceeds from Sheriff’s Sale]. While the term “overbid” is not defined by statute in Michigan, the term is commonly used by those conducting foreclosure sales to describe the amount by which a third-party purchaser outbid the foreclosing mortgagee to purchase the premises at a sheriff’s sale.
The dispute at hand concerns interpretation of the section of the nonjudicial foreclosure statute pertaining to disposition of surplus funds. The court has been asked to make a determination under MCL 600.3252 of whether submission of a specified bid operates to satisfy the mortgage, thereby precluding the foreclosing mortgagee from receiving overbid proceeds from a third-party sale. MCL 600.3252 provides that a surplus arises if there are excess funds derived from the sheriff’s sale “after satisfying the mortgage on which the real estate was sold….” When a surplus arises under these circumstances (i.e., after satisfaction of the mortgage on which the real estate was sold), the mortgagor, his legal representative or assigns, or any subsequent lienholders are potentially entitled to the surplus funds according to their respective interests in the property.
In the matter before the appellate court, the foreclosing mortgagee submitted a specified bid for substantially less than the mortgage debt. A third-party purchaser submitted an overbid of $11,000 to purchase the foreclosed property, which was still substantially less than the total mortgage debt. The sheriff’s office disbursed the full amount of sheriff’s sale proceeds to the foreclosing mortgagee, determining that the final sale price was less than the total mortgage debt.
The third-party purchaser obtained an assignment of the borrower’s right to any surplus proceeds, and filed a petition with the court to claim the $11,000 overbid. The third-party purchaser asserted that the mortgage was satisfied upon receipt of the sale proceeds in the amount of the foreclosing mortgagee’s specified bid, and the remaining $11,000 overbid was therefore a “surplus” as defined by MCL 600.3252.
On competing motions for summary disposition, the trial court ruled in favor of the sheriff’s office and the foreclosing mortgagee, determining that submission of a specified bid for less than the mortgage debt does not operate to satisfy the mortgage as contemplated by MCL 600.3252. The third-party purchaser appealed the trial court’s ruling. As of the date of this publication, the Michigan Court of Appeals has not scheduled a date for oral argument.
©Copyright 2016 USFN. All rights reserved.
May e-Update
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Posted By USFN,
Tuesday, May 10, 2016
Updated: Monday, May 2, 2016
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May 10, 2016
by Lee S. Perres and Jill D. Rein
Pierce & Associates, P.C. – USFN Member (Illinois)
There are recent changes in Macon County with respect to mediations. The new mediation program has begun and is detailed below.
Mediation will be mandatory for all residential foreclosure actions filed on or after May 2, 2016. The circuit clerk has increased the filing fee of all foreclosures cases by $75 to defray the cost of the mediation program.
Macon County’s mediation program mirrors that of Champaign County. Macon County Administrative Order 2016-1 includes the required summons (Exhibit A), notice of mandatory mediation (Exhibit B), and the mandatory mediation rules (Exhibit C). If the homeowner wants to participate in mediation, the homeowner must attend a mandatory pre-mediation conference on the date specified on the summons (date shall be at least 42 days but not more than 60 days from the issuance of summons), at which time the homeowner must prepare and provide a pre-mediation packet to the plaintiff’s counsel.
The plaintiff must provide the homeowner with an itemized list of any missing information within 14 days of the pre-mediation packet being served on the plaintiff. The homeowner must provide any missing information within 21 days of being served with the itemized list. After the homeowner submits an initial pre-mediation packet, the case will be set for a status conference within 40 to 60 days. If the homeowner fails to appear or submit a pre-mediation packet after three pre-mediation conferences (not including the status conference), the mediation coordinator will file a report with the court terminating mediation services.
After all information is received, the plaintiff must file a Certificate of Readiness to Engage in Mediation and mediation will be scheduled within 45 days.
©Copyright 2016 USFN and Pierce & Associates, P.C. All rights reserved.
May e-Update
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Posted By USFN,
Tuesday, May 10, 2016
Updated: Monday, May 2, 2016
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May 10, 2016
by Elizabeth Loefgren
Sirote & Permutt, P.C. – USFN Member (Alabama)
Although rules surrounding statutes of limitation vary among states, the difficulties faced by lenders across the country are relatively consistent. Many lenders have lost their ability to foreclose or collect on the note if too much time has passed from the original default date.
This problem is especially prevalent in judicial foreclosure states where foreclosure cases were dismissed for various reasons during the financial crisis and lenders are now trying to re-file foreclosure complaints. Although there are various situations in which the statute of limitations can be tolled, lenders are exploring alternate methods to restart the clock.
Before a loan is accelerated, some courts consider the failure to pay each month’s installment as a new default that restarts the statute of limitations clock. When a loan is accelerated, it is converted from an installment contract to a single-payment lump-sum debt, and the statute of limitations cannot be restarted until the loan is decelerated.
Recently, cases around the country have addressed whether a loan can be unilaterally decelerated (without the acknowledgement or consent of the borrower) and, if so, what actions will decelerate a loan. See Deutsche Bank Trust Company Americas v. Beauvais, No. 3D14-575, 2016 WL 1445415, __ So. 3d __ (Fla. 3d DCA Apr. 13, 2016) (mortgagee had no obligation to take any affirmative action to decelerate loan following dismissal of foreclosure action); Cadle Co. II, Inc. v. Fountain, 281 P.3d 1158 (Nev. 2009) (“Because an affirmative act is necessary to accelerate a mortgage, the same is needed to decelerate. Accordingly, a deceleration, when appropriate, must be clearly communicated by the lender/holder of the note to the obligor.”)
Due to the inconsistency of judicial rulings on this issue, lenders and servicers are exploring the need to formally decelerate a loan in an attempt to restart the statute of limitations clock instead of relying on the dismissal of the foreclosure complaint or other action.
Additionally, a recent case out of Utah highlights another possible scenario that may restart the statute of limitations clock. In Koyle v. Sand Canyon Corporation, 2016 WL 917927 (D. Utah Mar. 8, 2016), the district court discussed how a debtor’s bankruptcy case may impact the statute of limitations. Here, the court held that the bankruptcy tolled the statute of limitations. However, even if the statute of limitations had not been tolled, the court held that the borrower acknowledged the debt during his bankruptcy when he signed an Agreed Order in which he assented to pay his regular monthly payments under the loan.
In Koyle, the court found that this acknowledgement restarted the clock under Utah law and so the lender’s action was not barred by the statute of limitations. Moreover, if the statute of limitations had run, the court stated that the debt collector still could have foreclosed on the deed of trust, and that the statute of limitations would simply have barred enforcement of the note.
With each new case surrounding mortgage default and the statute of limitations, this area of law continues to evolve.
©Copyright 2016 USFN. All rights reserved.
May e-Update
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Posted By USFN,
Tuesday, May 10, 2016
Updated: Monday, May 2, 2016
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May 10, 2016
by Scott W. Neal
Orlans Associates, P.C. – USFN Member (Michigan)
The U.S. Department of Treasury approved a $74.5 million plan with the goal to eliminate blight in Detroit and Flint, as well as help all Michiganders (Michiganians) avoid foreclosure. This plan comes after the federal government added $2 billion to the Hardest Hit Fund program. Seventy-five percent of the money distributed will be used for blight elimination in Detroit and Flint.
The present allocation shows that Detroit will receive $41.9 million and Flint will receive $13.9 million. The remaining 25 percent will be used to support mortgage assistance programs throughout the state of Michigan. Specifically, those mortgage assistance funds will aid homeowners who have experienced a hardship impacting their ability to pay their mortgage, property taxes, or condominium fees.
Like many urban areas, Detroit and Flint have a significant population of abandoned homes, which commonly result in increased crime and a corresponding decrease in property values. As the mortgage industry has often seen, this is a recipe for an increased level of foreclosure activity. The continued aggressive approach of the Michigan State Housing Development Authority, with the assistance of the federal funds, has resulted in a positive trend of demolishing the abandoned homes thereby reviving numerous neighborhoods. (Thus far, Detroit has demolished 6,777 abandoned homes deemed unsalvageable). The overall result: communities that previously maintained high percentages of negative equity housing are starting to see viable home sale price increases — which, in turn, has served to decrease the number of overall foreclosures in these urban areas.
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May e-Update
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