|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Laurel I. Handley
Aldridge Pite, LLP
USFN Member (California, Georgia)
In response to the flood of quiet title actions filed by entities/individuals that purchased homes at HOA super-priority foreclosure sales in Nevada, the Federal Housing Finance Agency (FHFA) has intervened, in appropriate cases, and asserted federal preemption to challenge an HOA’s ability to extinguish a first priority deed of trust owned by Fannie Mae or Freddie Mac (collectively the “GSEs”).
As most readers already know, the Housing and Economic Recovery Act of 2008 (HERA), codified at 12 U.S.C. §§ 4511, et seq., established FHFA for the purpose of regulating the GSEs, which were placed into conservatorship. See 12 U.S.C. § 4617(a)(2). The applicable provision of HERA, section 4617(j), provides in relevant part: “No property of the Agency [i.e., FHFA] shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency, nor shall any involuntary lien attach to property of the agency.” Id. at 4617(j). Based on this provision, in March 2015 FHFA and the GSEs began filing motions for summary judgment in certain cases, asserting that section 4617(j) provides broad protection to the GSEs while under FHFA conservatorship, and that an HOA foreclosure conducted pursuant to Nevada Revised Statute Chapter 116 could not extinguish the GSEs’ deeds of trust on the relevant property.
On June 24, 2015 the first federal decision was issued addressing the application of HERA in the context of a Nevada HOA foreclosure. In Skylights LLC v. Byron, __ F. Supp. 3d __, 2015 WL 3887061 (2015), the relevant deed of trust was assigned of record to Fannie Mae as of March 7, 2014. The HOA had previously commenced foreclosure of its super-priority lien, and on September 17, 2014 a foreclosure sale was held; Skylights was the winning bidder. Skylights then filed an action seeking to quiet title. The case was removed to federal court, which granted a stipulation to allow FHFA to intervene. Two months after FHFA intervened, and prior to any party conducting discovery, Fannie Mae and FHFA filed a Joint Motion for Summary Judgment, asserting that HERA preempts the Nevada HOA foreclosure statute — such that any foreclosure conducted pursuant thereto could not extinguish Fannie Mae’s lien on the property, absent FHFA consent (and that since FHFA had not consented, the lien remained as an encumbrance after the HOA foreclosure).
Chief Judge Navarro (U.S. District Court for the District of Nevada) agreed, holding that “the HOA’s foreclosure sale of its super-priority interest on the Property did not extinguish Fannie Mae’s interest in the Property secured by the Deed of Trust or convey the Property free and [clear] to Skylights.” Id. at *11. This decision is currently on appeal to the Ninth Circuit Court of Appeals under case number 15-16904; Skylights’ opening brief was due January 4, 2016.
Shortly after the Skylights decision was entered, Chief Judge Navarro issued similar decisions in three additional cases: Elmer v. JPMorgan Chase Bank, N.A., 2015 WL 4393051 (July 13, 2015); Premier One Holdings, Inc. v. Federal National Mortgage Ass’n, 2015 WL 4276169 (July 13, 2015); and Williston Investments Group, LLC v. JPMorgan Chase Bank, N.A., 2015 WL 4276144 (July 13, 2015). The Elmer and Williston cases involved Freddie Mac loans and were factually distinct from Skylights in that after the HOA sales, foreclosures were completed as to Freddie Mac’s deeds of trust, and assignments of the deeds of trust to Freddie Mac were not recorded until after the HOAs’ foreclosures. See Elmer, supra at *1; Williston, supra at *1.
Chief Judge Navarro did not find the factual distinction relevant and instead found that Freddie Mac “held an interest” in the properties since the date it purchased the loans — not the date on which the deeds of trust had been assigned to it. See Elmer, supra at *3; Williston, supra at *3. Similarly, in the Premier One case, the chief judge determined that Fannie Mae held an interest in the property since the time it purchased the loan, which was years before the HOA foreclosure. Premier One, supra at *3. In all three cases, Chief Judge Navarro granted FHFA/GSEs’ motions for summary judgment and held that “12 U.S.C. § 4617(j) preempts Nevada Revised Statutes § 116.3116 to the extent that a homeowner association’s foreclosure of its super-priority lien cannot extinguish a property interest of Fannie Mae or Freddie Mac while those entities are under FHFA’s conservatorship.”
On July 27, 2015 Judge Jones adopted Chief Judge Navarro’s analysis in Skylights and granted FHFA and Fannie Mae’s motion for summary judgment in a “factually and legally indistinguishable case.” My Global Village, LLC v. Federal National Mortgage Ass’n, 2015 WL 4523501 at *4 (2015). Judge Jones thereafter issued a second decision on the issue in LN Management LLC Series 5664 Divot v. Dansker, 2015 WL 570799 (Sept. 29, 2015), wherein he denied FHFA and Fannie Mae’s motion based on a finding that there was a genuine issue of material fact as to whether Fannie Mae owned the note and deed of trust at the time of the HOA foreclosure. Id. at *3. Thus, although Judge Jones acknowledges that HERA preempts the state HOA foreclosure statute, in order to prevail in the Dansker litigation, Fannie Mae will need to prove its ownership interest in the note and deed of trust to establish a property interest within the scope of HERA.
Three other federal judges have issued rulings on the HERA federal preemption argument. Judge Dawson adopted the reasoning of Chief Judge Navarro in the Skylights matter and held that section 4617(j) preempts the state HOA foreclosure statute. Saticoy Bay, LLC v. Federal National Mortgage Ass’n., 2015 WL 5709484 (Sept. 29, 2015). Similarly, Judge Mahan granted FHFA’s motion for summary judgment in 1597 Ashfield Valley Trust v. Federal National Mortgage Ass’n., 2015 WL 4581220 (July 28, 2015). However, Judge Mahan’s decision indicates that Fannie Mae’s property interest did not arise when it obtained an ownership interest in the note, but instead when the deed of trust was assigned to it. Id. at *8.
This is because the deed of trust was originally in favor of MERS. In Nevada, “listing different entities as the note holder and beneficiary under the deed of trust ‘split[s]’ the note and deed of trust at inception.” Id. (citing Edelstein v. Bank of N.Y. Mellon, 286 P.3d 249, 260 (Nev. 2012). It was only when the note and deed of trust were reunited that Fannie Mae’s property interest arose. Since the assignment was executed, and Fannie Mae’s interest arose prior to the date of the HOA foreclosure sale, Judge Mahan held that Fannie Mae’s deed of trust could not have been extinguished by the HOA sale as a matter of law. Id.
Finally, Judge Dorsey has issued decisions on the federal preemption question in three cases: Federal National Mortgage Ass’n v. SFR Investments Pool 1, LLC, 2015 WL 5723647 (Sept. 28, 2015) (“adopt[ing] Chief Judge Navarro’s conclusions and the analysis she articulated in Skylights”); Nationstar Mortgage, LLC v. Eldorado Neighborhood Second Homeowners Ass’n, 2015 WL 5692081 (Sept. 28, 2015) (finding that section 4617(j) preempts the HOA foreclosure statute, but granting leave to amend after holding that the GSE and FHFA had not pled they were the beneficiary of the deed of trust, which had been assigned to Nationstar); and LN Management LLC Series 5271 Lindell v. Estate of Piacentini, 2015 WL 6445799 (Oct. 8, 2015) (finding that section 4317(j) preempts the state HOA foreclosure statute, but denying summary judgment as the GSE and FHFA had not demonstrated they were the beneficiary of the deed of trust, which had been assigned to CitiMortgage).
Notably, Judge Dorsey does not adopt Chief Judge Navarro’s conclusion that a property interest arises when a GSE obtains an ownership interest in a loan. Instead, Judge Dorsey held that a ‘split’ note and deed of trust must be reunited or that the requisite agency relationship must exist between the beneficiary of record and the owner of the note, such that the owner can require the beneficiary/agent to assign the deed of trust to it.
In summation — Each of the federal judges addressing the issue has found that 12 U.S.C. § 4617(j) preempts Nevada Revised Statute § 116.3116 to the extent that a homeowners association’s foreclosure of its super-priority lien cannot extinguish a property interest of a GSE while those entities are under FHFA’s conservatorship. The difference in the cases to date has been the requirements to establish the GSEs’ “property interest” at the time of the foreclosure, either through an assignment of the deed of trust or an agency relationship.
Because of the high number of affected properties (and to avoid inundating the Nevada courts with hundreds of individual lawsuits), the FHFA and GSEs filed a class action complaint in a case pending before Chief Judge Navarro under case number 2:15-cv-01338-GMN-CWH. The FHFA and GSEs filed a motion for certification of a defendant class which, as of this printing, has been fully briefed but not yet ruled upon.
It should be noted that section 12 U.S.C. § 4617(j) only applies when a GSE owns the loan at issue. Therefore, in state or federal cases involving a different investor, the recent federal decisions will have no application. Nevertheless, there are state law arguments being presented challenging HOA foreclosure sales and recent legislation (which took effect on October 1, 2015) that will alleviate some of the concerns over how future HOA sales are conducted in the state of Nevada.
Special Note: As this USFN Report went to press, an update was received from the author. On January 14, 2016 the Nevada Supreme Court issued a decision in Southern Highlands Community Ass’n v. San Florentine Avenue Trust, 132 Nev., Adv. Op. 3. The issue in that case: When multiple HOA liens (e.g., a master HOA and a sub-association) have equal priority and one is foreclosed, does the foreclosure extinguish the second equal-priority lien? Southern Highlands holds that an HOA sale extinguishes any other HOA lien of equal priority and that both equal-priority lienholders share the foreclosure sale proceeds. If those proceeds are insufficient to satisfy the equal-priority HOA liens, the sharing is on a pro-rata basis.
Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Francis J. Nolan
Harmon Law Offices, P.C.
USFN Member (Massachusetts, New Hampshire)
In the past seven years, over 25 Massachusetts cities and towns have enacted ordinances purporting to affect properties in foreclosure. Older ordinances typically focused on the establishment of property registration programs, requiring mortgagees to pay an annual fee ranging between $100 and $300 and to identify a local representative (typically, someone located within 20 miles of the property) who can be contacted in case of emergency. Although locating a representative within 20 miles of the property has sometimes posed logistical problems for servicers, these local property preservation programs have generally had minimal impact on the processing of foreclosures.
More recently, a number of municipalities that have been particularly hard-hit by the foreclosure crisis have sought to use local ordinances to effectuate changes to foreclosure practice that the Massachusetts legislature has been unwilling or unable to pass into law statewide. These more recent ordinances often included a revised property registration program, in which the annual fee is replaced by a cash bond between $5,000 and $10,000 for each property registered; a mandatory pre-foreclosure mediation program; and an expansion of the commonwealth’s post-foreclosure eviction protections for tenants to former owners.
At the end of 2014, the Massachusetts Supreme Judicial Court opined that both the cash bond element of the property preservation ordinances and the mediation ordinances generally were preempted by state law. In response to the court’s ruling, several of the municipalities that had enacted the more aggressive ordinances took steps to revise or repeal their ordinances. For example, Lynn simply repealed its mediation and property preservation ordinances, while Worcester replaced the $5,000 cash bond component of its property preservation program with a $3,000 “fee.” It remains to be seen whether the city’s fee will be challenged and, if so, whether the courts will deem the fee unconstitutional.
The element of the more recent municipal ordinances that has not been addressed by the Supreme Judicial Court (because it was not part of the ordinances in the city that was involved in the relevant litigation) pertains to the expansion of post-foreclosure eviction protections to former homeowners. These ordinances preclude mortgagees who were successful high bidders at auction from evicting their former borrowers unless: (a) they have “just cause” to do so; or (b) a mortgagee has a fully executed Purchase and Sale Agreement of the foreclosed property to an arm’s-length third-party purchaser for value. The cities of Lynn and Lawrence enacted ordinances with anti-eviction provisions in 2013, and Brockton followed suit in 2015. All three municipalities are major cities with particularly high levels of foreclosures and evictions.
While the constitutionality of the eviction ordinances is in question, insofar as the eviction ordinances appear to conflict with existing state eviction laws, lenders have been reluctant thus far to challenge the ordinances. Many lenders have chosen to refrain voluntarily from evicting a former owner in contravention of the municipal ordinances.
Proponents of the cash bond registration provision, the pre-foreclosure mediation requirement, and the expansion of eviction protections have introduced a number of bills in the Massachusetts legislature. These bills would allow cities such as Worcester and Lynn to reinstate their cash bond requirements, establish a statewide mediation program, and expand the existing statutory post-foreclosure eviction framework to include holdover former owners. Thus far, none of the bills has advanced to a vote; however, it seems likely that anti-foreclosure advocates will push hard for action when the legislature returns to formal session in the New Year.
Establishment of mandatory mediation would have a particularly significant effect on foreclosures: no framework currently exists in Massachusetts for the management of such a program, and the entire program — including staffing, training, and procedural rules — would need to be built from scratch, potentially triggering a de facto moratorium on Massachusetts foreclosures. Despite these logistical concerns, the legislature is likely to give serious consideration either to allowing cities and towns to implement more aggressive foreclosure ordinances or to applying these local initiatives statewide, particularly in light of pressure from municipalities and an increase in foreclosure activity throughout Massachusetts.
Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Lee S. Perres,
Kimberly A. Stapleton,
and Benjamin Burstein
Pierce & Associates, P.C.
USFN Member (Illinois)
The city of Chicago adopted ordinances to address the negative impact of improperly maintained vacant buildings in its neighborhoods. These ordinances affect mortgagees and servicers. The ordinances are the Vacant Building Ordinance, the Red X Program and Chicago’s Protecting Tenants in Foreclosed Rental Property Ordinance (“Keep Chicago Renting Ordinance”). The ordinances provide for significant penalties for failure to comply, and the need for servicers to familiarize themselves and comply with these ordinances is critical.
Vacant Building Ordinance (Municipal Code of Chicago Sections 13-12-126 to 13-12-128) — The mortgagee of any residential building that becomes vacant and is not registered by the owner must register the vacant building within 30 days after the building becomes vacant and unregistered, or 60 days after the mortgage is in default (whichever is later). The mortgagee must also secure the building and perform certain maintenance.
The mortgagee can register the building on the Department of Buildings website (http://ipiweb.cityofchicago.org/vbr/) and pay a registration fee of $500. The registration must be renewed every six months as long as the building remains vacant, and the mortgagee must notify the Department of Buildings within 20 days of any change in the registration information by filing an amended registration statement.
The mortgagee must maintain the property, including but not limited to maintaining and securing the exterior of the building, and maintaining the structural integrity of stairs leading to the main entrance. See Section 13-12-126 for the complete list of requirements. Beginning 45 days after the mortgage is in default, the mortgagee is required to inspect the property monthly to determine if the building is vacant. The penalty for failure to comply may result in a fine (minimum is $500; maximum is $1,000) for each offense. Every day in which a violation exists is a separate and distinct offense.
There are several affirmative defenses available to a mortgagee in a code violation case, including that the building is occupied — either lawfully or unlawfully (i.e., squatters) — as well as that violations were cured within 30 days of receiving notice of violations. See Section 13-12-126 for the complete list of affirmative defenses.
Red X Program (Municipal Code of Chicago Section 13-12-148) — Vacant buildings pose many hazards to first responders. To protect the city’s personnel from potential dangers in unsafe buildings, Chicago passed the Red X ordinance. If a structure is deemed unsafe, the fire commissioner is authorized to place a clear and visible Red X warning placard on the vacant edifice. This is to alert anyone approaching the building of the existence of structural or interior peril.
Entry to a “Red X” building is strictly prohibited for any person, including owners and mortgagees in possession, unless the person notifies the Chicago Fire Commissioner in advance of his or her intent to enter the building. Red X buildings should only be entered to assess or repair damages; the structures are not to be entered for showings to sell the building. The penalty for a violation of the ordinance is a minimum fine of $500 (and maximum fine of $1,000) for each offense. Every day that a violation continues constitutes a separate and distinct offense.
Keep Chicago Renting Ordinance (Municipal Code of Chicago Sections 5-14-010 to 5-14-100) — In an effort to preserve, protect, maintain, and improve rental property and prevent occupied buildings from becoming vacant after foreclosure, the city adopted the Keep Chicago Renting Ordinance. The ordinance applies to owners of foreclosed rental properties (redefined to be the purchaser at the foreclosure sale once the sale has been confirmed) and requires that,
“no later than 21 days after a person becomes the owner of a foreclosed rental property, the owner shall make a good faith effort to ascertain the identities and addresses of all tenants of the rental units in the foreclosed rental property and notify, in writing, all known tenants of such rental units that, under certain circumstances, the tenant may be eligible for relocation assistance.” See Section 5-14-040(a)(1).
The notice to tenants required under Section 5-14-040 must provide specific details and must offer a qualified tenant:
“relocation assistance in the amount of $10,600 unless the owner offers the tenant the option to renew or extend the tenant’s current written or oral lease with annual rent that: (1) for the first twelve months, does not exceed 102% of the tenant’s current annual rent; and (2) for any 12-month period thereafter, does not exceed 102% of the immediate prior 12-month period’s annual rent.” See Section 5-14-040(a)(1) for the specific language that must be contained in the notice to tenants to avoid liability.
Section 5-14-040(b) provides that a Tenant Information Disclosure Form (Form) must be provided with the notice required under Section 5-14-040. Within 21 days of receipt of the Form, the tenant shall complete and return the Form to the owner. However, the failure of the tenant to return the Form does not relieve the owner of either providing a new lease or replacement rental unit, or providing the relocation assistance fee.
Within 21 days “after the date upon which the tenant returns or should have returned” the Form, the owner shall provide notice to the qualified tenant that the owner is paying the required relocation fee, or offering to extend or renew the qualified tenant’s rental agreement, or providing a rental agreement for a replacement rental unit if the unit has been unlawfully converted or is an unlawful hazardous unit, whichever is applicable. See Section 5-14-050(a)(3).
If a qualified tenant “fails to accept the owner’s offer to extend or renew the tenant’s rental agreement, or to accept a rental agreement for a replacement unit, whichever is applicable, within 21 days of receipt of the offer [unless more time is provided by the commissioner of business affairs and consumer protection] the owner shall not be liable to such tenant for the extension or renewal of the tenant’s rental agreement; provided that a qualified tenant’s refusal to accept the owner’s offer for a replacement rental unit or to extend or renew the tenant’s current rental agreement for an unlawful hazardous unit does not affect the tenant’s right to receive a relocation fee.” See Keep Chicago Renting Rules for additional requirements: http://www.cityofchicago.org/city/en/depts/bacp/supp_info/rules_and_regulations.html.
If the Form is provided to the tenant, and no response is provided within 21 days, the owner must still make an offer to pay the one-time relocation fee, offer to extend or renew the lease, or provide a replacement rental unit within 21 days (and wait 21 days for a response). As such, within approximately 42 days (not accounting for time delays with mailing) of the tenant receiving the Form, the owner will know if a new lease will need to be offered, if a one-time payment must be provided, or if a forcible detainer and entry (eviction) can occur. The owner can always evict for cause, such as failing to pay rent or violating the terms of the rental agreement.
No later than 10 days after becoming the owner of a foreclosed rental property, the owner must register the foreclosed rental property with the commissioner. See Section 5-14-060(a) for the registration requirements. At the time of filing the registration, the owner must pay a registration fee of $250 for each foreclosed rental property registered. The city must be notified if the property is sold or transferred to a bona fide third-party purchaser within 10 days of the sale or transfer.
A violation of the ordinance carries a fine of $500 minimum (and $1,000 maximum) for each offense. Every day that a violation exists is a separate and distinct offense. Additionally, the city has begun prosecuting violations of the ordinance, specifically failures to comply with the requirement to register foreclosed rental properties. Furthermore, a tenant may bring a private cause of action for failure to comply with the notice requirements or with the requirement to offer relocation assistance, and may recover damages and attorneys’ fees.
See the Municipal Code of Chicago for full ordinances: http://library.amlegal.com/nxt/gateway.dll/Illinois/chicago_il/municipalcodeofchicago?f=templates$fn=default.htm$3.0$vid=amlegal:chicago_il.
Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Kayo Manson-Tompkins
The Wolf Firm
USFN Member (California)
As a result of the high level of vacant properties in California, numerous cities throughout the state have enacted ordinances under the auspices of promoting the health, safety, and welfare of its residents, workers, visitors, and property owners, pursuant to the powers granted to them under CA Government Code Section 38771. Most, if not all, of the cities cite to the need to eliminate the blight caused in its neighborhoods as a result of vacancies. However, in the past few years, many cities have gone beyond vacancy registration and have added a foreclosure registration requirement — either independently or in conjunction with vacancy registration requirements. As of the writing of this article, there are approximately 124 cities with either one and/or the other requirement.
Many of the cities have implemented an online registration process. The key component of registering the property is to enable the cities to have a local primary contact who is reachable 24 hours a day, 7 days a week (24/7) and who can be contacted in an emergency such as a fire, criminal activity, or other incident that creates a hazard to the home and to the community. In addition, many cities require monthly inspections to be completed and various inspection reports to be uploaded to the city portal. Given these requirements, it makes sense that the person who serves as the primary contact should also be the individual responsible for registering these properties — regardless of whether the registration is for vacant property or for the commencement of a foreclosure proceeding.
There are several property inspection vendors that are capable of registering properties in those cities requiring registration, and it is advisable to utilize the services of a company that knows and understands the requirements of the cities. This is extremely important because the city ordinances can (and do) change on a regular basis and, therefore, must be constantly monitored. In addition, many of the cities have significant penalties for failing to comply with the registration ordinance.
In this author’s experience, property preservation companies have the best track record in registering properties and complying with the numerous other requirements imposed by California municipalities. Note that it is very important that the property preservation company be notified as soon as a notice of default has recorded. This event will trigger the necessity to register the property in a city with a foreclosure registration requirement. Furthermore, once the foreclosure of the property has been completed, the registration must be updated with appropriate information including a reference as to whether or not the property is vacant. An analysis below of two cities with recent changes to their ordinances is illustrative of what may transpire if a property is not properly and timely registered.
Los Angeles — This city passed Foreclosure Registry Ordinance 181185, which became effective on June 8, 2010. On November 12, 2014 it was amended to Ordinance 183281. The major changes to the foreclosure registry are proactive inspection requirements, uploading of the monthly inspection reports, and a requirement to de-register properties — all of which are to be completed online. The inspection reports must be uploaded every 30 days or there will be a penalty assessed. Registration is required for all properties where a notice of default has recorded, and when the property becomes an REO; the registration must be accomplished within 30 days of the event. The registration requirement applies for all properties, regardless of whether they are vacant or occupied. The registration fee is $155 and is valid for one calendar year. The property must be re-registered by January 1st of every year, and not later than January 31st. Los Angeles, like most cities, requires the contact information of a local agent that the city may reach 24/7. There is also a $356 proactive inspection fee when the property changes to an REO.
Under LAMC § 164.09, the city of Los Angeles will send out a 30-Day Notice of Non-Compliance for the failure to register, re-register, pay a proactive inspection fee when the property becomes an REO, or upload monthly inspection reports. If the notice is not complied with by the end of the 30 days, a penalty will be assessed at $250 per day until the property is in compliance. Within a few months of the amended ordinance, the city sent out a massive number of notices with penalties ranging from $24,000 to $48,000. In addition, the city has taken a staunch position of not negotiating a reduction of the penalties.
Moreno Valley — The city enacted Foreclosure Registration Ordinance 887 on March 10, 2015, which became effective April 10, 2015. According to the ordinance, when a notice of default (NOD) is recorded, the property must be registered within 15 days of recording of the NOD. The registration fee is $400, which is valid for only one year, and must be re-registered annually on the anniversary of the original date that the property was first registered. If the property is not registered, the city will send a notice stating that if the property is not registered within 30 days of the notice, the first violation is $100; the second is $200, with the third (and all subsequent violations) $500 each.
The registration process may be completed online with the requisite information regarding the subject property. Furthermore, the ordinance requires the following:
“In the case of a corporation or Out of Area Beneficiary and/or Trustee, a direct contact staff member name and phone number with a Local property management company responsible for the security, maintenance and marketing of the Property in Foreclosure; such staff member must be empowered to (i) comply with code compliance orders issued by the City; (ii) provide a trespass authorization upon request of the local law enforcement authorities if the Property is unlawfully occupied; (iii) conduct weekly inspections of the Property; and (iv) accept rental payments from tenants of the Property if no management company is otherwise employed for such person[.]”
What is noteworthy about the city of Moreno Valley is that the registration requirement is retroactive, such that properties that were in foreclosure at the time the ordinance was enacted were required to be registered within 30 days after the effective date, or no later than May 10, 2015. In the event that any beneficiary has unregistered properties in foreclosure in Moreno Valley, it is highly recommended that the property preservation company be instructed to immediately register the properties and pay the outstanding registration fee and penalties.
The approximate 124 cities in California with some form of registration process are concerned with “blight.” As such, it behooves all beneficiaries and servicers to retain a property preservation company that stays abreast of the municipal ordinances and their constant updates and amendments, and to ensure that properties in their portfolios are being registered timely in order to avoid penalties.
A Vacant Property Registration (VPR) matrix is maintained by Safeguard Properties; it is publicly accessible at http://safeguardproperties.com/Resources/Vacant_Property_Registration/Default.aspx?filter=vpr.
Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Michael Anselmo
Anselmo Lindberg Oliver, LLC
USFN Member (Illinois)
This article picks up where the Illinois HOA Talk column published in the Autumn 2015 USFN Report left off … awaiting a decision by the Illinois Supreme Court.
On December 3, 2015 in a unanimous decision, the Illinois Supreme Court affirmed the appellate court’s ruling in the case of 1010 Lake Shore Association v. Deutsche Bank National Trust Co., holding that a condominium assessment lien against foreclosed property survives the foreclosure where post-sale assessments go unpaid.
As discussed in the Autumn 2015 USFN Report, in August 2014 the Illinois Appellate Court held that the purchaser of a condominium unit at a foreclosure sale must pay the monthly assessments that come due beginning with the first month after the sale occurs. Otherwise, the lien for pre-foreclosure assessments (regular or special) survives the foreclosure. Specifically, the appellate court held that payment of regular post-foreclosure-sale assessments after the sale serves to “confirm the extinguishment” of any pre-foreclosure assessment lien held by the association.
In affirming the appellate court, the Illinois Supreme Court held that “The plain language of Section 9(g)(3) ... provides an additional step to confirm or formally approve the extinguishment [of pre-existing association assessment liens] by paying the post-foreclosure sale assessments.” The opinion further reasoned that, “mortgagees may be exempted from liability for the prior owner’s unpaid assessments, but only if the mortgagee pays the assessments coming due following its purchase of the unit at the foreclosure sale.”
Lenders should take notice of a few issues with this statute. First, while the Supreme Court opinion requires payment of regular monthly assessments that come due in the month following the foreclosure sale, the above-referenced statute does not require the association board of managers to supply any specific information. Condominium associations can be expected to take advantage of this and refuse to advise of the amount due for regular, ongoing monthly assessments and, instead, present a demand for all unpaid assessments. Second, the opinion says nothing about when dues must be paid in order to confirm extinguishment of pre-foreclosure association liens.
This judicial decision is sure to embolden condominium associations. They can be expected to rebuff requests to provide the information needed to make timely payment for post-sale assessments as those come due. Rather, they will present demands for all past-due assessments, or they will provide information late, and then claim that the buyer failed to make payment. The only certainty from the 1010 Lakeshore opinion is that there are many questions left open — such that its practical applications are far from certain.
Editor’s Note: The author’s prior article on this case, which was published in the Autumn 2015 USFN Report, may be viewed in USFN’s online Article Library.
Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Edward J. Boll III
Lerner, Sampson & Rothfuss, LPA
USFN Member (Kentucky, Ohio)
The mortgage servicing industry is facing tough questions about how statutes of limitation impact mortgage foreclosures. Black’s Law Dictionary defines a statute of limitation (SOL) as “a statute establishing a time limit for suing in a civil case, based on the date when the claim accrued” to ensure the “diligent prosecution of known claims, thereby providing finality and predictability in legal affairs and ensuring that claims will be resolved while evidence is reasonably available and fresh.” The time limits for bringing a specific type of lawsuit under state law often vary from state to state. For example, in some states the clock is started requiring a foreclosure action to be brought within three years of a default, while another state allows the clock to tick for fifteen years from a default before a foreclosure action must be filed. The SOL for foreclosing on a mortgage is the same as for any written contract in many states, while in other states there is a separate law and time period applicable to foreclosures.
In the past, a state’s SOL on a mortgage foreclosure was rarely an issue as foreclosures were initiated quickly after a default. A common perception was that foreclosures were rushed and efforts surfaced nationally to slow down the process. As a result, it is not uncommon today for a mortgage to have been in default for years before a foreclosure is finally commenced. The same foreclosure defense attorneys attacking foreclosures as being rushed are now contending that foreclosure actions are too stale to be filed and are barred by a statute of limitations. Although raising the SOL is an affirmative defense, where a borrower asserts that a foreclosure should be dismissed, some courts are finding a violation of the Fair Debt Collection Practices Act where a creditor files a suit to enforce a time-barred debt.
Does Bankruptcy Stop the Clock?
When time is running out to file a foreclosure, does the filing of a bankruptcy petition by a borrower stop the statute of limitation? In most instances, yes; otherwise known as “tolling” the amount of time to bring the action. The automatic bankruptcy stay triggered upon the filing of a bankruptcy petition operates as a stay (applicable to all entities) of the commencement or continuation of an action or proceeding against a borrower in bankruptcy, such as foreclosure. Some state laws provide for the tolling of statutes of limitations during periods where a plaintiff is barred by law from filing suit. In many instances, these statutes would presumably apply when the automatic stay prevents commencing or continuing a foreclosure action. In addition, a number of state statutes specifically provide parties with additional time to act where a bankruptcy is involved.
There is also a Bankruptcy Code section titled “Extension of time.” It states that if a deadline fixed by nonbankruptcy law (i.e., state law) has not expired before the date of the filing of the bankruptcy petition, then such period does not expire until the later of the statute of limitations deadline or 30 days after the automatic stay is lifted.
To answer whether or not a foreclosure SOL is tolled by bankruptcy, the issue must be evaluated on a district-by-district basis. It likely will. And even where it is not tolled by the automatic stay, Section 108(c) provides 30 days after relief from stay or the bankruptcy case terminates, albeit that is not much time.
FDCPA and the Bankruptcy Code
Congress enacted the Fair Debt Collection Practices Act (FDCPA) in 1978 with the stated purposes of eliminating “abusive debt collection practices,” ensuring “that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged,” and promoting “consistent State action to protect consumers against debt collection abuses.” For years, debtors have argued that a creditor violates the FDCPA by filing an alleged inflated proof of claim (POC). However, a majority of courts have held that the effect of the FDCPA stops at the door to the bankruptcy court. These courts are steadfast that the remedies for improperly filed proofs of claim, which include contempt and claim disallowance, are fully addressed by the Bankruptcy Code. These courts have held that an inflated POC cannot serve as a basis for a claim under the FDCPA. As the Second Circuit has found, even an invalid claim was not the “sort of abusive debt collection practice proscribed by the FDCPA.”
Is Filing a POC on a Debt that is Time Barred by a State’s SOL a Violation of the FDCPA?
The Eleventh Circuit created a split of authority when it issued its first opinion finding that filing a POC based on a stale debt violated the FDCPA. Crawford v. LVNV Funding LLC, No. 13-12389, 2014 U.S. App. LEXIS 13221 (11th Cir. 2014). Not only are some courts finding that if a creditor files a state court lawsuit to enforce a time-barred debt to be a potential violation of the FDCPA, some courts are viewing the filing of POCs on debts that are stale under a state’s SOL as worthy of penalty. Although the filing of a foreclosure action and the filing of a POC in a bankruptcy case are significantly different, the Eleventh Circuit, in Crawford, held that it did not recognize a difference when it comes to analysis under the FDCPA. Crawford relied heavily on the Seventh Circuit’s decision in Phillips v. Asset Acceptance, LLC, 736 F.3d 1076 (7th Cir. 2013), to conclude that if it violates the FDCPA to file a state court lawsuit to collect a time-barred debt, it equally violates the FDCPA to file a POC regarding a time-barred debt. Although a majority of bankruptcy courts had consistently found that the FDCPA is not violated by POCs on time-barred debts, the Eleventh Circuit has spawned attacks on so-called “Crawford claims” across the country.
Crawford Claims
In Crawford, the debtor owed $2,037.99 to a furniture company, which was charged off in 1999 and later sold to LVNV Funding LLC (a debt portfolio servicer). Under the applicable SOL in Alabama, where Crawford resided, LVNV was required to collect on the debt by October 2004.
In February 2008, Crawford filed for chapter 13 protection. Even though the SOL expired almost four years earlier, LVNV filed a POC. The chapter 13 trustee scheduled the claim and paid LVNV. Over four years into the bankruptcy case, the debtor objected to LVNV’s claim asserting that the debt was unenforceable, and filed an adversary complaint alleging that the creditor’s act of filing a POC for a debt on which the SOL had run violated the FDCPA. After the bankruptcy court (and then the District Court) dismissed Crawford’s allegations, the debtor turned to the Eleventh Circuit Court of Appeals.
The Eleventh Circuit subscribed to the debtor’s argument, reasoning that similar “to the filing of a stale lawsuit, a debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt. The ‘least sophisticated’ chapter 13 debtor may be unaware that a claim is time-barred and unenforceable and thus fail to object to such a claim.” The appellate court ultimately held a debt collector’s filing of a POC on a time-barred debt to be a violation of the FDCPA. The court expressed its displeasure that “a deluge has swept through the U.S. Bankruptcy Courts of late” consisting of “consumer debt buyers — armed with hundreds of delinquent accounts purchased from creditors ... filing proofs of claim on debts deemed unenforceable under state statutes of limitations.”
Irreconcilable Conflict Between the FDCPA and the Bankruptcy Code?
Of significance, the Crawford court “decline[d] to weigh in” on whether there is an irreconcilable conflict between the FDCPA and the Bankruptcy Code, leaving the door open for creditors to raise the issue. In fact, in the Northern District of Alabama Bankruptcy Court, the creditor successfully asserted the precise argument left undecided in Crawford: that “an otherwise cognizable claim for FDCPA damages is precluded by the Code’s and Rule’s comprehensive and detailed protocols for the filing, and allowance or disallowance, of claims.” In re Jenkins, 538 B.R. 129 (Bankr. N.D. Ala. 2015). The Jenkins court agreed with the defendant creditor, noting the idea that the FDCPA penalizes the filing of a POC on a time-barred debt “loses traction” in light of the Bankruptcy Code’s procedural framework for allowing and disallowing claims.
Based upon the case law, the potential award of attorneys’ fees and costs to the debtor where a creditor files a stale claim is heightened in several states. Since the FDCPA is a “fee shifting” statute, expect debtors to continue to seek attorneys’ fees from defendant creditors in other states where a POC is filed on a stale debt. If the claim is stale, consult legal counsel as the likely remedy is disallowance of the claim. If there is some other conduct, however, the FDCPA still may be a threat if the conduct is considered false, deceptive, or unfair.
Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Graham H. Kidner
Hutchens Law Firm
USFN Member (North Carolina, South Carolina)
A growing body of case law supports the qualification of a prior servicer’s loan records as a business records exception to the hearsay rule under the “adoptive business records” doctrine. Perhaps not surprisingly, given the sheer volume of foreclosure activity and resulting litigation, Florida courts have led the way in allowing a servicer to rely on a prior servicer’s records.
Florida
In WAMCO XXVIII, Ltd. v. Integrated Electronic Environments, Inc., 903 So. 2d 230 (Fla. 2d DCA 2005), the servicer’s witness had personal knowledge of how his company kept its records and was personally involved in servicing loans. He was familiar with the computer record-keeping system of the prior servicer and the generally accepted policies and procedures of servicing companies. He reviewed the records being transferred and was involved in checking for errors and omissions when the records were transferred. His testimony, relying on information gathered and maintained by the transferor servicer, was found admissible under the business records exception.
A more recent case is Sas v. Federal National Mortgage Association, 165 So. 3d 849, 2015 WL 3609508 (Fla. 2d DCA, June 10, 2015). Seterus’s records custodian testified that he was familiar with its business practices in making and maintaining business records, with Fannie Mae’s record-keeping requirements for mortgage loan servicers, as well as with the servicer industry’s general practices in making and maintaining business records. He explained that the prior servicer, Chase, was bound by the same Fannie Mae requirements in maintaining mortgage loan records and that Seterus thoroughly reviewed Chase’s records at the time of transfer and found no discrepancies.
Another 2015 case is Nationstar Mortgage, LLC v. Berdecia, 2015 WL 3903568 (Fla. 5th DCA 2015). In Berdecia, the witness had not personally participated in the “boarding” process to ensure the accuracy of the records acquired from CitiMortgage (when Nationstar took over servicing the subject loan); however, she demonstrated a sufficient familiarity with the “boarding” process to testify about it. Her testimony not only satisfied the requirements for admitting the mortgage documents under the business records exception to the hearsay rule, her testimony also demonstrated knowledge of the accuracy of the records.
Conversely, a poor choice of witness — or a poorly prepared one — can lead to the exclusion of the testimony. This was the case in Holt v. Calchas, LLC, 155 So. 3d 499 (Fla. 4th DCA 2015). In Holt, the above-referenced WAMCO case was distinguished because the witness lacked sufficient detailed knowledge as to how the prior servicers kept their records. Also, see Burdeshaw v. Bank of New York Mellon, 148 So. 3d 819 (Fla. 1st DCA 2014) and Hunter v. Aurora Loan Services, LLC, 137 So. 3d 570 (Fla. 1st DCA 2014), review denied, 157 So. 3d 1040 (Fla. 2014). In both Holt and Burdeshaw, the servicer’s records custodian failed to testify that the successor loan servicer independently verified the accuracy of the payment histories received from the prior servicer, or to detail the procedures used for such verification.
Massachusetts
The Supreme Judicial Court of Massachusetts ruled favorably on the subject more than ten years ago: “Given the common practice of banks buying and selling loans, we conclude that it is normal business practice to maintain accurate business records regarding such loans and to provide them to those acquiring the loan. … Therefore, the bank need not provide testimony from a witness with personal knowledge regarding the maintenance of the predecessors’ business records. The bank’s reliance on this type of record keeping by others renders the records the equivalent of the bank’s own records. To hold otherwise would severely impair the ability of assignees of debt to collect the debt due because the assignee’s business records of the debt are necessarily premised on the payment records of its predecessors.” [Beal Bank, SSB v. Eurich, 444 Mass. 813, 831 N.E. 2d 909, 914 (Mass. 2005)].
North Carolina
While not overtly adopting the adoptive business records doctrine, a recent case suggests that the appellate courts would be receptive to the concept. In State v. Hamlin, 2015 WL 4429684 (N.C. App. July 21, 2015), the court ruled as admissible the testimony (and the computer printouts offered into evidence) from a grocery store security chief. The evidence was based on records of the store’s gift cards’ usage, where those records and the printouts from the computer system were created and maintained for the store by a third-party server company.
Missouri, Kansas, Nebraska
Unfortunately, as with many legal concepts, there is no uniformity across the states. In CACH, LLC v. Askew, 358 S.W.3d 58 (Mo. 2012), for example, the Supreme Court of Missouri reviewed that state’s judicial precedent relating to the foundation requirement for admissible business records. The court reviewed and cited to numerous cases; the quotation below, excerpted from the CACH decision, is consistent with the ultimate holding that reversed the circuit court’s judgment, which had been entered in favor of the plaintiff debt collector.
‘“The business records exception to the hearsay rule applies only to documents generated by the business itself. ... Where the status of the evidence indicates it was prepared elsewhere and was merely received and held in a file but was not made in the ordinary course of the holder’s business it is inadmissible and not within a business record exception to the hearsay rule under § 490.680, RSMo 1986.’ A custodian of records cannot meet the requirements of § 490.680 by simply serving as ‘conduit to the flow of records’ and not testifying to the mode of preparation of the records in question. C & W Asset, 136 S.W. 3d at 140.”
Courts in Kansas and Nebraska have also refused to follow the adoptive business records doctrine. See State of Kansas v. Guhl, 3 Kan. App. 2d 59 (1979), and State of Nebraska v. Hill, 2003 Neb. App. LEXIS 156 (2003).
Federal Circuit Decisions
Allowing a litigant to introduce records it relies on in its business operations, where those records were created by a third party, is not a new phenomenon. Indeed, several federal circuit courts have ruled favorably on the subject, including the following:
First Circuit — determined that the head of a bank’s consumer loan department was qualified to introduce a service bureau’s computer-generated “loan histories” as the bank’s business records, where the bank could and did retrieve information from the service bureau. [U.S. v. Moore, 923 F.2d 910, 914-15 (1st Cir. 1991)].
Eighth Circuit — has expressly agreed with other courts that “a record created by a third party and integrated into another entity’s records is admissible as the record of the custodian entity, so long as the custodian entity relied upon the accuracy of the record and the other requirements of Rule 803(6) [of the Federal Rules of Evidence] are satisfied.” [Brawner v. Allstate Indemnity Co., 591 F.3d 984, 987 (8th Cir. 2010)].
Tenth Circuit — “Put simply, if it can be established that a given document was relied on by a business and incorporated into that business’s records in the ordinary course, it is irrelevant that the record was generated by a third party so long as Rule 803(6) [of the Federal Rules of Evidence] is otherwise satisfied.” [United States v. Irvin, 2011 U.S. App. LEXIS 18087 (10th Cir. 2011)].
D.C. Circuit — “[S]everal courts have found that a record of which a firm takes custody is thereby ‘made’ by the firm within the meaning of the rule [902(11) of the Federal Rules of Evidence, or under Rule 803(6), which Rule 902(11) extends by allowing a written foundation in lieu of an oral one] (and thus is admissible if all the other requirements are satisfied). We join those courts.” [United States v. Adefehinti, 510 F.3d 319 (D.C. Cir. 2007)]. The Adefehinti opinion discussed a series of other federal cases supporting its holding — from the Second, Fifth, Ninth, Tenth, and Eleventh Circuits.
Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Ruhi F. Mirza
Rosenberg & Associates, LLC – USFN Member (Washington, D.C.)
In a recent decision, the U.S. Bankruptcy Court for the District of Maryland held that a debtor’s interest as a tenant by the entirety in real property is not exempt from process against a federal restitution judgment entered solely against the debtor. In re Conrad, 2016 Bankr. LEXIS 10 (Bankr. D. Md. Jan. 4, 2016).
The debtor filed her individual petition under chapter 7. Prior to her bankruptcy filing, the debtor pled guilty to a count of conspiracy and agreed to the entry of a restitution order whereby she would pay $838,004.60. Her bankruptcy petition stated that she held an interest in real property as a tenant by the entirety with her husband. The debtor also listed the full amount of the restitution judgment on her schedules and claimed an exemption under 11 U.S.C. § 522(b)(3)(B), asserting that under Maryland law a debtor’s individual creditors “cannot levy upon nor sell a debtor’s undivided interest in entireties property to satisfy debts owed solely by the debtor.” In re Bell-Breslin, 283 B.R. 834, 837 (Bankr. D. Md. 2002). The chapter 7 trustee objected to the debtor’s claim of exemption, contending that federal law, not state law, determines whether an interest is protected based on tenancy and, pursuant to federal law, the debtor cannot claim an exemption.
The trustee relied upon the U.S. Supreme Court’s rationale in United States v. Craft, where the Court concluded that a husband’s property interest held as tenants by the entireties is subject to attachment of a federal tax lien levied for the husband’s sole tax obligation. [United States v. Craft, 535 U.S. 274, 122 S. Ct. 1414, 152 L. Ed. 2d 437 (2002)]. The Court reasoned that “[t]he statutory language authorizing the tax lien is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have.” Id. at 283.
In Conrad, the bankruptcy court reviewed the enforcement statute for restitution orders, which provides that the United States may enforce a restitution judgment against “all property or rights to property of the person fined” and found a clear Congressional intent to treat the enforcement of restitution judgments and unpaid taxes equally. 18 U.S.C. § 3616(a). The bankruptcy court concluded that, given the broad description of the property interests that are subject to the United States’ enforcement rights in the enforcement statute and the clear Congressional intention to treat those rights on par with the government’s right to collect taxes, the rationale of Craft applies to the collection of a restitution judgment against an individual tenant by the entirety. Accordingly, the bankruptcy court sustained the trustee’s objection.
© Copyright 2016 USFN. All rights reserved.
February e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Nathan C. Favreau
Hunt Leibert – USFN Member (Connecticut)
Creditors and servicers use credit reports maintained by the major American credit reporting agencies to estimate the level of risk associated with lending decisions. The value of credit reports depends on the accuracy of information contained in them, which is provided by banks, mortgage servicers, and other finance companies. It is vital that furnishers of credit data supply updated and accurate information, including whether a debt has been discharged in a bankruptcy proceeding.
Furnishers of credit information in the Second Circuit face the possibility of a lawsuit being filed by a borrower for failing to accurately report the entry of a bankruptcy discharge under at least two legal theories of liability:
- Fair Debt Collection Practices Act – 15 U.S.C § 1692e(8) prevents debt collectors from using false, deceptive, or misleading representations in connection with the collection of a debt. This includes communicating credit information that is known, or should be known, to be false. The Court of Appeals for the Second Circuit recently reversed a case that had dismissed claims brought under the FDCPA for — among other things — improperly reporting that the plaintiff owed money on the discharged debt. Garfield v. Ocwen Loan Servicing, LLC, 2016 U.S. App. LEXIS 3 (2d. Cir. Jan. 4, 2016). [The Second Circuit is comprised of Connecticut, New York, and Vermont.]
- Violation of the Discharge Injunction – To prove a claim under 15 U.S.C. § 524, a plaintiff needs to show that a defendant attempted to collect debts by not informing credit reporting agencies that those debts had been discharged. Haynes v. Chase Bank USA, N.A., 2015 U.S. Dist. LEXIS 27400 (S.D.N.Y. Mar. 5, 2015); Torres v. Chase Bank USA, N.A. 367 B.R. 478, 489 (S.D.N.Y. 2007) (court discussed low threshold for determining that failure to report bankruptcy discharge was coercive activity by the creditor).
Mitigating the Risk of a Lawsuit
To promote the value of credit reports, as well as to mitigate the exposure to lawsuits from borrowers, it should be a priority for creditors and servicers to accurately and timely report any bankruptcy-discharged loans within their portfolio. Free-flowing communication among various departments within an organization provides the key to lowering the risks associated with failing to update credit reporting information to reflect a bankruptcy discharge. Policies and procedures should be in place allowing those units that are responsible for processing notices of bankruptcy petition filings to communicate with the department responsible for furnishing information to the credit bureaus.
© Copyright 2016 USFN. All rights reserved.
February e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Friday, January 29, 2016
Updated: Friday, February 19, 2016
|
January 29, 2016
by Aaron L. Squyres
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)
The United States District Court of New Jersey recently issued an opinion that will have an immediate impact on mortgage default law firms in New Jersey — and which could ultimately have a far-reaching impact on the mortgage default legal industry. In the case of Psaros v. Green Tree Servicing, LLC, and Stern Lavinthal & Frankenburg LLC, Case No. 15-4277 (D.N.J. Dec. 21, 2015), the court denied Stern Lavinthal’s motion for judgment on the pleadings, and found that the firm was liable on a claim under the Fair Debt Collection Practices Act based on the firm’s reliance on a client’s debt figures.
The underlying facts are that Psaros defaulted on his non-escrowed mortgage loan, and Bank of America (by way of its counsel Stern Lavinthal) filed a foreclosure complaint. The loan was subsequently transferred to Green Tree, and Green Tree requested proof of property insurance. Psaros alleged that he tendered proof of the insurance in the manner requested. Green Tree later advised Psaros that force-placed insurance had been secured on the property.
Stern Lavinthal moved for entry of judgment and, as part of that motion, it filed a “Certification of Proof of Amount Due,” which included the sum of $10,974.37 for “Home Owners Insurance Premiums.” The Stern Lavinthal attorney submitted a “Certification of Diligent Inquiry,” in which she stated that she had been advised by a Green Tree representative that the representative had personally reviewed the affidavit of amount due and confirmed the accuracy of that document. The Stern Lavinthal attorney then executed the certification based on her communication with the Green Tree representative, as well as her own inspection of the documents and other diligent inquiry.
Psaros filed suit against Green Tree and Stern Lavinthal two months later. He alleged a violation of the Fair Debt Collection Practices Act, 15 USC § 1692e, based upon a false, deceptive, and/or misleading representation about the amount of debt. Specifically, a demand for payment of insurance premiums that were not actually owed under his loan agreement. Stern Lavinthal subsequently filed its motion for judgment on the pleadings.
The court denied the motion, finding that “[a] plain reading of the statute leads to the conclusion that a violation has occurred.” The court went to state that “[b]ecause the statute’s language is plain, the Court’s function is ‘to enforce it according to its terms’ so long as the disposition required by that [text] is not absurd.’” The court then added that its finding of a violation “is not absurd; rather, it is consistent with the Third Circuit’s recent decisions in McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F.3d 240, 248 (3d Cir.) cert. denied, 135 S.Ct. 487 (2014) and Kaymark v. Bank of America, N.A., 783 F.3d 168 (3d Cir. 2015).”
In McLaughlin, the court found liability on the part of the law firm for including not-yet-incurred fees in a demand letter. In Kaymark, the court extended this not-yet-incurred rationale to a formal pleading. It is important to note that the Psaros decision can be distinguished from the McLaughlin and Kaymark cases, in that the law firm in Psaros was found liable due to alleged false representations relating to the client’s figures — not its own fees.
© Copyright 2016 USFN. All rights reserved.
February e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Monday, January 25, 2016
Updated: Friday, February 19, 2016
|
January 25, 2016
by Francis J. Nolan
Harmon Law Offices, P.C. – USFN Member (Massachusetts, New Hampshire)
Massachusetts has enacted long-awaited legislation intended to resolve title defects resulting from a 2011 Supreme Judicial Court decision (U.S. Bank, N.A. v. Ibanez, 458 Mass. 637), which retroactively invalidated a significant number of foreclosures already on title. The bill, now known as Chapter 141 of the Acts of 2015, provides that the standard post-foreclosure affidavit of sale required by G.L. c. 244, s. 15 becomes conclusive evidence in favor of arm’s-length purchasers for value that the foreclosure was conducted in accordance with Massachusetts foreclosure laws, once the affidavit has been on record for three years and the borrower has vacated the premises.
The bill’s effective date was December 31, 2015, but because the bill provides a one-year period for borrowers whose foreclosure affidavits were recorded more than three years ago to come forward and sue, no affidavits will be considered conclusive evidence until 2017 at the earliest.
The bill has already survived one challenge since it was signed by the governor in December. A group of foreclosure activists who had bitterly opposed the passage of the law, and had successfully lobbied the previous governor to block a similar bill from being passed a year earlier, submitted a petition to the Secretary of the Commonwealth seeking to place a referendum on the November 2016 ballot for voters to decide whether to repeal the law. However, the state attorney general issued an opinion letter (dated January 19, 2016), concluding that the petition was constitutionally impermissible because the bill, in part, expanded the housing courts’ jurisdiction to hear counterclaims in post-foreclosure eviction actions, and thus fell under the “powers of the courts” exception to the constitutional petition process.
Activists have vowed to challenge the constitutionality of the new law in court at the earliest opportunity, which may come later this year or early next year. For the time being, the curative law remains in effect, and absent judicial pronouncements to the contrary, Massachusetts homeowners who have found themselves unable to sell or refinance their property because of old Ibanez problems may finally have their titles settled.
© Copyright 2016 USFN. All rights reserved.
February e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Ronald C. Scott and Reginald P. Corley
Scott & Corley, P.A. – USFN Member (South Carolina)
A decision has been issued by the South Carolina Supreme Court in Wachesaw Plantation East Community Services Association v. Alexander, 2015 WL 6735746 (S.C. Nov. 4, 2015). The underlying case arose out of the foreclosure of a lien for delinquent homeowners association fees against Alexander, who had purchased a home for his elderly father. After a hospitalization, Alexander’s father did not return to the home. Alexander did not pay the regime fees, and the homeowners association commenced an action to foreclose the lien.
Alexander was served process, but never responded to the summons and complaint. He also failed to make any appearance in the case until after the property was sold to a third-party purchaser at judicial sale. Two months after the judicial sale Alexander tendered, in full, the homeowners association fees. However, the homeowners association would not accept payment because of potential liability to the third-party purchaser.
The foreclosure was not appealed by Alexander, although he moved to vacate the underlying judicial sale. The master-in-equity denied the motion because Alexander failed to allege improper service, lack of notice, lack of jurisdiction, or excusable neglect; offered no reason for not sending a check to pay the homeowners association fees in full once he received the summons and complaint; and failed to appeal the foreclosure judgment. After denying Alexander’s motion, the master-in-equity issued a foreclosure deed to the third-party purchaser. Alexander appealed the denial of his motion.
The third-party purchaser moved to dismiss the appeal on the ground that the issue appealed is moot because the foreclosure sale was finalized before Alexander filed and served his appeal. The Court of Appeals agreed, concluding that the appellant did not comply with South Carolina Code Section 18-9-170, which requires the posting of a bond and a written undertaking making assurances to not commit waste to the property and to pay rent if the foreclosure judgment is affirmed.
The South Carolina Supreme Court granted certiorari to review the appellate decision and to address the question of whether the subsequent issuance of a foreclosure deed mooted a timely filed appeal of an order denying a motion to vacate the sale of a foreclosed property. The Supreme Court’s opinion begins with a discussion of mootness and the exceptions to the general rule that a court will not render a decision when the controversy is moot. In its analysis, the court quickly concludes that South Carolina has established precedent that the issuance of a foreclosure deed does not moot an appeal. The court cites numerous decisions reaching the merits of the appeal despite a master-in-equity having already issued a foreclosure deed, as well as case law where the merits were decided despite the appellant failing to post a bond.
The Supreme Court did not offer an opinion on the merits of Alexander’s appeal, but did say that the issuance of a foreclosure deed clearly does not moot the appeal of a foreclosure sale, and that an appellate court may reach the merits of the underlying foreclosure case.
© Copyright 2016 USFN. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by John S. Kay and John B. Kelchner
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)
One of the most important hurdles facing a lender or servicer who is contemplating filing a claim against a policy for title insurance, is whether or not the time frame for filing the claim under the applicable statute of limitations (SOL) has expired. South Carolina Code section 15-3-530(1) provides for a three-year statute of limitations for actions based upon a contract. As such, the general consensus in South Carolina has been that this three-year time frame is the applicable SOL for claims on title insurance policies. A recent judicial decision indicates that this may no longer be the situation.
In an appeal rising out of a title insurance policy claim, the South Carolina Court of Appeals found that the affixation of a corporate seal to the title policy evidenced an intent to create a sealed instrument, thus allowing the insured to take advantage of the twenty-year statute of limitations for sealed instruments rather than the three-year statute of limitations allowed under general contract law in South Carolina. Lyons v. Fidelity National Title Insurance Company as successor by merger to Lawyers Title Insurance Corporation, No. 2013-002137 (S.C. Ct. App. Dec. 2, 2015).
South Carolina statute provides for a twenty-year SOL for “an action upon a sealed instrument, other than a sealed note and personal bond for the payment of money only whereon the period of limitation is the same as prescribed in Section 15-3-530.” S.C. Code Ann. section 15-3-520(b) (2005).
In Lyons, the insured homeowners brought their claim and action on their title policy more than three years after they knew of, or should have discovered, the title defect in question. The seal that appeared on the title policy was a corporate seal of the title company placed next to the signature of the president of the company. The title company asserted that the purpose of the seal was to show that the company’s agent was authorized to issue the policy. The court rejected this argument and found that the title polices in question were sealed instruments and the twenty-year statute of limitations afforded under section 15-3-520(b) applied.
This is a significant case in South Carolina because the standard title policy form in use in the state usually contains a corporate seal, ostensibly allowing for a twenty-year statute of limitations for insureds to bring claims for most policies in the state.
© Copyright 2016 USFN. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Graham H. Kidner
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)
The Court of Appeals of North Carolina issued an unpublished opinion that should reassure mortgage lenders that drafting errors in deeds of trust (ones that are clearly the result of a “mutual mistake” by both the lender and the borrower) can be corrected through court proceedings.
In Ocwen Loan Services, LLC v. Hemphill, 2015 WL 5432666 (N.C. Ct. App., Sept. 15, 2015), the deed of trust securing the loan to Ocwen contained a legal description covering only the driveway to the property, omitting the larger lot containing the borrower’s home. The borrower had first acquired title to the lot upon which his home was located, and then later purchased the driveway lot. When the loan was closed, only the driveway lot was described in the deed of trust. Ocwen obtained an order for summary judgment, allowing reformation of the deed of trust to include the legal description of the lot containing the borrower’s home. The Court of Appeals affirmed the judgment.
The evidence, which included the appraisal, demonstrated that: (i) the property address was included in the deed of trust; (ii) the borrower understood the address to refer to the lot containing the house; and (iii) the borrower acknowledged that Ocwen would expect the full legal description to be included in the deed of trust. All of this led the court to conclude that there was a mutual mistake of fact in that both parties fully intended the loan to be secured by the entire property. Additionally, the court noted that the deed of trust — which formed a contract between the parties — required the borrower to occupy the secured property as his principal residence. This would make sense only if the legal description included the lot containing the house.
The borrower’s defense, which the court briefly considered and then rejected, was that Ocwen may have intended to secure only the driveway lot because of a number of judgment liens against the lot containing the home. However, as the court made clear: In defending against a motion for summary judgment, a party must “produce a forecast of evidence demonstrating specific facts, as opposed to allegations, showing that he can at least establish a prima facie case at trial” in order to withstand a motion for summary judgment. Id at 4, citing Van Keuren v. Little, 165 N.C. App. 244, 246, 598 S.E.2d 168, 170 (2004).
The lesson to be learned, of course, is that lenders and their closing agents should employ quality control procedures to ensure that settlement documents are complete and accurate. Drafting errors such as this usually occur when real property is parceled out into different lots, or where lots are combined or divided. Special care should be taken in these situations to carefully review the final draft deed and deed of trust to ensure that the correct property description is provided.
©Copyright 2016 USFN and Hutchens Law Firm. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Carrie D. Mermis
Martin Leigh PC – USFN Member (Kansas)
In a recent decision, the bankruptcy court held that a chapter 13 plan that provides for the vesting of mortgaged property in the secured creditor may not be confirmed over the creditor’s objection. [In re Williams, 2015 WL 7776552 (Bankr. Kan. Dec. 2, 2015)].
After the debtor’s original plan (which retained homestead property) was confirmed, the debtor filed a motion to amend the plan to surrender the property. Upon no foreclosure, the debtor filed a subsequent motion to amend the plan that not only provided for surrender of the property but also to vest title to the property in the secured creditor pursuant to 11 U.S.C. §§ 1322(b)(8) and (9). The plan further provided that an order on the modification would constitute a deed of conveyance to the property when recorded with the county Register of Deeds, and that all claims secured by the property would be paid by surrender of the collateral and foreclosure of the security interests.
The split of authority around the country on this issue was recognized in Williams. Some courts have held that vesting is allowed when the secured creditor does not object. Other courts have approved vesting provisions over the objection of the secured creditor, including one case in Kansas. The bankruptcy court in Williams, however, agreed with the courts that have held that a secured creditor cannot be compelled to accept ownership of collateral.
The court relied on the plain meaning of the statute and determined that although § 1322(b)(9) allows vesting the title to property in a secured creditor, § 1325(b)(5) does not permit confirmation of a plan vesting title to collateral in the secured creditor over that creditor’s objection. It was noted that vesting property in the secured creditor would impair the creditor’s rights under state law where the Bankruptcy Code does not provide it a basis to do so. Allowing the property to be vested to the secured creditor over its objection “would force it to accept the title and impose unbargained-for obligations on it to pay taxes and other costs associated with the [p]roperty.” The property at issue in this case also was subject to a junior mortgage lien.
Admittedly, the court found it “tempting” to allow such a provision because it would remove the burdens of property ownership from the debtor and promote the debtor’s fresh start. However, the court went on to say that to confirm the vesting provision, “… [the] results would, in effect, be judicial legislating that usurps the role of Congress.”
© Copyright 2016 USFN. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Lee S. Perres and Kimberly A. Stapleton
Pierce & Associates, P.C. – USFN Member (Illinois)
The Second District Court of Appeals for Illinois found that a plaintiff was not entitled to recover a $470,340 real estate tax payment where the bank could have, but did not, amend the judgment of foreclosure prior to the sale to include a prejudgment tax payment. About one month prior to the hearing on the bank’s motion for summary judgment, the bank had made the prejudgment tax payment. See BMO Harris Bank, N.A. v. Wolverine Properties, LLC, 2015 Ill. App. (2d) 140921 (Aug. 20, 2015). Until recently, this requirement was limited to the Second District; that is, the counties of Boone, Carroll, DeKalb, DuPage, Jo Daviess, Kane, Kendall, Lake, Lee, McHenry, Ogle, Stephenson, and Winnebago.
Following the Second District Court of Appeals, Judge Brennan in Cook County ruled that absent a subsequent amendment to the judgment of foreclosure order fees, costs, advances, and disbursements expended by the plaintiff between the date of execution of the affidavit of indebtedness and the entry of the judgment of foreclosure cannot be recouped at confirmation of sale. The court based its ruling on a strict reading of 735 ILCS 5/15-1508(b)(1), allowing the collection of fees and costs arising between the entry of judgment of foreclosure and the confirmation hearing, in conjunction with 735 ILCS 5/15-1506(a)(2), which states that the affidavit of indebtedness contemplates the amount due the mortgagee at judgment.
The general rule in Illinois is that, excluding a conflict among districts, a judicial decision is not confined to any particular district — unless and until another district appellate court finds differently. The ruling in Wolverine appears to be spreading across the state as defense counsel becomes aware of its effect. To stay ahead of the trend, servicers and lenders should apply the Wolverine principle statewide.
To reiterate — During the time between execution of the affidavit of indebtedness and the entry of judgment substantial fees, costs, advances, and disbursements may be expended (i.e., taxes, property preservation, hazard insurance, etc.). In order to include these expenditures in a sales bid and to subsequently collect them at confirmation of sale, a supplemental affidavit of indebtedness is now required to be submitted to the court with a motion to amend the judgment. The court must amend the judgment to include any additional pre-judgment expenditures prior to the date of sale. If amendment does not occur prior to the sale, the plaintiff will need to set aside the sale, amend the judgment, and conduct a new sale. Alternatively, if it is not cost-effective to seek recovery of these expenditures, the expenditures can be excluded from the sales bid and the plaintiff may forgo amending its judgment.
©Copyright 2016 USFN and Pierce & Associates, P.C. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Lee S. Perres and Kimberly A. Stapleton
Pierce & Associates, P.C. – USFN Member (Illinois)
The Illinois Supreme Court has affirmed the appellate court in 1010 Lake Shore Association v. Deutsche Bank National Trust Company (Ill. Dec. 3, 2015), holding that a lien created for unpaid assessments by a previous owner is not fully extinguished following a judicial foreclosure sale until the purchaser at the foreclosure sale makes a payment for current assessments incurred after the sale.
As a result of the appellate ruling, condominium associations became much more aggressive about collecting past-due assessments from the purchaser at sale when the purchaser did not promptly pay the current assessment. The Illinois Supreme Court ruling has given condominium associations carte blanche to seek payment of the prior owner’s unpaid assessments — if the purchaser of the condominium unit following a foreclosure does not pay the assessments for which they are liable (i.e., from the first day of the month following the foreclosure sale).
Unfortunately, the Supreme Court did not recognize that a foreclosure sale is not final until the order approving sale is confirmed. As the law currently stands, the failure to make timely condominium assessment payments the month following the foreclosure sale can be very costly to servicers. As a result, servicers and lenders are urged to pay condominium assessment payments as soon as possible beginning the first day of the month following the date of the foreclosure sale.
A party who becomes the owner of a condominium unit following a foreclosure should immediately pay the assessments for which they are liable; i.e., from the first day of the month after the sale. Although a foreclosure sale in Illinois does not become final until after the sale is approved by the court, the foreclosing party should still pay the assessments after becoming the successful purchaser. If the sale is approved, the payment of these assessments will confirm that any lien by the condominium association for past-due assessments is extinguished. If the sale is not approved, the payment can be charged to the borrower as a cost necessary to protect the plaintiff’s interest in the foreclosed property upon a resale, payoff, or reinstatement.
The only guidance provided in 1010 Lake Shore Association by the Illinois Supreme Court is in ¶ 34 of its decision, which states as follows: “Additionally, the Act allows an encumbrancer ‘from time to time [to] request in writing a written statement *** setting forth the unpaid common expenses with respect to the unit covered by his encumbrance.’ 765 ILCS 605/9(j) (West 2008).” Thus, a mortgagee may protect its interest by requesting notice of unpaid assessments, joining the association as a party to a foreclosure action, and paying assessments that accrue following its purchase of a property at a foreclosure sale.
Servicers and lenders should request, after judgment but prior to sale, “a written statement” setting forth the unpaid assessments with respect to the unit being foreclosed on and to document all activities taken to that end. This way, the amount of the assessment will be known and the payment can be made promptly after the sale to avoid the possibility of being liable for all past-due assessments. In the event that an association is not cooperative and refuses to provide that information, servicers and lenders will have an opportunity to seek relief from the court.
Hopefully, future case law will clarify when these payments have to be made in a manner that comports with Illinois law.
©Copyright 2016 USFN and Pierce & Associates, P.C. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Jeffrey M. Knickerbocker
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)
The borrowers have sued a servicer for sending a solicitation that indicated the borrowers could be eligible for a modification. The borrowers allege that they should not have been solicited for another loan modification when a previous loan modification precluded any further modifications on their loan. In the case of Hansen v. Wells Fargo Bank, N.A., Docket No. FBT-CV-14-6042087, 2015 Conn. Super. LEXIS 1940 (Aug. 10, 2015), the court struck several of the servicer’s defenses. The case remains pending and is scheduled for trial on September 13, 2016.
In this matter, the borrowers had entered a loan modification in 2010. They were unable to meet the payment obligations of the loan modification and the servicer started a second foreclosure action. The borrowers elected to participate in the court mediation program. During the mediation program, the borrowers allege that the servicer repeatedly asked for new and different financial documents, and that these requests for documents went on for almost three years. The borrowers further assert that after three years of mediation the servicer revealed, for the first time, that the borrowers were ineligible for a loan modification because they had a previous loan modification. The borrowers claim that they suffered damages as a result of the delay. Moreover, they allege that soliciting them for a modification that would never occur constituted negligent misrepresentation, negligence, an unfair trade practice, and unjust enrichment.
The servicer contended that it was required by various settlement agreements, federal guidelines, and federal regulations to make the solicitation. The court disagreed. The servicer first raised that the terms of the National Mortgage Settlement (NMS) required solicitation regardless of whether the loan qualified for a loan modification. The court disagreed that this could be a defense when the solicitation misrepresented that a loan modification was possible. The court further found that the NMS specifically states that it is subject to “federal, state, and local laws, rules and regulations.”
The servicer also maintained that under the federal guidelines for the Home Affordable Modification Program (HAMP), the servicer was required to solicit the borrowers. The court pointed to Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 555 (7th Cir. 2012), to find that HAMP guidelines do not preempt state law. As the statements in the solicitation that the loan could be eligible for a modification were not accurate, the court found that HAMP guidelines did not shield the servicer from liability.
The servicer also asserted that the Consumer Finance Protection Bureau regulations and the National Banking Act preempted state law. However, the court looked at both the statute and the regulations and found that the borrowers’ allegations were not preempted. Therefore, the court struck this defense.
It appears that the situation in Hansen may have been avoided by alerting the borrowers at the outset that their loan was not eligible for a modification. This case highlights the importance of providing as many facts as possible to the borrowers concerning their loan.
© Copyright 2016 USFN. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Matthew J. Cholewa
Hunt Leibert – USFN Member (Connecticut)
The Connecticut legislature has enacted a lien on real property that runs in favor of the state of Connecticut for probate fees payable in decedent’s estates.
Those doing business in Connecticut are likely aware of the existing estate tax lien — an inchoate lien in favor of the state of Connecticut, which arises upon the death of an owner of Connecticut real property. Even though there is no recorded lien, anyone purchasing or financing real estate where an owner in the chain of title is deceased must be sure that the estate tax lien is cleared.
In section 454 of Public Act 15-05 (June Special Session) the Connecticut legislature created the probate fee lien, another inchoate lien that arises in connection with the death of a property owner. The probate fee lien relates to estates that were open on or after July 1, 2015.
The probate court shall issue a certificate of release of lien for any affected real property after receipt of payment in full, or if the court finds that payment is adequately assured. The certificate of release of lien may be recorded in the land records where the property is located.
For properties that are in foreclosure, if there is a deceased person in the chain of title and the probate fees have not been paid in full or the lien released, the state of Connecticut should be named as an additional defendant in the foreclosure action. It is important to note that the probate fee lien (like the estate tax lien) does not have priority over previously recorded mortgages. Thus, a recorded mortgage will hold priority over both the estate tax lien and the probate fee lien if a borrower dies after granting the mortgage, and a foreclosure of the mortgage can wipe out the probate fee lien (as well as the estate tax lien) as long as the state is named as a defendant.
The probate fee legislation can be found in section 454 of Public Act 15-05 (June Special Session), the “budget implementer” bill. It was enacted without the benefit of a public hearing. In the same legislation, Connecticut increased probate fees as a means of funding the probate court system. Unlike most states, Connecticut includes property passing outside probate in calculating its probate fees. The fees are, in effect, a tax on a person’s estate regardless of whether the property comprising the estate passes through — or outside of — probate.
© Copyright 2016 USFN. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Samuel Jackson
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)
Last year the Arkansas General Assembly passed Act 1139/A.C.A. 18-27-103, a bill that offers guidance on the treatment of personal property after a foreclosure sale. Act 1139 is a welcome regulation for the mortgage foreclosure industry because it shields purchasers from liability for disposing of property without having first completed a full eviction. Before the bill’s passage, a purchaser at foreclosure sale was required to make a judgment call: proceed with the expense of a full lawsuit, or take a risk and dispose of personal property with the hope that it was, in fact, abandoned. Purchasers can now rest more easily when removing personal property from the vacant premises.
As stated above, Act 1139 classifies some personal property as abandoned, relieving the purchaser from liability for disposing of it. The Act provides guidelines for disposing of personal property on vacant foreclosed property, and shields the purchaser from liability when either of the two avenues provided in the text are fulfilled. A.C.A. 18-27-103 states that “all personal property remaining on the land or in a structure on the land shall be considered abandoned if the owner of the personal property has received notice of the sale of the land.” The personal property is considered abandoned and liability will not attach if the owner has not removed the personal property within thirty days of the recording of the deed commemorating the sale.
The other leg of the statute classifies personal property as abandoned if the purchaser mails notice of the sale to the last-known mailing address of all previous occupants, and posts notice of the sale of the land. The personal property is abandoned if the owner has not removed the items or notified the purchaser in writing of the owner’s claim to the personal property within thirty days. So long as the notice is mailed and posted in accordance with this requirement, the property will be considered abandoned after thirty days regardless of whether the occupants actually received notice. The notice must be dated, mailed by certified mail, and posted conspicuously on the land; plus it has to contain a statement that the personal property must be removed or claimed within thirty days.
18-27-103(c) states that “[a] purchaser of land that disposes of personal property that is considered abandoned under this section is not subject to liability or suit.” If either of these requirements is met, the property is considered abandoned and may be disposed of as needed. This relieves the purchaser from liability for disposing of the personal property as well as the expense of proceeding with the full eviction lawsuit to ensure that a property is vacant.
However, in the event that the owner of the personal property wants the personal property, the Act provides further guidance. If the owner does not remove the personal property within thirty days, but gives the purchaser written notice of his or her claim, the purchaser may remove the personal property and store it at the owner’s expense for up to thirty days. The owner must remove the personal property from storage and pay the reasonable expense of storage within thirty days; otherwise the personal property is considered abandoned. There are also some limitations to the Act, in that mobile homes and/or abandoned personal property on which a creditor holds a lien or security interest may not be considered abandoned under the section.
This statute is very new and has yet to be debated in the courts, but it offers clear guidance for purchasers at foreclosure sale to obtain possession of property more cheaply and efficiently. The practice should provide significantly faster turnover of possession post-foreclosure, easing the costs of managing properties and reducing the risks and costs of upkeep on a property that is not yet available for marketing and sale.
© Copyright 2016 USFN. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Caitlin L. Stayduhar
Martin Leigh PC – USFN Member (Kansas)
The U.S. Supreme Court’s opinion in Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773 (1992), held that Bankruptcy Code § 506(d) does not allow a debtor to avoid a consensual mortgage lien when the value of the collateral is less than the amount of the claim secured by the lien. Dewsnup has been questioned by a number of opinions and publications since its issuance in 1992. On November 20, 2015 the U.S. Bankruptcy Court for the Eastern District of Louisiana further limited the applicability of Dewsnup by holding that a nonconsensual lien is avoidable when insufficient equity exists to secure its debt. [In re Mayer, 2015 Westlaw 7424327 (Bankr. E.D. La. 2015)].
In Mayer the debtor sought to avoid the lien of a writ of execution arising from a money judgment taken against the debtor in state court, basing her argument upon Dewsnup. The bankruptcy court disagreed with the Supreme Court’s analysis, finding that the Supreme Court incorrectly conflated the concept of a “consensual lien” with an “allowed claim.” The bankruptcy court took further issue with Dewsnup’s interpretation of § 506(d), which the bankruptcy court stated would effectively eliminate the application of § 506(d) under any chapter, and prevent the use of § 506(d) for its stated purpose of reducing undersecured claims to the value of the property. In reaching its ultimate decision to limit Dewsnup’s holding to the avoidance of only consensual mortgage liens, the bankruptcy court reiterated the Supreme Court’s directive to apply Dewsnup narrowly, stating that a restricted application was “both warranted and preferable.”
The Mayer decision impacts the holders of an entire class of liens by providing debtors with an argument for avoiding nonconsensual liens that are undersecured. The bankruptcy court’s focus on challenging the Supreme Court’s analysis emphasizes the reluctance of many courts to extend Dewsnup to situations beyond the exact factual scenario of that case, and suggests that courts will continue to limit Dewsnup’s application in the future. As a result, Mayer may bolster the positions of debtors seeking to avoid other types of liens or support an eventual challenge to the Dewsnup holding itself.
© Copyright 2016 USFN. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, January 5, 2016
Updated: Tuesday, January 19, 2016
|
January 5, 2016
by Jerry Morgan
Wilson & Associates, P.L.L.C. – USFN Member (Arkansas, Tennessee)
Tennessee has now joined a list of states whose highest courts have held that the failure to provide MERS with independent notice of sales that might eliminate its interest in real property is not a violation of due process. In the recent case, the context was a tax sale. [Mortgage Electronic Registration Systems, Inc. v. Ditto, 2015 Tenn. LEXIS 100 (Tenn. Dec. 11, 2015)].
Background
MERS brought suit to set aside a 2010 tax sale of real property. MERS contended that the county’s failure to provide it with notice of the tax sale violated its rights under the Due Process Clause of the U.S. Constitution.
The purchaser of the property at the tax sale moved for judgment on the pleadings based on two arguments. The first theory was a procedural hurdle, in that MERS did not tender payment of the sale price plus accrued taxes before filing suit. The Supreme Court rejected that argument. The second assertion (and the one at issue for purposes of this article) is that MERS did not have an interest in the property that was subject to protection under the Due Process Clause. The trial court granted judgment for the purchaser, determining that MERS did not have an independent interest in the property entitled to protection. The Court of Appeals affirmed, based on MERS’s lack of standing to file suit.
The Supreme Court rejected the lack of standing basis, holding that where a plaintiff claiming a protected interest in real property files suit to have a tax sale declared void for lack of notice, he is not required to tender payment of the sale price plus taxes prior to filing suit. Nonetheless, the Supreme Court affirmed the Court of Appeals, opining that MERS had acquired no protected interest in the subject property either through the deed of trust designation of MERS as “beneficiary solely as nominee for the lender …” or its reference to MERS having “legal title” to the subject property for the purpose of enforcing the lender’s rights. Without a protected interest in the subject property, the Supreme Court held that MERS’s due process rights were not violated by the county’s failure to provide it with notice of the tax sale.
The Supreme Court spent a great deal of time discussing the history and purpose of MERS. The Court observed that MERS “performs a service for lenders by purporting to function as the mortgagee of record and nominee for the beneficial owner of the mortgage loan.” The Court also noted that “no mortgage rights are transferred on the MERS® system. The MERS® system only tracks the changes in servicing rights and beneficial ownership interests.”
While the Supreme Court recognized that the MERS system of registering and tracking mortgages over the life of the loans “sought to address problems that arose from mortgage securitization,” the Court nevertheless was troubled by the language in deeds of trust whereby MERS is appointed “beneficiary” while at the same time it “acts solely as the nominee for the lender and its successors or assigns.” The Court found such language “opaque” and “notable in its lack of clarity.”
Conflicting Decisions Reviewed
The Supreme Court of Tennessee specifically found that the issue in the case “is better framed as whether MERS has a property interest that is protected under the Due Process Clause. This is an issue of first impression in this Court.”
After discussing general principles regarding the Due Process Clause, the Court looked to other states for guidance. The majority of cases involving MERS have addressed MERS’s appointment as beneficiary “solely as nominee” for the lender. Many cases have upheld such appointment. Thompson v. Bank of America, N.A., 773 F.3d 741 (6th Cir. 2014). Thus, according to those courts, MERS has the authority to act on behalf of a valid note holder, so MERS is able to validly assign a deed of trust or enforce a note on behalf of the lender.
Other courts, however, have held that MERS’s designation as beneficiary as nominee for the lender does not give it the power to assign a deed of trust. The typical reasoning is that because the note and security instrument cannot be “split,” and MERS never held authority to assign the promissory note that evidences the actual debt, MERS would likewise have no authority to assign the deed of trust. Summers v. PennyMac Corp., 2012 WL 5944943, at *5 (N.D. Tex. Nov. 28, 2012); McCarthy v. Bank of America, NA, No. 4:11-CV-356-A, 2011 WL 6754064, at *4 (N.D. Tex. 2011); Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623-24 (Mo. Ct. App. 2009).
The Court noted in Ditto that most of the cited cases did address whether MERS has the power to assign a note and deed of trust, foreclose on a note, or to otherwise exercise the interests of the lender. However, they did not address the specific issue presented in Ditto, namely whether or not MERS itself had an interest in the relevant property that would be subject to protection under the Due Process Clause.
While addressing that specific question in Ditto, the Court found the relevant decisions divided. Some of the decisions have held that the appointment of MERS as beneficiary nominee for the lender did not grant MERS a protected interest in the property. Ditto relied heavily on Landmark National Bank v. Kesler, 216 P.3d 158 (Kan. 2009) to explain those decisions. In Landmark, the borrower had two loans on the same property. The first mortgage was with Landmark National Bank and the second was with Millenia Mortgage Corporation. The second mortgage utilized MERS as a “nominee” and “beneficiary,” and MERS thereafter assigned the second mortgage to Sovereign Bank. When Landmark filed a foreclosure petition, it named the mortgagor and Millenia; it did not notify Sovereign or MERS, even though the documents identifying MERS as the mortgagee as nominee for Millenia and Millenia’s successors were available. Because no answer was filed, the court entered a default judgment, and the property was sold.
Sovereign, the assignee to the second mortgage, moved to set aside the default judgment and objected to the confirmation of the sale. Sovereign asserted that MERS was a “contingent necessary party,” and because they were not named, Sovereign did not receive proper notice of the foreclosure proceedings. MERS also filed a motion to intervene and a motion to join Sovereign’s motion to set aside the default. The trial court denied those motions, finding that MERS was not a real party in interest and that Landmark therefore was not required to name MERS as a party in the foreclosure action.
The Supreme Court of Kansas looked to the language of MERS being appointed a “nominee,” and stated that the relationship that MERS had with Sovereign “is more akin to that of a straw man than to a party possessing all the rights given a buyer ….” The Kansas Court ultimately held that “[t]he Due Process Clause does not protect entitlements where the identity of the alleged entitlement is vague. A protected property right must have some ascertainable monetary value.” The Court concluded that MERS did not demonstrate “that it possessed any tangible interest in the mortgage beyond a nominal designation as the mortgag[ee]. It lent no money and received no payments from the borrower. It suffered no direct, ascertainable monetary loss as a consequence of the litigation.”
In Ditto, the Court also looked to Weingartner v. Chase Home Finance, LLC, 702 F. Supp. 2d 1276 (D. Nev. 2010), for a discussion of MERS’s role and usage of the term “beneficiary.” Weingartner found that MERS was not a true beneficiary “in any ordinary sense of the word. Calling MERS a beneficiary is what cause[d] much of the confusion. To a large extent, defendants in these actions have brought this mass of litigation upon themselves by this confusing, unorthodox, and usually unnecessary use of the word ‘beneficiary’….”
Summarizing the decisions consistent with Landmark and Weingartner, Ditto states: “[t]hese courts held that MERS was not the beneficiary under the deed of trust and, as nominee, was simply an agent or ‘straw man’ for the lender. As a result, these courts held that MERS did not have its own protected interest in the subject property.”
Other courts, however, have held that MERS’s status as beneficiary as nominee constitutes a protected property right. For example, in Mortgage Electronic Registration Systems, Inc. v. Bellistri, No. 4:09-CV-731, 2010 WL 2720802 (E.D. Mo. 2010), a county failed to give MERS notice of a tax sale, while the Missouri statute required notice to any person “who holds a publicly recorded deed of trust, mortgage, lease, lien or claim upon that real estate.” Bellistri, 2010 WL 2720802, at *10. The court held that a “publicly recorded” claim in the property included MERS’s appointment as beneficiary as nominee. Thus, it had a due process right to notice.
Having looked at the conflicting decisions, Ditto squarely addressed whether the simple appointment of MERS as nominee as beneficiary on behalf of the lender was sufficient to trigger Due Process Clause protections.
Conclusion
On the one hand, MERS argued that various Tennessee courts had upheld its role as nominee and its ability to foreclose on secured property. Ditto did not question MERS’s authority to act as agent for the lender or successor lenders; “[h]owever, the lender’s agreement to appoint MERS as its agent does not endow MERS with the lender’s property interest or for that matter any independent property interest whatsoever. The note owner is the actual beneficiary, i.e., the party that benefits from the security instrument by its entitlement to payments on the promissory note, secured by the deed of trust.”
In Ditto, the Court agreed with those courts holding that despite the label of “beneficiary” in the deed of trust, MERS is not a true beneficiary. The Court noted that MERS “receives nothing from the [deed of trust] itself.” As the language in the deed of trust specifically qualified the term “beneficiary” by noting that MERS was a beneficiary “solely as nominee” for the lender, MERS was able to act only as an agent for the lender, not for its own interests.
Finally, the Court observed in Ditto that the notice provisions in the deed of trust itself only addressed required notices between the borrower and the lender. The deed of trust did not require any notice to be given to MERS in connection with the obligations between the borrower and the lender.
Because MERS was never given an independent interest in the property, the Court held that MERS had no interest in the property that is protected under the Due Process Clause. Accordingly, the county was not required to provide MERS with notice of the tax sale, and MERS was unable to set it aside.
The practical effect of the Ditto case within Tennessee will likely be minimal. As Ditto itself stated, the Tennessee statute requiring notice of tax sales to “interested persons” was revised effective July 1, 2015. Tenn. Code Ann. § 67-5-2502(c)(1)(B) now defines “interested persons” to include “a person or entity named as nominee or agent of the owner of the obligation that is secured by the deed or a deed of trust and that is identifiable from information provided in the deed or a deed of trust ….” Thus, the Tennessee legislature has already acted to provide MERS a specific protection without the need to resort to Due Process arguments.
Even so, the findings of Ditto may be far-reaching, as it is likely that other courts struggling to define the role of MERS and its true interest in mortgages or real property will find Ditto’s logic compelling.
© Copyright 2016 USFN. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Monday, January 4, 2016
Updated: Tuesday, January 19, 2016
|
January 4, 2016
by Steven J. Flynn
McCalla Raymer, LLC – USFN Member (Georgia)
The Eleventh Circuit Court of Appeals has held, in an unpublished decision, that a loan servicer violated the Fair Debt Collection Practices Act (FDCPA) by including the “estimated” future attorneys’ fees of the law firm retained by the loan servicer to conduct foreclosure proceedings in a letter to the borrower, setting forth the amounts necessary to reinstate the borrower’s loan under the terms of his security instrument. [Prescott v. Seterus, Inc., No. 15-10038 (11th Cir. Dec. 3, 2015)]. (The Eleventh Circuit is comprised of Alabama, Florida, and Georgia.)
Factual Background
On August 1, 2012 the borrower Prescott defaulted on his residential mortgage loan. Seterus began servicing the mortgage on October 1, 2012. Following the borrower’s default, Seterus prepared to initiate foreclosure proceedings against the borrower and retained a law firm “to provide legal services associated with the foreclosure.” The borrower asked Seterus to reinstate his mortgage in August 2013. Under the terms of the borrower’s mortgage, the borrower could reinstate his mortgage under “certain conditions,” including, in pertinent part, by “pay[ing] all expenses incurred in enforcing [the borrower’s] Security Instrument, including, but not limited to, reasonable attorneys’ fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting Lender’s interest in the Property and rights under this Security Instrument ….”
On September 4, 2013 Seterus sent the borrower a letter setting forth a reinstatement balance of $15,569.64 (an amount stated to be good through September 27, 2013), which included the amount of $15 in “estimated” property inspection fees and $3,175 in “estimated” attorneys’ fees. The borrower paid the full reinstatement balance on September 26, 2013 and Seterus reinstated the borrower’s loan. On November 14, 2013 Seterus refunded the $3,175 in estimated legal fees “because those fees were not incurred before Seterus reinstated the mortgage.” Seterus did not refund the $15 in estimated property inspection fees because those fees were incurred by Seterus before the borrower reinstated the mortgage.
Procedural History
The borrower filed suit against Seterus in Florida state court about a week after his loan was reinstated, alleging that the inclusion by Seterus of estimated attorneys’ fees in the September 4, 2013 letter violated 15 U.S.C. § 1692e(2) and 15 U.S.C. § 1692f(1) of the FDCPA and § 559.72(9) of the Florida Consumer Collections Practices Act (FCCPA). Seterus removed the case to the U.S. District Court for the Southern District of Florida; the district court granted summary judgment to Seterus on each of the borrower’s claims for relief.
Holdings
On appeal, the Eleventh Circuit held that the inclusion by Seterus of $3,175 in estimated attorneys’ fees in the reinstatement balance provided to the borrower violated 15 U.S.C. § 1692f(1), which prohibits a debt collector from using “unfair or unconscionable means to collect or attempt to collect any debt,” including “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” The appellate court further held that, under the “least sophisticated consumer” standard utilized to review claims under the FDCPA, the least sophisticated consumer would not have believed that he was obligated to pay the estimated legal fees in order to reinstate the borrower’s mortgage under the terms of the borrower’s security instrument.
The Eleventh Circuit also held that the inclusion of estimated attorneys’ fees and costs in the reinstatement balance provided to the borrower constituted a violation of 15 U.S.C. § 1692e, which provides that “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt,” including “[t]he false representation of (A) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.” The court reasoned that Seterus could not “lawfully receive” the estimated fees and costs from the borrower under the terms of the borrower’s security instrument because these costs had not yet actually been incurred. Further, the court held that Seterus was not entitled to escape liability under the FDCPA based upon a “bona fide error” defense, as Seterus’s inclusion of the estimated attorneys’ fees in the reinstatement balance was not the result of a factual or clerical error. (The Eleventh Circuit also reversed the district court’s grant of summary judgment to Seterus on the borrower’s FCCPA claim.)
Implications
The Prescott decision should cause any lender, loan servicer, or law firm that provides reinstatement quotes and/or figures to borrowers to examine its practices and procedures in order to determine whether or not information being provided to borrowers in reinstatement situations could potentially constitute a FDCPA violation (or a violation of any state consumer protection law, such as the FCCPA). The Eleventh Circuit has sent a clear message to the financial services industry that only those fees and costs that are expressly authorized under the terms of the applicable loan documents, and/or applicable law, are to be included in reinstatement quotations.
© Copyright 2016 USFN. All rights reserved.
January e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, November 24, 2015
Updated: Tuesday, January 19, 2016
|
November 24, 2015
by Ronald C. Scott and Reginald P. Corley
Scott & Corley, P.A. – USFN Member (South Carolina)
In an appeal arising out of a foreclosure action, the South Carolina Court of Appeals found that an e-mail from the Master in Equity Court, with an attachment containing the order denying the petition for appraisal following a foreclosure sale, constituted written notice of entry of the order, in compliance with South Carolina Appellate Court Rule 203(b)(1). That rule provides that, a party wishing to appeal an order from the Court of Common Pleas must serve a notice of appeal on the other party within 30 days after receipt of written notice of entry of the order. [Wells Fargo Bank, N.A. v. Fallon Properties South Carolina, LLC, No. 2015-000157 (S.C. Ct. App. Aug. 26, 2015)].
After the foreclosure sale, appellants filed a petition for an order of appraisal pursuant to Section 29-3-680 of the South Carolina Code (2007). On December 15, 2014 the master in equity filed an order denying the petition, and sent attorneys (for both sides) an e-mail stating, “Please see attached copy of signed and clocked Form 4 and Order. I have also mailed a copy to all listed on the Form 4.” The “signed and clocked” copies of the Form 4 and Order were attached to the e-mail. The Master in Equity sent the parties a printed copy of the order through the U.S. Postal Service, which appellants received on December 18, 2014. On January 15, 2015 appellants served the respondent with the notice of appeal from the December 15th order. The notice was served 31 days after appellants received the e-mail, but only 28 days after they received the printed copy of the order. The respondent moved to dismiss the appeal as untimely for failure to file the notice of appeal within 30 days after receipt of written notice of entry of the order.
Pursuant to the above-referenced Rule 203(b)(1), a party wishing to appeal an order from the Court of Common Pleas must serve the notice of appeal on the respondents “within thirty ... days after receipt of written notice of entry of the order.” The only limitation ever expressed on how notice must be received is that it must be “written notice.” The court found that the e-mail constituted “written notice” under the rule.
In its reasoning the court discussed Canal Insurance Company v. Caldwell, where a fax was held to constitute “written notice.” 338 S.C. 1, 5–6, 524 S.E.2d 416, 418 (Ct. App. 1999). The court found that there was an even stronger argument for the e-mail in this case to constitute written notice: the e-mail “was sent from the Court itself, rather than an opposing party;” “the e-mail included a copy of the signed and clocked order;” and the “e-mail has actually been contemplated by the rules,” citing Rule 410(e), SCACR.
©Copyright 2015 USFN and Scott & Corley, P.A. All rights reserved.
November/December e-Update
This post has not been tagged.
Permalink
|
|
|
Posted By USFN,
Tuesday, November 24, 2015
Updated: Tuesday, January 19, 2016
|
November 24, 2015
by Michael B. Stein
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)
North Carolina General Statute § 6-21.2 generally provides that obligations to pay attorneys’ fees upon a promissory note “shall be valid and enforceable and collectible” as part of the debt. In short, a borrower who defaults on a promissory note that contains a provision obligating him to pay the lender’s attorneys’ fees is liable for those fees. There are conditions, of course.
The lender or its attorney must first mail a written notice to the borrower that he has five days to pay the outstanding balance of the debt in full without being obligated to also pay the lender’s attorneys’ fees. There is also a fee cap. Specifically, the statute limits the amount of the lender’s attorneys’ fees that can be assessed against the borrower to 15 percent of the outstanding balance, which is defined as the sum of principal and interest owing at the time the lawsuit is filed. If the promissory note provides for attorneys’ fees in a specific percentage of the outstanding balance, then the borrower is liable for the lender’s attorneys’ fees up to, but not in excess of, 15 percent of the outstanding balance. If, however, the promissory note merely provides for the payment of “reasonable” attorneys’ fees, without specifying any specific percentage, then such provision “shall be construed to mean” 15 percent of the outstanding balance.
The North Carolina Court of Appeals has held that even if 15 percent of the outstanding balance exceeded the actual attorneys’ fees incurred by a bank in its efforts to collect on a promissory note, the attorneys’ fee award based on that statutory percentage could not be avoided as a “windfall” to the bank, since the promissory note provided for “reasonable attorneys’ fees.” The court held that, in such a scenario, N.C. Gen. Stat. § 6-21.2 predetermines 15 percent to be a reasonable amount of attorneys’ fees no matter what the actual attorneys’ fees are. Trull v. Central Carolina Bank Trust, 124 N.C. App. 486, 478 S.E.2d 39 (N.C. Ct. App. 1996) review allowed 345 N.C. 646, 483 S.E.2d 719, affirmed in part, review dismissed in part 347 N.C. 262, 490 S.E.2d 238.
In theory then, determining the amount of attorneys’ fees that can be awarded against a borrower under N.C. Gen. Stat. § 6-21.2 is often a simple exercise in mathematics. Consider this example:
James Debtor has defaulted on a promissory note to Bank and owes Bank $10,000. The note contains a provision obligating James to pay Bank’s “reasonable attorneys’ fees” if he defaults. The Bank gives James notice that he can pay the $10,000 in five days without incurring an additional award of attorneys’ fees; but James does not pay it. The Bank can enforce the attorneys’ fees provision and collect as part of the debt the $10,000 outstanding balance plus $1,500 in attorneys’ fees. On behalf of the Bank, the Bank’s lawyers — as is typical in North Carolina lawsuits — file suit against James to recover the $10,000 outstanding balance plus $1,500 in attorneys’ fees as allowed by N.C. Gen. Stat. § 6-21.2.
That seems okay, right? Well, not so fast. Enter the Fair Debt Collection Practices Act (FDCPA) codified in 15 U.S. Code §§ 1692, et seq. Among other things, the FDCPA prohibits a debt collector (lawyers can be debt collectors) from making false or misleading representations (15 U.S.C. § 1692e) and from using unfair and unconscionable means to collect a debt (15 U.S.C. § 1692f). How does this affect what we just learned about attorneys’ fees? Consider the case of Elyazidi v. SunTrust Bank, 780 F.3d 227 (4th Cir. Mar. 5, 2015). Note, while this was a case brought in federal court in Virginia, and involved questions of Maryland law as well as the FDCPA, North Carolina is within the jurisdiction of the U.S. Fourth Circuit Court of Appeals. (The Fourth Circuit is comprised of Maryland, North Carolina, South Carolina, Virginia, and West Virginia.)
The facts of Elyazidi are pretty straightforward. Plaintiff Elyazidi opened a checking account with SunTrust Bank in September 2010. That same month, when she only had about $300 in her account, she wrote herself a check for $9,800 and cashed it. In short, Elyazidi overdrew her account by $9,490.82. The checking account was governed by an agreement that obligated Elyazidi to pay “attorney’s fees up to 25 percent . . . of the amount owed” if the Bank took court action to collect an overdraft. The Bank’s lawyers filed a debt collection lawsuit against Elyazidi in Virginia. In the lawsuit, the Bank sought to recover the $9,490.82 overdraft amount, plus 25 percent of that amount (or $2,372.71) in attorneys’ fees, as provided for in the agreement. To justify the request for an award of attorneys’ fees of $2,372.71, the Bank’s attorneys filed an affidavit: (1) attesting to their billable rate of $250 per hour, (2) declaring that they had only spent one hour on the matter up to that point, and (3) anticipating — based on similar cases that they had handled — they would likely spend an additional 23 hours on the case before the judgment was satisfied.
Elyazidi then sued the Bank and the Bank’s lawyers, alleging violations of the FDCPA. Specifically, the plaintiff alleged that the Bank’s lawyers — by seeking an award of attorneys’ fees of $2,372.71 at the outset of the lawsuit at which point the attorneys admittedly had only spent one hour on the case — used false, deceptive, or misleading representations or means in connection with the collection of the debt in violation of 15 U.S.C. § 1692e and “unfair and unconscionable means” to collect the debt in violation of 15 U.S.C. § 1692f.
Ultimately, the district court dismissed Elyazidi’s lawsuit. The Fourth Circuit affirmed, holding that “where the debt collector sought no more than applicable law allowed and explained via affidavit that the figure was merely an estimate of an amount counsel expected to earn in the course of the litigation, the representations cannot be considered misleading under 15 U.S.C. § 1692e(2)” [emphasis added].
Although the Fourth Circuit ultimately got this decision right, the holding in Elyazidi still leaves unresolved the question of what would have happened if the Bank’s lawyers did not submit an affidavit estimating the amount they expected to earn in the course of the litigation. Consider again the case of James Debtor. But this time assume that he owes the Bank a much greater amount — say $1,000,000, and that the Bank’s lawyers therefore seek $150,000 (15 percent of the outstanding balance of the loan) as their “reasonable attorneys’ fees” as allowed by N.C. Gen. Stat. § 6-21.2.
Even though N.C. Gen. Stat. § 6-21.2 (and the opinion in Trull) would seem to allow the Bank’s lawyers to recover 15 percent of the outstanding balance for their attorneys’ fees, would it violate the FDCPA for the Bank’s lawyers to include an attorneys’ fee award request in a lawsuit against James Debtor for $150,000 when they had only spent an hour on the case up to that point? Does it matter if the lawyers do not, or in good faith could not, submit an affidavit attesting that the $150,000 is merely an estimate of the amount they expected to earn in the course of the litigation? What if the Bank’s lawyers would readily admit that their estimated actual attorneys’ fees would likely be no greater than $5,000? Could they still claim entitlement to a $150,000 attorneys’ fees award under N.C. Gen. Stat. § 6-21.2 without violating the FDCPA?
Although the North Carolina Court of Appeals in Trull and the Fourth Circuit in Elyazidi both decided in favor of the creditors’ attorneys, there still appears to be a possible conflict between N.C. Gen. Stat. § 6-21.2 and the FDCPA. Until that potential conflict is ultimately resolved by a higher court, perhaps the safest course for North Carolina lawyers seeking an award of attorneys’ fees under N.C. Gen. Stat. § 6-21.2 is to stand ready to justify the reasonableness of their fees, despite that statute’s “predetermination” that 15 percent is reasonable no matter the amount of actual attorneys’ fees; or perhaps include a demand only for “reasonable attorneys’ fees” as permitted by N.C. Gen. Stat. § 6-21.2 without identifying a specific amount.
©Copyright 2015 USFN and Hutchens Law Firm. All rights reserved.
November/December e-Update
This post has not been tagged.
Permalink
|
|
RSS
Blog Home
All Blogs