Gross Polowy LLC (USFN Member NJ, NY) expands it services into the state of Pennsylvania, offering the same suite of services that it currently provides in New York and New Jersey: handling residential foreclosures, contested actions, bankruptcy, evictions, title curative, REO closings, and related litigation for its clients. Jonathan M. Etkowicz will serve as the Supervising Attorney of the Pennsylvania practice. He has 14-plus years of default experience with specialties in the areas of foreclosure, litigation, eviction, legal research and writing, and real estate.

Fannie Mae released its Servicing Announcement SVC-2024-07, announcing new allowable foreclosure and bankruptcy fees.  These fees are available for matters which are active as of January 1, 2025; immediate implementation by servicers is encouraged and is required by 4/1/2025. 

• Servicing Announcement SVC-2024-07
• Allowable Foreclosure Fees
• Allowable Bankruptcy Fees

By Melissa RobbinsCoutts, Esq.

McCarthy & Holthus,LLP*

USFN Member (AZ, AR, CA, CO, ID, NV, NM, OR, TX, WA)

In Rose Court LLC v. Select Portfolio Servicing, Inc.,[1] the 9th Circuit Court of Appeals addressed an issue that is common in the default servicing world – a defaulted borrower who resorts to filing serial lawsuits aimed at stopping or delaying foreclosure. For borrowers who know how to play the game well, foreclosure and eviction proceedings can be delayed for many years while their lawsuits, bankruptcy filings, and other challenges are knocked down by the servicer, one-by-one. In Rose Court, the borrower’s loan was in default for a decade before foreclosure was finally completed, and litigation over the foreclosure continued for many years thereafter in state, federal, and bankruptcy courts.

In its published opinion issued in October 2024, the 9th Circuit affirmed the dismissal of one such suit, and in doing so, the Court provided valuable clarification on the applicability of one tool in the servicer’s arsenal for combatting serial filers: the two-dismissal rule of Federal Rule of Civil Procedure 41(a)(1)(B).

The proceeding at issue before the 9th Circuit was an adversary proceeding filed by the borrower in bankruptcy court shortly after the foreclosure sale was finally completed. The borrower raised wrongful foreclosure claims based on allegations that the trustee’s sale was not actually held and instead was postponed by the auctioneer. Ruling on motions to dismiss filed by the defendants, the bankruptcy court held the plaintiff’s allegations were contradicted by the very evidence submitted in support of the complaint, and accordingly the borrower’s claims were all dismissed. The borrower, however, requested leave to amend the complaint to assert new claims that had not been previously raised in the case regarding the beneficiary’s standing to foreclose.  The bankruptcy court dismissed the adversary complaint without leave to amend, finding that amendment would be futile because the borrower had previously asserted and voluntarily dismissed the “new” claims in prior state court litigation, and accordingly the claims were barred by the two-dismissal rule.

Generally, a plaintiff is entitled to voluntarily dismiss its own complaint without prejudice to re-filing. But Rule 41(a)(1)(B) contains a notable exception: “[I]f the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits.” The two-dismissal rule is similar to common law rules of res judicata and collateral estoppel, except that for res judicata principles to apply, the plaintiff’s claim must have been decided on its merits in the prior litigation in order for the claim to be barred in a new suit. The two-dismissal rule, on the other hand, treats a second dismissal as being equivalent to an adjudication on the merits, even though the case never resulted in a decision by the court.

For the two-dismissal rule to apply, four elements must be present: “(1) the plaintiff voluntarily dismissed an action in either state or federal court, (2) thereafter the plaintiff voluntarily dismissed a second action pending in federal court, (3) the two dismissals concerned the same claim, and (4) the plaintiff seeks to raise the twice-dismissed claim again in federal court.”[2] In Rose Court, the Court noted that neither the 9th Circuit nor the U.S. Supreme Court had previously addressed the meaning of the “same claim” element, although other courts including the 2nd and 10th Circuits had done so.

In those Circuits that have considered the question, the courts held that the “same claim” element for application of the two-dismissal rule should be analyzed under the same standards as the “same claim” element in a res judicata analysis. Under that framework, two claims will be deemed to be the “same claim” when “the two suits arise out of the same transactional nucleus of facts.”[3] In its published opinion in Rose Court, the 9th Circuit adopted the same standard for cases within its jurisdiction. The Court further confirmed that the “same claim” analysis is based on the federal standard rather than the res judicata standards of the state law where prior cases had been filed, because the two-dismissal rule of Rule 41 implicates federal interests in limiting a plaintiff’s right to repeatedly dismiss the same claims.

Applying these standards to the claims raised by Rose Court, the 9th Circuit found the borrower’s “new” claims it sought to raise in an amended adversary complaint were not new and were instead the same claims previously raised in at least two prior state court actions the borrower had brought against the same defendants and voluntarily dismissed. In each prior action, the borrower had challenged the validity of the deed of trust and claimed the original promissory note was never transferred to the foreclosing beneficiary. Because the borrower had twice dismissed claims based on the beneficiary’s alleged lack of standing to foreclose, the two-dismissal rule precluded the borrower from raising those claims a third time in the adversary action. As such, the Court affirmed the lower court’s denial of leave to amend.

Unfortunately for the parties involved, the saga of Rose Court may not be over. The borrower attempted to raise a new wrongful foreclosure theory on appeal, based on allegations that the servicer had interfered with her attempt to reinstate the loan, and she sought leave to file an amended adversary complaint asserting that new claim.  The 9th Circuit declined to consider the request because the Court generally will not consider new arguments on appeal that were not raised in the lower court. Thus, although a borrower is precluded from re-asserting wrongful foreclosure theories based on the “same claims” that were previously raised and dismissed, a truly “new” claim arising out of a different “transactional nucleus of facts” would not necessarily be barred under either Rule 41’s two-dismissal rule or common law principles of res judicata.

Copyright © 2024 USFN

USFNews - Dec. 4

Associate Member a360inc, a leading technology solutions provider to law firms, title agencies, mortgage lenders and investors, announced the acquisition of Associate Member ProVest, a market-leading service of process and litigation information services provider to the creditors’ rights legal industry. As part of the transaction, investment funds managed by Morgan Stanley Investment Management (MSIM), Knox Capital, and Nonantum Capital Partners made a strategic investment in a360inc. The combination is a milestone for both a360inc and ProVest and represents innovation for the creditors’ rights industry, setting new standards for productivity through the proper implementation and utilization of technology-driven solutions for creditors’ rights law firms, mortgage lenders and servicers, and the business partner community that supports them.

By Travis Menk, Esq.

Brock & Scott, PLLC *

USFN Member (CT, NC, RI, AL, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN,   VT, VA)

During USFN’s Sept. 10 Briefing, New Loss Mitigation Options and Bankruptcy Impacts, a discussion featuring four Creditors’ attorneys and a servicer internal legal counsel highlighted the new last chance waterfall options recently implemented by the VA, FHA, and the USDA, and each program’s respective impacts on debtors and creditors in bankruptcy. Each of these programs, while created with the intent to assist borrowers with new options in light of the high-interest rate environment, opens the door to a host of potential issues in the realm of bankruptcy. This Briefing gave a basic educational overview of each of the three programs and detailed the considerations and impacts on current bankruptcy processes and forms that will need concentrated attention by debtors, creditors, and trustees alike to eliminate potential challenges throughout the bankruptcy process.

The Veteran’s Affairs Servicing Purchase Program – U.S. Department of Veterans Affairs

Marcy J. Ford, Partner at Trott Law, began the presentation with an overview of the VA’s last chance waterfall option known as VASP. This program provides for a loan modification significantly below market interest rate with a 30-to-40-year term option and may require a three-month trial period. Ford noted that if the debtor is involved in an active Chapter 13 case, VASP will not be considered while the case is pending unless the Chapter 13 was filed during a trial period, in which case court approval is required to finalize the modification. It was noted that in jurisdictions which do not typically require court approval, this court approval would likely still be necessary based on the specific VA requirement in this situation. Ford also noted that if the borrower is in an active Chapter 7 case and applies for loss mitigation, VASP will not be an option until the case is closed. However, it was noted that if the debtor files for bankruptcy during the trial period, VASP finalization goes on hold until the bankruptcy case is closed.  Emphasis was placed on the case having to be closed and that having stay relief or the trustee filing a report of no distribution would be insufficient. Ford also noted that caution should be given about advising debtors to dismiss their cases based on the potential to get VASP eligibility.  A question asked of the panel was how to proceed with VASP as it relates to bankruptcy court mortgage modification/mediation orders, and it was surmised that these bankruptcy court modification/mediation programs could not supersede the rules set by the VA, and, as such, the court would be unable to force VASP as an option during the case.

The FHA Partial Claim + Payment Supplement Program – U.S. Federal Housing Administration

Maria Tsagaris, Partner at MRLP, continued the presentation with an outline of FHA’s last chance waterfall option known as the FHA Partial Claim + Payment Supplement program. Servicers must implement this program by January 1, 2025. Tsagaris detailed that borrowers will be eligible for an amount up to 30% of the outstanding balance of the loan for a combination of a partial claim to bring the account current with the remaining available balance divided over 36 months to act as reduction to the monthly payment amount up to 25% of the payment. The remaining balance after the partial claim piece is given to the creditor to bring the account current is to be held by the servicer as a separate custodial account that cannot be comingled with any other funds. The creditor is permitted to take funds out of the custodial payment supplement account and apply them to the account when the debtor pays the creditor the reduced monthly payment amount. The partial claim plus the payment supplement amounts will become an interest free second lien on the property pursuant to the recorded security instrument, which will come due when the first mortgage is paid or refinanced or upon the sale of the property.

Tsagaris mentioned that for the debtor to be eligible for this program, they had to indicate that they could maintain the payment and had to sign a note, security instrument, and payment supplement agreement. In addition to an annual accounting to both HUD and the borrower, 60 to 90 days prior to the end of the 36-month period, the creditor would need to provide a detailed annual report as to the status of the payment supplement account. It was also noted that at 36 months and 1 day, the program will automatically terminate, and any remaining payment supplement funds had to be refunded to HUD. The program would also terminate in the following scenarios: request of the borrower, modification, foreclosure, short sale, or deed in lieu. 

Tsagaris noted a couple of the mechanics set forward by the program. The program requires 30-day default reports on each of these accounts but failure to make an ongoing payment does not terminate the program. The program also sets forth detailed instructions for the requirements and responsibilities of servicers regarding the transfers of loans that are involved in the program. Finally, Tsagaris also noted that servicers will receive a $1,750 payment supplement incentive for completion of the program. Full details of the program can be found in Mortgagee Letter 2024-02.

Alice Whitten, Internal Legal Counsel for Wells Fargo, when asked, stated that the incentive of $1,750 likely did not cover the cost to fully implement this program, as it has been described as one of the most complex programs to implement at the servicer level. A discussion among the panelists then ensued about whether industry members were getting too concerned about the impacts of these programs given that these were last chance waterfall options only available if all other waterfall options failed. The discussion focused on the fact that if interest rates remain high, precluding other loss mitigation waterfall options from being viable, these three programs and their impacts would likely be seen more often than naught. Given that thought process, the Briefing turned to the bankruptcy impacts of the FHA Partial Claim + Payment Supplement Program. 

Patrick Hruby, Senior Associate at Brock & Scott, PLLC, highlighted these impacts and many of the best practices that creditors, creditor’s attorneys, and trustees have been working together on to facilitate integration of this program into bankruptcy. Hruby presented a proposed 410A with disclosures regarding the debtor being in the program, the effects of the program on the ongoing payment, and the expiration date of the program for the debtor. He also noted suggested revisions to Part 3 of the 410A of the proof of claim for missed payments and corresponding unreceived monthly principal reductions. He also suggested revisions to Part 4 to account for the reduced ongoing payment amount due to the monthly principal reduction. Hruby also noted that for jurisdictions utilizing GAP Payments or administrative arrears, the payment supplement portion is going to want to be shown in Part 3. Hruby also noted that post bankruptcy entrance into the FHA Partial Claim + Payment Supplement Program would necessitate an amended proof of claim and a payment change notice. Also, payment change notices will need to be carefully drafted to note the full payment amount and the amount due from the borrower due to the payment supplement.  

The payment change notice information issue brought to the forefront that communication needs to be as clear as possible on all documents in bankruptcy with respect to this program in order to avoid any unintended consequences and potential inquiries from the trustees and U.S. Trustees/Bankruptcy Administrators. At the end of the 36-month payment supplement period or if the program is terminated, it was noted that a payment change notice will have to be filed to show the elimination of the monthly payment supplement. On the topic of program termination, it was noted that if the debtor modifies the loan, the program will be terminated. As a result, it was noted that creditor’s counsel will need to look closely at the plan for modifications or cramdowns that would terminate the program and object appropriately. Consequently, debtor’s attorneys should also be aware if their debtor client is in one of these programs and to shape the debtor’s plan accordingly so as not to inadvertently terminate the program. Finally, it was also noted that the handling of annualized payments in Chapter 12 cases would present some interesting and unique situations with respect to default reporting and payment supplement distribution.

Lance Olsen, Partner at McCarthy Holthus, LLP, continued the discussion of the impacts of this program in bankruptcy focusing on payoff statements, motions for relief, and consent orders. As an initial note, Olsen mentioned that relief would, in theory, be needed to record the second mortgage even though he had not seen a ton of referrals for relief to record other standard partial claim mortgages, unlike creditor’s attorneys in other parts of the country. Olsen continued by noting that under the program, if the creditor is asked for a payoff involving a loan in the partial claim + payments supplement program, the creditor will have to give a payoff for both the original loan and the second position lien partial claim + payment supplement balance. A discussion among the panelists explored whether these two payoffs should be done in two separate payoff quote letters or combined into one letter with the two separate payoffs included.  In addition, Olsen noted that creditors with motions for relief and in consent orders need to make sure to be very detailed and clear with additional disclosures and information in those motions and consent orders including, but not necessarily limited to, the total amounts owed, the reduced payment amounts owed, and the payment supplement amounts owed to the creditor as a result of the debtor failing to make the reduced payments to the creditor.

The Payment Supplement Account Program – U.S. Department of Agriculture

Ford finished up the Briefing by giving details on USDA’s last waterfall option, the USDA Payment Supplement Account Program. Ford stated that while this program is similar to FHA’s Partial Claim + Payment Supplement program, the programs differ in that this program utilizes an advance from the servicer and not a partial claim. As such, a second lien is not placed on the property and an additional note and mortgage are not signed. This program became effective July 24, 2024, with a goal to achieve an ongoing payment reduction of 25% for up to three years and would require three trial payments. Ford noted that no bankruptcy guidance has been presented by the USDA and so, as a result, it does not appear that an active bankruptcy would interfere with the implementation of this program.

The Briefing generated a significant number of audience questions. One question related to the timing of the recording of the partial claim. It was noted that the FHA instructions required the partial claim to be recorded in five days, which the bankruptcy practitioners noted would be difficult given motion timeframes in bankruptcy court, and, as a result, the motions may need to be filed as soon as the partial claim + payment supplement option is offered to attempt to comply with this requirement. Another question raised was whether any of the participants had faced any issues with a Trustee in a Chapter 7 bankruptcy saying the partial claim cannot be executed or recorded by the debtor, as the property is not part of the bankruptcy estate. Hruby indicated that he had courts in Ohio which have refused to approve partial claims, as they felt it interfered with the reaffirmation process, but none of the other panelists indicated they had any similar issues.

Each of these three programs are complex, with numerous details and nuances that will present challenges for debtors, creditors, courts, trustees, and counsels to navigate within the tides and winds of the bankruptcy process. Each bankruptcy practitioner and creditor should familiarize themselves with these programs and the impacts on bankruptcy in order to best insulate themselves from potential problems that could result if details are not thoroughly thought through.

Watch a recording of this Briefing and be sure to register for USFN’s next complimentary Briefing – Show Me, Insurability & The Road Ahead for REO Properties – on Oct. 15 at https://www.usfnevents.org/briefings.html.

Copyright © 2024 USFN

USFNews - Oct. 2, 2024

* Denotes firm is a 2023 USFN Award of Excellence recipient

Associate Member SGP Advisors is hosting an open house from 5 to 7 pm EST, Thursday, August 29, at its Tampa, Florida office, 501 E. Kennedy Blvd., Suite 1000, Tampa, FL 33602. Join them for drinks and hors d’oeuvres.

Schneiderman & Sherman, PC (USFN Member – MI, MN) is excited to welcome Indra Pandiyaraj to our team of attorneys. She joins the firm as an associate attorney and will play a crucial part in managing a caseload of complex litigation matters while overseeing the attorney group to ensure efficient case distribution and workload management.

The Mortgage Law Firm (USFN Member – AZ, CA, HI, OK, OR, WA) is excited to announce that Caren Castle has joined the firm as Managing Attorney of its California office. With over 35 years of experience and leadership in the mortgage servicing industry, Castle brings a wealth of knowledge and expertise to TMLF and its clients. Castle’s addition to the TMLF team and her commitment to excellence will bring immense value to TMLF’s clients and further strengthen the representation and service delivered across all states TMLF serves.

McCabe, Weisberg & Conway, LLC (USFN Member – MD, DC, DE, FL, NY, PA, VA) is proud to announce the promotion of Carie Anne Deal to Chief Operating Officer. Throughout her 13 years with the firm, Deal has spearheaded the firm’s technological innovations to improve our case management system, reporting, invoicing, and overall performance. As COO, Deal will provide firm-wide governance and vision, as she helps guide McCabe, Weisberg & Conway in the execution of growth focused strategies. Additionally, McCabe, Weisberg & Conway is pleased to announce the election of Jamie Krapf, Joseph Foley, and Jose Hasbun to shareholder status. Together they join a team of dedicated and talented attorneys.

By Jordan Beumer, Esq., and Reggie Corley, Esq.

Scott & Corley, P.A. *

USFN Member (SC)

On June 28, 2024, the Supreme Court of the United States, entered its decision in Loper Bright Enters. v. Raimondo[1], which overturned the longstanding precedent set by Chevron U.S.A., Inc. v. Natural Resources Defense Council[2]. This legal development is likely to have a significant impact on the regulatory landscape in the mortgage industry surrounding federal agencies’ constitutional authority to enact federal regulations.

The longstanding Chevron doctrine held that if a federal question had not been directly addressed by Congress, a federal regulatory body could interpret the relevant statute(s), offer an official stance on the issue, and so long as the guideline set by the regulatory body was reasonable, it would be upheld. In other words, the Chevron doctrine, allowed broad deference to federal administrative agencies’ reasonable interpretation of ambiguous federal statutes. When the United States Supreme Court first issued the Chevron decision, over 40years ago, the decision was not necessarily regarded as a particularly consequential one.[3] However, since its inception. the Chevron decision has become prolific and is one of the most important rulings on federal administrative law, cited by federal courts more than 18,000 times.[4]

The Court’s recent decision under Loper Bright is based entirely on Section 7 of the Administrative Procedure Act (the “APA”).[5] Section 7 specifies that courts, not agencies, will decide “all relevant questions of law” arising on review of an agency regulation. The Court elaborated in the opinion as follows:

Section 706 directs that ‘[t]o the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.’ 5 U.S.C. Section 706. It further requires courts to hold ‘unlawful and set aside agency action, findings, and conclusions found to be …not in accordance with law.’ Section 706(2(A).

The APA thus codifies for agency cases the unremarkable, yet elemental proposition, dating back to Marbury: that courts, not agencies, will decide ‘all relevant questions of law” arising on review of agency action…even those involving ambiguous laws — and set aside any such action inconsistent with the law as they interpret it. And it prescribes no deferential standard for courts to employ in answering those legal questions. That omission is telling, because section 706 does mandate that judicial review of agency policymaking and fact finding be deferential. See Section 706(2)(A) (agency action to be set aside if “arbitrary, capricious, [or] an abuse of discretion); Section 706(2)(E) (agency fact finding in formal proceedings to be set aside if ‘unsupported by substantial evidence’).[6]

In the Loper Bright case, the Court described the Chevron opinion as being at odds with the congressionally authorized language in the Administrative Procedure Act (the federal law that sets out the procedures that federal agencies must follow, as well as the instructions for courts to review actions by those agencies).[7] The Court highlighted that the Administrative Procedure Act directs courts to, “decide legal questions by applying their own judgment” thereby “mak[ing] clear that agency interpretations of statutes — like agency interpretations of the Constitution — are not entitled to deference. . .”[8] The Court further stated that “it thus remains the responsibility of the court to decide whether the law means what the agency says.”  Emphasis added.[9] Additionally, the Court criticized the Chevron doctrine, noting that the doctrine allowed federal agencies “to change course even when Congress has given them no power to do so.”[10]

In practice, The Chevron doctrine utilized a two-stage approach. First, the court would determine whether a particular statute was clear and unambiguous regarding an issue.[11] If the statute was clear, then the court would follow it.[12] If, however, the court found the statute was ambiguous, or silent on the issue, then the court would proceed to step two.[13] At this step, the court would determine whether a federal agency’s interpretation was a permissible or reasonable construction of the statute.[14] If so, the court would uphold the agency’s interpretation.[15] This framework required courts to defer to an agency's interpretation of laws passed by Congress, if its interpretation is reasonable.[16] A major rationale behind this framework was that agencies were thought more likely to have the specific knowledge and expertise required to interpret complex laws and issues above and beyond the court’s ability.[17] The Court stated in Loper Bright that, “Perhaps most fundamentally, Chevron’s presumption is misguided because [federal] agencies have no special competence in resolving statutory ambiguities . . .[c]ourts do. The Framers, [] anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment.”[18]

The legal framework set by Chevron may have significant implications on the mortgage industry regulatory bodies, such as the Consumer Financial Protection Bureau (“CFPB”), the Federal Housing Finance Agency (“FHFA”), the Department of Housing and Urban Development (“HUD”), the Office of the Comptroller of the Currency (“OCC”), and their constitutional authority to enact federal regulations.

Before Loper Bright, the CFPB relied on the Chevron doctrine to mandate federal regulations, not prescribed by Congress, in an effort to police the mortgage industry. Per the CFPB’s official website, the CFPB is “a U.S. government agency dedicated to making sure you are treated fairly by banks, lenders and other financial institutions.”[19] Again, per the CFPB’s website the CFPB “provides different forms of guidance and compliance resources to help you understand and comply with our rules and the statutes we implement.” Emphasis added. Notably, under the CFPB’s language on their website, the CFPB admittedly provides its own statutes and rules. Likewise, the FHFA states on its website that the organization, “is responsible for the effective supervision, regulation, and housing mission oversight.”[20] The website further describes the banks that the FHFA will regulate and details how it regulates those banks.[21]

This new precedent may also have an impact on HUD’s use of the Fair Housing Act, which is a broad statute, to gain much of its authority. HUD, like the FHFA and CFPB, has traditionally been given substantial discretion, where it has taken great liberties, in setting guidance and taking enforcement actions against those who are not in strict compliance.[22] Similarly, the OCC states openly on their website that “[b]y maintaining a strong local presence, honing a unique national and international perspective, and seeking stakeholder feedback when setting policy, we can secure clear benefits for OCC-chartered banks and lead on bank supervision.” Emphasis added.[23] The public statements above show a clear understanding of the regulatory authority these organizations perceive to hold under the Chevron doctrine.

Although not yet argued under the recent precedent set by Loper Bright, the statutes and rules implemented by the mortgage industry’s regulatory bodies, using the Chevron doctrine framework, may no longer be upheld by federal courts. They, like all other federal agencies, are now facing a similar and significant dilemma regarding rules and regulations they may implement regarding the authority and power they may or may not have following this new United States Supreme Court decision.

Copyright © 2024 USFN

USFNews - August 7, 2024

*Denotes firm is a 2023 Award of Excellence recipient

By Ben Paden

Doyle & Foutty, PC *

USFN Member (IN, KY)

In May, USFN held a discussion on Artificial Intelligence (AI), and I was thrilled to serve as the moderator, which, for my part, involves not being an expert and asking questions when something is mentioned that I do not fully understand. A perfect position for me that fit like a glove! Our experts included Michael Merritt at BOK Financial, Sally Garrison with The Mortgage Law Firm, Zack Glaser with Lawyerist, and Brian Nicholas with McCalla Raymer Leibert Pierce, LLC. I extend my sincere thanks to them for their expertise and for leading interactive breakout sessions on this important topic.

I learned that Artificial Intelligence, besides being Spielberg’s worst movie (don’t @ me), is already prevalent in our industry. If you are as I was, you may have thought that there was still time to prepare for “the future” and that we would be able to slowly implement AI processes with carefully prepared and tested safety measures to protect ourselves. However, the reality is that it is already here and we may be very late to the party. So this discussion was not only eye opening, but also crucial to understanding what AI is, what it is not, how to use it properly in our jobs, and what its future use may look like.

Based on the USFNgage conversations had, let us clarify what Artificial Intelligence is and is not. AI is fundamentally technology that enables computer software to mimic human intelligence and problem-solving abilities. However, right now, we are mostly seeing what is called generative AI, machine learning and natural language processing specifically designed to create things, identify patterns, and interact with prompts. Generative AI is mostly affecting music, art, and writing at this moment. Machine learning appears in number crunching businesses, email filtering, medicine, and prepping that Amazon product for shipment once you have put it in your cart because it knows you need toilet paper and new tennis shoes just as well as you do, so why fight it? Natural language processing are your chatbots, your Clippy in Word (man, I miss Clippy), and your “Stephanie” with Visa who wants to understand why you’re calling today, but you don’t want to talk to “Stephanie,” you want a “REP-RE-SENT-ATIVE!!!”

AI is not Skynet, HAL 9000, or one of those evil robot overlords seen in a Hollywood blockbuster. At least not yet… It is more a highly sophisticated series of programs that piece together portions of the hodge-podge of humanity’s existence up until this point in order to fulfill a prompt or interaction it is given. Generative AI, for example, is solely based on material and content we have already created. It and other programs “learn” based on what we provide it. AI can draft a paper on ‘The Great Gatsby’ or generate a novel reminiscent of it, but it cannot produce wholly original creations. Moreover, it lacks true cognitive abilities – like thinking, feeling, or loving.

Having finally obtained an understanding of what AI is, I was ready to learn how it is being deployed in our workspace. We have already seen lawyers get in trouble for using generative AI in brief writing as the program “hallucinated” or made-up source material, so there are definitely misuses we need to be aware of. The consensus of the four breakout groups seemed to point to AI being used to assist in work, but requiring constant human oversight, interaction, and quality control of the outgoing product. For example, using AI to help write summarizations of large amounts of material to point an individual in the right direction for research, having AI generate a good starting point for a policy or procedure that staff then complete, or allowing AI to make simple decisions on situations to help downstream processes for employees would all be suitable uses for AI in the workplace.

You can use AI to take something you have written and rewrite the material differently, more eloquently, or more simply. I am often a terrible writer (see this article for examples), so I probably should have used AI to help me write this to make it easier and more enjoyable to read. You can have AI add an authoritative tone or, if you are too authoritative, make your writing less abrasive. AI can also be used to discover patterns or inefficiencies and reveal strengths or flaws within your own work processes. Someone can employ AI to help with audits, audit prep, or reporting. The options are almost literally limitless.

However, the danger for us still looms. Any product or procedure put in place will still be our responsibility. No one will accept the excuse of “the computer did it,” whether that is the boss, a judge, an investor, or an oversight body. It will still be our fault. Moreover, turning our thoughts outside of ourselves, it opens the door for an incredible amount of bad acting in our industry and others. Everyone has access to this technology. Fraud attempts will improve. Pro se litigant filings may be more on point and harder to dismiss or strike. Cybersecurity traffic will increase and intensify, and phishing schemes may become more successful.

Lastly, we come to the future. Here is where we envision mushroom clouds and humans living underground – a barren wasteland and bleak existences. Right? Or do we see a Star Trek-like future of blindingly fast calculations, space exploration, and elevated human existence? I am ever an optimist, so I at least hope for the latter. Generative AI, machine learning, and natural language processing programs can all be incredibly helpful, and I am not sure I necessarily see a reason to stop using them.

We do, however, need to be very careful about their oversight. The human quality control previously mentioned must continue and become even more robust. Additionally, the use of AI should be limited to non-mission-critical tasks. Money will have to be spent on staff and technology guardrails to properly utilize this kind of software. What AI is “fed” or trained on has to be carefully curated and monitored. And tested. Lots and lots of testing.

We believe we will see new roles created within companies for AI Trainers and AI Quality Control Testers, as well as some companies employing a Mathematician or Data Scientist to help control these processes. Regulations will also begin to include AI oversight, so we will have to be prepared to answer those questions. We will also probably have to train some of the regulators, as they do not always fully understand the things they regulate. Not that we have ever experienced that, right? We will have to incorporate AI oversight of our vendors, too. Just because you might not utilize AI yourself does not mean your vendors do not, and we’ll have to be aware of that as we move forward. And privacy! What to do about privacy?! An AI model can’t exactly “unlearn” something, so what do we do about data it gets hold of that we did not intend? How do we solve for an AI model that obtains PII for example?

While we could not solve for all the problems presented, I think a great job was done and the level of interest and interaction on this topic was incredible. I look forward to continuing the discussion as we move forward, both as individual companies and together as an industry. If you missed this discussion, I hope this article helped catch you up. I highly recommend being part of the next one. Be on the lookout for more USFNgage events on this and other topics in the future. It is a fantastic opportunity to come together and have an interactive discussion on a specific topic. And don’t worry, the USFNgage series is not recorded, so there’s no proof that I had no idea what I was talking about or what I was asking, which also means you too can participate freely. Thanks and we hope to see you next time!

Copyright © 2024 USFN

USFNews - July 10, 2024

* Denotes firm is a 2023 USFN Award of Excellence recipient.

By Blair Gisi, Esq.

SouthLaw, PC *

USFN Member (IA, KS, MO, NE)

Recently, there has been an effort to address concerns with the lack of mortgage lending in and around Native American tribal lands along with a rise in referrals for loans subject to the regulations of the Section 184 Indian Housing Loan Guarantee (“Section 184”) program. As a brief history, Section 184 is designed to increase opportunity and access for certain Native American families to achieve home ownership.  Per HUD’s website:

The Section 184 Indian Home Loan Guarantee Program is a home mortgage product specifically designed for American Indian and Alaska Native families, Alaska villages, tribes, or tribally designated housing entities. Congress established this program in 1992 to facilitate homeownership and increase access to capital in Native American Communities.

With Section 184 financing borrowers can get into a home with a low down payment and flexible underwriting. Section 184 loans can be used, both on and off native lands, for new construction, rehabilitation, purchase of an existing home, or refinance.

Section 184 is synonymous with home ownership in Indian Country.

See https://www.hud.gov/section184.

            While expanding,  there are currently 38 states in which a Section 184 loan can be used, and since 2012, there have been over 15,000 loans totaling over $2.4 billion (https://www.1tribal.com/section-184-home-loan-explanation/). A full list of participating tribes and the associated state(s) is also available on HUD’s website.

An important pre-foreclosure consideration when reviewing Section 184 loans is whether the property sits on tribal or allotted land or whether it is fee simple property. Generally speaking, foreclosure and sale of fee simple properties can follow the standard procedure per the terms of the loan documents and pursuant to state guidelines.

            For trust or allotted land, the leasehold interest will need to be incorporated to collateralize the loan, which brings along additional regulations. The two primary considerations involve the potential sale of the property via the foreclosure action and may include a right of first refusal to an eligible tribal member, the tribe itself, or the Indian Housing Authority serving the tribe. There are also limitations on who may purchase the property in the event of foreclosure.

            Section 184 has a rich history of supporting Native American and Alaskan Native housing initiatives. Its regulations on rights upon default aim to provide a framework for addressing defaults in a manner that balances the interests of borrowers and lenders while promoting access to affordable housing in Native American communities. The distinction with how the property is held and where the property sits is paramount to proceedings involving Section 184 loans, and there are many resources online to help guide lenders, servicers, and attorneys in these situations.

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USFNews - June 12, 2024

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