Halliday, Watkins & Mann, P.C. (USFN Member – UT, AL, AK, CO, ID, MN, MS, MT, NE, ND, SD, WY) recently merged with Eric H. Lindquist, P.C., L.L.O., a prominent Nebraska-based law firm specializing in mortgage default cases. The strategic merger brings together two powerhouse firms with over 70 years of combined experience assisting mortgage default clients across 12 states.

Spring 2024 USFN Report

Wilson & Associates, PLLC (USFN Member – AR, MS, TN) is excited to announce attorneys Courtney McGahhey and Nicole Murray were sworn into the Mississippi Bar recently.

McGahhey is a partner in the Foreclosure Department focusing on non-judicial foreclosures. She received her education from the University of Arkansas (B.A. 2005) and the University of Arkansas at Little Rock William H. Bowen School of Law (J.D. 2008, High Honors). She was admitted to the Arkansas Bar in 2008, the Texas Bar in 2009, the Tennessee Bar in 2016, and the Mississippi Bar in 2024.

Murray is an associate partner in the Foreclosure Department. She earned her B.A. in Educational Studies at Warner University (2010, Magna Cum Laude), and earned her J.D. from the University of Arkansas at Little Rock William H. Bowen School of Law (2017, Suma Cum Laude). She was admitted to the Arkansas Bar in 2017, the Mississippi Bar in 2024, and is a member of the American Bar Association and the Arkansas Bar Association.

Spring 2024 USFN Report

By Adam Diaz, Esq.

Diaz, Anselmo & Associates, PA *

USFN Member (FL, IL, IN, KY, OH, WI)

The 4th District Court of Appeals reversed its opinion in Desbrunes v. U.S. Bank, N.A., as Trustee, which held that a Personal Representative is a necessary party to a foreclosure on homestead property.  The new ruling correctly held that when a borrower passes away the property transfers to heirs without the need of a probate proceeding. 

The Court specifically found that since “[p]ersonal representatives have no jurisdiction over nor title to homestead . . . .” the property would not be an asset to the estate and subject to administration.  The Court noted in a footnote that it was unaware of the status of the property when it issued the initial decision, but after review of the Rehearing, and Amicus Briefing, this issue can be fully addressed.  The Court did not make a distinction regarding foreclosure proceedings being in rem or how the rules would apply to non-homestead property which leaves a potential grey area in the law.  However, the briefings do go into depth on how probate law would address non-homestead property.

The Court’s shift is significant for the Mortgage Industry, as it no longer requires a Lender in Florida to initiate a probate proceeding in order to obtain clear title when foreclosing.  The original ruling put an unnecessary burden on Lenders which would have caused significant delay in expense to the foreclosure process.

USFN participated in an Amicus Brief in March 2024 in the Desbrunes v. U.S. Bank, N.A., as Trustee petition to the 4th DCA. Kudos to Adam Diaz with Diaz and Associations for their outstanding work on this brief.  

Advocacy Advisory - May 8, 2024
USFNews - May 15, 2024

* Denotes firm as a 2023 USFN Award of Excellence recipient

Florida Appellate Court Finds Lenders Must Administer Probate Proceedings in Order to Obtain a Valid Foreclosure Judgment

By Adam Diaz, Esq.

Diaz Anselmo & Associates, PA*

USFN Member (FL, IL, IN, KY, OH, WI)

Florida’s 4th Appellate District reversed a foreclosure judgment for a lender with a groundbreaking decision creating new required steps to foreclose the interest of a deceased party. The Court’s decision in Desbrunes v. US Bank Nat’l Ass’n, as Tr. for Structured Asset Sec. Corp. Mortgage Pass-Through Certificates, Series 2006-AM1, 2024 WL 591432, at *1 (Fla. 4th DCA Feb. 14, 2024) represents a detrimental break in Florida jurisprudence that has governed foreclosure proceedings for decades.

The facts of Desbrunes are like many typical foreclosure proceedings involving a deceased party. US Bank National Association, as Trustee for Structured Asset Securities Corp. Mortgage Pass Through Certificates, Series 2006-AM1 (“Plaintiff”) filed a one count action for foreclosure naming Francois Desbrunes as a defendant. Desbrunes actively litigated the case, but ultimately passed away before the entry of the judgment, wherein his counsel filed a suggestion of death.

The plaintiff sought to Amend the Complaint. The purpose of the amendment was to drop Desbrunes as a party, add known and unknown heirs, as well as appoint a Guardian Ad Litem. This is the standard process in Florida.

However, Desbrunes’ counsel, who was no longer representing any party, filed a Motion to Abate pursuant Fla. R. Civ. P. 1.260(a), requesting the Court require the plaintiff to administer a probate in order to continue the action. The Trial Court denied the motion because Desbrunes’ counsel was not a party to the case, but did not rule on whether a probate is a required task to obtain a valid judgment.

The Trial Court granted judgment in favor of the plaintiff, and an heir, Ronald Desbrunes, appealed the ruling. The heir argued on appeal the denial of the Motion to Abate should have been granted. The 4th District Court of Appeal only considered the arguments regarding 1.260. The Court held that the plaintiff improperly substituted Desbrunes with the heirs pursuant to Rule 1.260(a) despite the fact the plaintiff never moved for substitution under the Rule. The 4th held that only an estate can be substituted in for a deceased party citing non-foreclosure cases involving money judgments.

The 4th went further to find any judgment where a probate was not opened would be a “nullity.” This language causes the most concern as it would open completed cases to attack. Due to the severity of this ruling a rehearing was filed.

The opinion failed to account for Florida Probate law which governs the transfer of title upon a title holder’s death. Under Florida Law when a property is homestead, the property will pass entirely outside of the estate. See Buettner v. Fass, 21 So. 3d 14, (Fla. 4^th DCA 2009). This transfer is codified within Florida Statutes s. 732.401, 731.102, 732.103. Therefore, a deceased borrower’s estate never holds title and would not be a necessary party to the foreclosure. See Citibank, N.A. v. Villanueva, 174 So. 3d 612, 613 (Fla. 4th DCA 2015) (“The fee simple title holder is an indispensable party in an action to foreclose a mortgage on property.”) (citations omitted)

The Firm, on behalf of USFN, also filed an Amicus Curie brief, along with ALFN and Legal League. The purpose of the Amici was to bring to the attention of the Court that if the opinion is not revised, or reversed, it will significantly impact the mortgage industry, and cause severe consequences this Court may not have anticipated or intended.

Currently, the rehearing is under review with the Court.

Copyright © 2024 USFN

USFNews - April 3

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

Court holds foreclosure statute of limitations had not expired and other claims were barred by res judicata

by HillaryR. McCormack, Esq.

Halliday,Watkins & Mann, P.C.*

USFN Member (UT, AK, AL, CO, ID, MN, MS, MT, ND, NE, SD, WY)

Utah Code § 57-1-34 requires anyone seeking to foreclose an obligation secured by a deed of trust by either commencing a judicial foreclosure action or initiating a nonjudicial foreclosure by recording a notice of default, within the “period prescribed by law.” The “period prescribed by law” is found in Utah Code § 70A-3-118(1), which prescribes a six-year statute of limitations running from the due date or dates stated in the note, or if a due date is accelerated, within six years after an accelerated due date. However, in Lewis v. U.S. Bank Trust, N.A., as Trustee for LSF9 Master Participation Trust, --- P.3d ---, 2024 WL 57521, 2024 UT App 3, the Utah Court of Appeals clarified that when notices of default are canceled, the statute of limitations is effectively paused, thus preserving a beneficiary’s right to foreclose at a later date. Prolific litigants should also be wary of claim preclusion barring future suits when they could have and should have brought those claims in a prior suit.

Brian Lewis (“Lewis”) purchased property in Mona, Utah in August 2014. However, when Lewis bought the property, it was already encumbered by a 2008 deed of trust in favor of U.S. Bank Trust, N.A., as Trustee for LSF9 Master Participation Trust (the “Trust”), which was in default. A notice of default had been recorded in April 2010, but then canceled on May 1, 2014. That same day, a new notice of default was recorded before eventually being canceled on April 30, 2020.

When Lewis learned of a pending foreclosure sale to be held in September 2016, he filed suit in state court against the foreclosing parties seeking to quiet title and prevent any future foreclosure, arguing the statute of limitations to foreclose had expired. The case was removed to the United States District Court for the District of Utah. See Lewis v. Caliber Home Loans, Inc., No. 2:16-cv-01252, 2018 WL 485967 (D. Utah Jan. 18, 2018). The federal district court granted summary judgment in favor of the foreclosing parties, holding that the statute of limitations began when the newest notice of default recorded on May 1, 2014, and had not expired when a foreclosure sale was scheduled in September 2016. Lewis appealed to the 10th Circuit Court of Appeals, but his appeal was dismissed for lack of prosecution. See Lewis v. Caliber Home Loans, Inc., No. 18-4020, 2018 WL 3996494, at *1 (10th Cir. May 3, 2018).

Continuing a tortured litigation history, days after his appeal’s dismissal, Lewis filed a new complaint in state court against the Trust, again seeking to quiet title in his favor and enjoin the Trust from claiming any interest in the property. The Trust removed the case to federal court, to which Lewis objected and amended his complaint in state court. The state court determined it did not have jurisdiction due to removal, but the federal court eventually remanded the case to state court based on lack of diversity jurisdiction.

After further maneuvering, including motions to dismiss, another amendment to the complaint to include claims for quiet title based on laches and unjust enrichment, an interlocutory appeal, and the Trust electing to pursue a judicial rather than nonjudicial foreclosure which was then consolidated into the already pending case, the Trust filed two separate motions for summary judgment and a Notice of Errata to address a watermark inadvertently filed with one of the motions. The Trust’s first motion argued that Lewis’ quiet title and unjust enrichment claims were barred by res judicata. The second motion argued the Trust was entitled to a foreclosure judgment and order of sale, and the statute of limitations had not expired. Lewis, through counsel, only responded to the quiet title motion, leaving the judicial foreclosure motion unopposed. Lewis’ counsel argued she had not realized there were two separate motions, but the court rejected the contention and granted both the Trust’s motions. The court entered judgment, and later declined to set it aside after Lewis filed a motion under Rule 60(b)(1) of Utah’s Rules of Civil Procedure. Lewis appealed.

On appeal, the Court of Appeals held the claim preclusion branch of res judicata barred Lewis from recovery on his quiet title and unjust enrichment claims. Lewis’ quiet title claim involved the same property and was a continuation of his yearslong efforts to avoid foreclosure. Although the legal theory behind his quiet title claim in the most recent suit was new (laches), the underlying claim and those in previous litigation arose from the same transaction. Similarly, his unjust enrichment claim, premised on the idea that his maintenance and improvement of the property benefited the Trust since he began improving the property in 2015, could have been raised in his prior 2016 suit. So, because the quiet title and unjust enrichment claims could have been raised in previous litigation, res judicata barred them in the current suit.

Lewis also argued on appeal that the district court incorrectly concluded the statute of limitations to foreclose had not run. Lewis contended that the default occurred when payments were missed in 2009, but foreclosure was not initiated until 2016, when he learned of a scheduled trustee’s sale. However, the Court of Appeals relied on its precedent in Deleeuw v. Nationstar Mortgage LLC, 2018 UT App 59, 424 P.3d 1075 holding that the “period prescribed by law” for commencing a foreclosure as required by Utah Code section 57-1-34 was the six-year statute of limitations found in Utah Code section 70A-3-118(1). This six-year statute of limitations runs from the due date or dates stated in the note, or if a due date is accelerated, from the accelerated due date. The Court of Appeals also cited its precedent in Daniels v. Deutsche Bank Nat’l Trust, 2021 UT App 105, ¶ 3, 500 P.3d 891 and Johnson v. Nationstar Mortgage LLC, 2020 UT App 127, ¶ 21, 475 P.3d 946 (Utah 2021) in holding that recording a notice of default is an act of acceleration, causing the statute of limitations to begin running. However, the Court of Appeals clarified that canceling a notice of default halts the statute of limitations, whereas recording a new notice re-accelerates the due date and thus restarts the limitations period. The 2010 notice of default recorded against the property was canceled on May 1, 2014, and a new notice recorded that same day before that new notice was itself canceled on April 30, 2020. Each cancellation halted the limitations period, whereas each notice recording started the period anew. Therefore, the limitations period had not run when the Trust filed its judicial foreclosure. Lewis also argued on appeal that the Trust’s judicial foreclosure claim was a compulsory counterclaim in his 2016 suit, which has yet to be addressed in Utah. However, the Court of Appeals declined to consider the argument because it was unpreserved, leaving the issue unsettled.

The Court of Appeals also rejected Lewis’ contention that it was an abuse of discretion for the lower court to have denied his Rule 60(b) motion because his counsel failed to understand there were two pending summary judgment motions requiring response. The Court of Appeals held that Lewis failed to establish the requisite due diligence necessary for relief from the judgment due to mistake or inadvertence under 60(b), because failing to read documents in full was unreasonable and made him ineligible for relief. Therefore, the lower court did not abuse its discretion in denying the 60(b) motion when there was no proper basis for relief from the judgment.

Going forward, mortgagees may feel more confident in foreclosures where there has been no acceleration, and that they may effectively pause the statute of limitations by canceling a notice of default. However, because the Court of Appeals declined to address whether judicial foreclosure was a compulsory counterclaim to earlier, borrower-initiated litigation, mortgagees and their counsel will want to keep a close eye on whether a Utah appellate court revisits and weighs in on this issue in a future case.

Copyright © USFN 2024

USFNews - March 6

* Denotes firm is a 2023 USFN Award of Excellence recipient

Carlisle Law (USFN Member – OH, IN, KY) has opened offices in Indiana and Kentucky. Carlisle Law Principal Jerry Higgins is in the Indiana office, and practices in both Indiana and Kentucky. The Firm is also proud to announce it has added the following attorneys who work in the Indiana and Kentucky offices: Marsha Dailey (IN and KY); Derek Harvey (IN and KY); Terra Meek (KY and the United States Bankruptcy Courts for ED and WD of KY and ND and SD of IN) and Samantha Nix (KY).   

2024 USFN Winter Report

By Alexander Craddock and NateBraun

NetDirector

USFN Associate Member

With the latest generation of phishing and social engineering assisted by the newest AI technologies, information security is more important than ever for small businesses. According to the Acronis Cyberthreats Report, H2 2023, AI-enhanced phishing attacks affected over 90% of organizations surveyed and resulted in a 222% increase in email attacks in 2023 when compared to the same time period in 2022.

This risk is especially great for any business dealing in PII (Personally Identifiable Information), financial data, or legal – for the default servicing industry, this is the triple threat that makes security a high priority across the organization. One of the best strategies to ensure data security is data segregation.

The goal is to ensure that only the individuals who are authorized to view certain data sets have access to them – and that while that access is secure, it remains easy and convenient for the team members who need the data to do their job.

It’s easiest to envision a complete data segregation strategy by visualizing the way a layered, segmented security protocol works on physical documents. The familiar layers of security are present for most hard copies of documents in the physical world. An example:

·         a property gateway (potentially with a security guard) exists, verifying access to the property.

·         the building entrance uses a badge reader or biometric scan, and a secondary badge entrance would provide further segregated access to a particular wing.

·         within the wing, even fewer key cards would grant access to certain hallways or individual rooms.

·         a certain key is required to unlock a particular cabinet full of sensitive files.

In this example, there are up to six layers of security present between the “outside world” and the sensitive information, each of which limits access in steps. Could an outside unknown malicious actor get access to a document in the file cabinet (without the use of “Hollywood writers”)? The short answer is no. In this scenario, the only people who could do harm are a very limited number of internal employees, restricted by the many layers of access and significantly narrowing down potential threats.

What if one of those layers is compromised, like the lock on the cabinet? Even with one or two less layers of security, the documents themselves are still secure from outside access. Risk probability decreases exponentially after each layer of security in place.

An equivalent layered segregation process is the best approach to ensure a secure environment for digital data. For example:

·         A VPN gateway functions as the property access, with as many as eight factors of verification in this “frontline” defense: a username and password, with multifactor authentication (MFA) tokens matching the PC/Device, IP Address/location, a one-time PIN from Authenticator, mobile device registration for authenticating devices, and FaceID on the authenticated device.

·         Firewall/security rules work as the building key card: after VPN connection is established, the VPN client with an Endpoint Security Profile can determine what access is allowed based on the user’s account and group membership; denying or granting specific IP/port access.

·         Application authentication represents key card access to specific rooms and hallways, and is separately managed in a similar way to the VPN (factors include Internal WebUIs, File Shares, RDP, SSH, and a different username/password requiring a new MFA)

·         Finally, the file cabinet lock is represented by specific application access. After authentication in the previous steps, what data is available to that authenticated user in the specific application? This is the final step to ensuring the right data is readily available to users who need it, and can also determine read/write permissions, modification availability, etc.

Final questions to consider around data segregation include:

Q: How many layers does our company need?

A: One layer, even with MFA, is no longer enough. Companies should have at minimum two layers each with their own multifactor authentication before classified/protected information can be reached.

Q: Which technologies are most important to secure?

A: Endpoint security for physical devices (laptops, phones, etc.) through which employees can access classified information is most important. Authentication and file transfers for Unified Messaging technologies (email, IM, phone, online conference, voicemail) is second most important. Web based interfaces, applications, and connections would be third on the list. These are the big three that absolutely need their own layers of security, including MFA.

Copyright © 2024 USFN

USFNews - Feb. 21

By Robert Wichowski, 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)

The Maine Law Court has issued its long-awaited decision in the case of JP Morgan Acquisition Corp. v. Camille J. Moulton (2024 ME 13). This decision comes on the heels of Charles D. Finch v. U.S. Bank (see USFN article here) and it is one in which USFN, among other industry participants, filed an amicus brief in support of the lender’s position.

This case involves the foreclosure of a residential mortgage in which the trial court found that the foreclosing plaintiff’s demand letter did not comply with 14 MRSA §6111 (Maine’s demand letter statute). In Maine, until the decision of the Finch case, proceeding to foreclosure with a demand letter that did not strictly comply with each and every requirement of 14 MRSA §6111 would result in a judgment in favor of the borrower, which was deemed an adjudication on the merits of the case. Such an adjudication, pursuant to the prior cases of Pushard v. Bank of America, N.A., 2017 ME 230 and Fed. Nat’l Mortg. Ass’n v. Deschaine, 2017 ME 190, and on res judicata principals, resulted in a “free house” for the borrower and an inability of the mortgagee to collect any sums on the note or enforce the mortgage.

As previously written by USFN, the Finch case represented a sea change in Maine foreclosure law, holding that res judicata did not apply where a non-compliant notice was the basis for the adverse result because, according to the language of the statute, a compliant notice is a condition precedent to enforcement of the mortgage and acceleration of the debt. After the decision in Finch, a judgment in favor of a borrower based upon a defective notice is no longer an adjudication on the merits of the case.  Thus, res judicata does not operate to preclude future claims.

Although the Finch decision was argued prior to this case, the Maine Law Court, having both cases pending before it at the same time, solicited amicus curie briefs on the questions of whether the Court should reconsider its precedent that a failure to comply with 14 MRSA §6111 renders the note and mortgage unenforceable as well as whether the Deschaine and Pushard cases should be overruled. In response, several amicus curiae briefs were submitted, and partially on the basis of those briefs, both decisions in Finch and Moulton were decided.

In this case, the notice of default was deemed non-compliant with the statute because there was a sum of money being held in suspense as a partial payment that was not accounted for on the demand, which resulted in the amount to cure in the notice being listed as higher than it really was. The trial court entered judgment in favor of the borrowers and further ordered that Moulton “holds title to the real property at issue, unencumbered by the mortgage and the promissory note.” The court also awarded her reasonable attorneys’ fees and costs. Although the Law Court did not take issue with, or disturb the trial court’s ruling that the notice of default was not compliant with 14 MRSA §6111 or the award of reasonable attorneys’ fees, the Law Court vacated the portion of the judgment that declared that Moulton holds title to the real property at issue free of the note and mortgage. In doing so, the Court held that such a judgment does not preclude the lender from bringing a future foreclosure claim based on a future default, nor does it discharge the entire mortgage or effect a transfer of title.

Although this case, coupled with the Finch opinion, represents a step away from the severe foreclosure climate in Maine for lenders as well as the “court as a casino” effect that the Deschaine and Pushard cases created, it will not end strict scrutiny on notices of default and could even result in an increase in trial courts finding that notices are defective.

Failure to comply with § 6111 still may have drastic consequences. Not only does the lender need to recommence a foreclosure, starting with a new demand letter and be subject to an award of reasonable attorneys’ fees and costs, the second foreclosure case can only proceed as to future defaults. Unless the first foreclosure case also contained a separate count for breach of contract (suit on the note), which is often not an option due to bankruptcies and statutes of limitation, a lender must waive the prior unaccelerated amounts past due.

The takeaways from Moulton are that foreclosure complaints should include a separate count for amounts due under the note, when possible, and that § 6111 remains a strict compliance statute.

We do recommend consulting with local counsel to confirm the validity of notices of default.  Certain cases should also be evaluated upon referral for a possible contract claim.

Copyright © USFN 2024

USFNews - February 7

* Denotes firm is a 2023 USFN Award of Excellence recipient

By Kim Pogue Jenkins, Esq.

Baer & Timberlake,P.C.*

USFN Member (OK)

USFN’s most recent Diversity, Equity, and Inclusion Briefing Series on December 12, 2023, focused on The DEI Outlook for 2024 and Forward: How to Navigate the Changing Climates. The three panelists presenting were Greg Campbell, a partner at Aldridge Pite, LLP, who spoke about the current state of DEI; Emily Bartekoske, a Senior Partner at SouthLaw, P.C., who addressed lesser-known DEI categories; and Marisa Myers Cohen, shareholder at McCabe, Weisberg & Conway, LLC, who presented DEI recruiting tips and tricks. All in all, while there have been some recent setbacks to corporate DEI initiatives, it is still a priority for employees and employers. Here’s a brief recap of what our panelists shared during the Briefing.

Current State of DEI

Greg Campbell began by acknowledging slowing DEI momentum over the past year, in contrast to the 2020 surge of companies implementing DEI policies and departments. One reason for the 2020 wave was the death of George Floyd and the attention it brought to DEI. Another reason was pandemic legislation, like the CARES Act, which made money available to fund DEI programs. From July 2020 to July 2021, job postings with DEI in the title jumped 92%.

However, since last July, DEI job postings dropped by 38%. What could account for the shift? Financial factors, such as the end of the CARES Act, recession, slower growth, and higher interest rates. The bottom line remains a major consideration for businesses, along with attracting the best talent, fostering innovation, and employee retention. Legal pressure is another factor. The Supreme Court ruling in Students for Fair Admissions v. Harvard held that the policies at Harvard and the University of North Carolina violated the Equal Protection Clause by considering race in admissions. While this ruling only affected universities, many businesses and law firms believed that they might be targeted next, and they were correct. American Alliance of Equal Rights sent threatening letters to seven top law firms demanding that they halt their diversity fellowship programs, saying they exclude qualified white and Asian students. Additionally, at least five state Attorneys General have sent letters to the top 100 law firms in the country demanding a reevaluation of DEI policies. Many companies have started ditching their DEI programs to avoid potential legal trouble or are laying off their DEI-focused positions in these challenging economic times.

Companies who rescind their DEI programs may lose talent, as employees question if the company ever really intended to be inclusive or if they just wanted to appear that way when it was socially beneficial.

Campbell then switched gears to address why some are hesitant to speak out about DEI issues. Reasons include a fear of doing or saying the wrong thing or a fear of negative repercussions from co-workers. He also addressed “reverse belonging,” when a person does not feel like they can join a group or event if they are not in an underrepresented category. He stressed that anyone who is an ally is welcome in USFN DEI events and programs, and he urged those interested in DEI to continue to engage and learn, read articles in USFN publications, and attend webinars like this one.

Lesser-known DEI Categories

Emily Bartekoske began this presentation by acknowledging the widespread action on categories like sex, sexual orientation, gender identity, race, ethnicity, or religion before noting that DEI is also applicable to lesser-known categories. These can include cognitive diversity, age, education, language, physical ability, class diversity, invisible disabilities, geographical location, socioeconomic status, and family status.

The first focus was on age. We typically think about discrimination against older workers but we also need to avoid making hurtful generalizations about younger generations. We often look at this issue through a defensive lens, to avoid a lawsuit, but this presentation encouraged us to instead use a lens of inclusion. We can and should actively celebrate and encourage the unique skill sets that differing age groups bring.

How can firms and servicers implement this suggestion and create a welcoming and inclusive environment for all employees? First, by updating company policies and by providing anti-bias training that doesn’t promote stereotypes. They can also encourage multigenerational collaboration on projects, and mentoring programs which go in both directions: older workers mentoring younger workers, and vice versa.

Physical ability was also addressed. Again, firms should look through the lens of inclusivity. Ask employees if they are facing any challenges in this area at work. Consider that many physical challenges are not visible. A person may have trouble lifting or standing. They may suffer from chronic pain or an autoimmune disorder. Think about these challenges when planning events. A golf outing as a reward is fun for some, but it can also exclude some members from participating. Businesses can also offer nontraditional accommodation, like extended breaks or flexible schedules.

Cognitive Diversity is defined as the variety of ways in which people think, process information, problem-solve, and make decisions. Neurodiversity includes ADHD, autism spectrum disorder, or dyslexia. Fifteen to twenty percent of people are neurodivergent. Businesses want to make employees feel welcome and included, and to maximize their learning and productivity. To accomplish this, they must identify the learning styles of employees and accommodate them in training and communication. They should also review their hiring process to remove unnecessary steps that can cause stress for many. Consider providing interview questions ahead of time to reduce anxiety and allow for better preparation. Providing nontraditional accommodations like quiet workspaces, headphones, or low-sensory areas where an overwhelmed person can go to self-regulate, can greatly benefit neurodivergent employees. Finally, check in regularly to make sure employees are not headed toward burnout. Acceptance of diversity should be promoted from the top down to eliminate stigma.

DEI Recruiting Tips and Tricks

Companies that maintain a sustained commitment to DEI will reap the rewards and intangible benefits by attracting high-quality job seekers. Businesses should collect employee data and then compare the statistics to those demographics in your state or county to know how they are doing on DEI.

Companies should make sure that they are looking both at the current employees and those who will be hired. Job descriptions should be free from targeting certain ages and free from exclusionary language. Recognize bias in the hiring process and advertising of jobs.

Ask yourself and your team questions such as does this position really need a college degree or a lot of work experience?

Make sure interviewers are not asking improper questions about age, national origin, sexual orientation, or family status. If possible, have a diverse team of interviewers, ideally including other employees and not just management or top-level executives. Using an interview script can help to eliminate both implicit and affinity bias. Implicit bias is a negative attitude, of which one is not consciously aware, against a specific social group. Affinity bias is the tendency to act favorably toward people who have grown up in a similar manner as the interviewer. Avoid questions like “Do you golf?” While this question might create a connection between the interviewer and interviewee, it may also have the reverse effect due to affinity bias.

In summary, businesses should capture the appropriate data, look at it through the various lenses, and remember that a commitment to DEI will help them both hire and retain talent, and provide an inclusive and welcoming workspace.

Save the Date: NEW USFNgage Series

The Four Pillars of Diversity, Equity, and Inclusion

Tuesday, Feb. 13, 1-2:30 pm CT

In these brand-new virtual webinar programs, USFNgage sessions will be set up as a Zoom meeting format where speakers will engage directly with participants face-to-face. Participants should come prepared to enable their video, unmute themselves, and to engage with our speakers and fellow participants through group conversations and smaller breakout discussions. Registration for this event will open soon.

Copyright © USFN 2024

USFNews - January, 10, 2024

* Denotes firm is a 2023 Award of Excellence recipient

Scott & Corley, PA (USFN Member – SC) is proud to announce that Reginald "Reggie" P. Corley, and Ronald “Ron” C. Scott, have been recognized in the 2024 edition of BEST LAWYERS in AMERICA® (Woodard-White Inc.) for the State of South Carolina. This year marks Reggie Corley's seventh consecutive year as a selection for Mortgage Banking Foreclosure Law, and for Ron Scott, it marks his 15th consecutive year from his inaugural selection in the category which was initially created by BEST LAWYERS in 2010.  

By William D. Meagher, Esq.
Trott Law, P.C.*
USFN Member (MI, MN)

The Michigan Court of Appeals recently issued an opinion offering some finality to the evolving process for claiming surplus proceeds from a tax sale. In its “for publication” opinion In re Petition of Muskegon County Treasurer for Foreclosure, the Court upheld the statutory framework that was enacted to effectuate constitutional compliance under the Michigan General Property Tax Act (“GPTA”). This does not directly impact servicers in the typical sense. However, it is significant in that it clearly sets a firm timeline should it be necessary to try to recover losses from a property inadvertently lost to tax sale.

It is important to understand what brought about the current process. Prior to 2020, the GPTA did not provide a mechanism by which former property owners could recover surplus proceeds after a property was foreclosed for delinquent taxes and subsequently sold at auction to a third party, for an amount exceeding the tax delinquency. Instead, the surplus, if any, was retained by the Foreclosing Governmental Unit (“FGU”).

There were numerous challenges to the pre-2020 practice under the GPTA provisions, largely focusing on it consisting of an unconstitutional taking, among other things. The Michigan Supreme Court issued its opinion in one such case, Rafaeli, LLC v. Oakland County on July 17, 2020. The Rafaeli case confirmed the ability of the FGU to foreclose for delinquent taxes and take title to the property. However, the opinion further held that there was no right to retain surplus proceeds after selling the property to satisfy the outstanding taxes, interest, penalties, and fees. The surplus proceeds were required to go to the prior owner since to do otherwise constitutes a government taking under the Michigan Constitution entitling plaintiffs to just compensation.

After the decision in Rafaeli, the Michigan Legislature amended the GPTA to include section 78t, codifying certain rights as recognized by the Michigan Supreme Court in Rafaeli. In its most simplistic terms, this amendment created a statutory process for former holders of a legal interest in a property at the time of tax foreclosure to seek any remaining proceeds from the sale of the property at auction after having satisfied the delinquent property taxes. The statutory process imposes many deadlines for certain filings, one of which is a bit odd in its timing.

Foreclosure for delinquent taxes occurs in March, with the redemption on the tax foreclosure judgment generally expiring on March 31, vesting title into the name of the FGU. The property is then auctioned for sale in July, September, and November. It is this post-foreclosure auction sale that may generate recoverable surplus proceeds. One unique and somewhat troubling issue in the statutory scheme is the requirement for an interested owner to submit a claim via Form 5743 by July 1 immediately following the effective date of the tax foreclosure of the property. The process therefore requires an interested party to file a claim before it is even known whether there will be surplus proceeds from the property auction.

In re Petition of Muskegon County Treasurer, the interested property owners owned properties that were foreclosed for taxes on March 31, 2021. All properties subsequently sold at auction for significantly more than the tax amounts owed. None of the owners filed claim forms by July 1, 2021. The FGU opposed the various motions due to the late claim filings. The trial court ruled that the statutory timeline was clear and unambiguous and had to be enforced as written.

On appeal, the interested prior owners made many, largely constitutionally based arguments. The most significant of which, as it pertains to the mortgage servicing industry from a practical perspective, was that the statutory scheme was not the sole remedy and that the annual July 1 deadline for filing a notice of intent was unenforceable.

The Court ruled that the language of Section 78t is unambiguous and that it “is the exclusive mechanism for a claimant to claim and receive any applicable remaining proceeds.” Further, the Court noted that, “although the Takings Clause is self-executing, it must be read within the context of statutory protections available to a property owner.” The Court determined that the GPTA imposes a reasonable, minimal burden on former owners to advise the FGU of their intent to exercise their right to claim any remaining proceeds. So long as the statutory scheme adopted by the legislature comports with due process, which it does, whether such a scheme makes sense or not, or whether a “better” scheme could be devised, are policy questions for the Legislature, not legal ones for the Judiciary.

While there may still be challenges on different aspects of the statutory scheme in the future, one thing is now certain:  If an interested party intends to pursue possible surplus proceeds from a tax sale auction, it must file a claim Form 5743 prior to the July 1 deadline. Given this, it is recommended that clients carefully review all tax notices. Portfolios should also be reviewed annually to determine whether any properties were lost to tax sale. If any properties are identified, it may be worthwhile to file the claim by the July 1 deadline to preserve any interest in possible surplus proceeds from the future sale.

Copyright © USFN 2023

USFNews - December 6, 2023

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

Earlier this Fall, USFN sent a letter to HUD regarding the Show Me State Premium Homes case.

We have since shared with VA and ALTA

We greatly appreciated the opportunity to discuss USFN’s concerns related to the Show Me State Premium Homes case. As promised, this letter will serve to provide a brief description of the issue, and some proposed resolutions that we ask HUD to consider.

Issue:   

In July 2023, the U.S. Court of Appeals for the 8^th Circuit issued an order affirming a Missouri federal court decision in Show Me State Premium Homes v. McDonnell, 2022 WL 970890 (E.D. Mo. Mar. 31, 2022) affirmed 74 F.4th 911 (8th Cir. 2023). Many in our industry have taken that order to hold that a subordinate lien (other than a federal tax lien) held by the United States must be foreclosed by judicial action. Prior to Show Me, servicers, insurers, and foreclosure counsel had relied on the holding in U.S. v. Brosnan, 363 U.S. 237 (1960), a U.S. Supreme Court decision that explained that nonjudicial foreclosures eliminate junior federal liens using whatever state process is available. The Show Me court did not discuss Brosnan, which seems to leave room to argue that Brosnan is still the operative authority in the nonjudicial foreclosure context. In the interest of brevity, we have not included a full legal analysis of the opinion here but are happy to do so upon request.

While we believe there are legal arguments that can be made to counter the effects of this decision (and maybe to overturn it altogether), the decision has begun to have practical, negative consequences that lead us to ask that HUD take immediate action to provide stability and clarity to all stakeholders.

Effects and Potential Effects of the Decision:

• In some cases and jurisdictions (even beyond Missouri and the 8^th Circuit), title insurers and U.S. Attorneys are calling prior practices involving the foreclosure and removal of government liens in nonjudicial states into question, and are taking the position that if the United States has a junior lien (e.g., HUD/USDA/VA second mortgage, HUD HECM second mortgages, etc.), that 28 U.S.C. 2410(c) requires the senior lienholder to name the United States as a defendant, foreclose by judicial action, and seek a judicial foreclosure sale to eliminate the junior federal lien.
  
• Because of the above interpretation and its fallout, some servicers and their counsel are making the decision to foreclose properties with junior federal liens by judicial process. In some instances, pending REO and sheriff’s sales have been canceled in favor of the decision to restart using a judicial process.
  

• The switch from a non-judicial to a judicial process will inevitably result in higher fees and costs, longer timelines (in some cases as much as a year longer), potential curtailment losses, and higher HUD claim amounts in states where the non-judicial process had been the norm. In at least one affected state (Tennessee), a judicial foreclosure process does not even exist, causing even greater uncertainty. The resultant higher costs and longer timelines associated with the  judicial process and redemption periods will necessarily have negative effects on borrowers (in particular those seeking to cure or payoff and facing higher fees and costs in the process), servicers, and HUD, with little to no corresponding benefit to HUD.

• There is the possibility that the effects of the decision could expand to include already completed and insured foreclosures. It remains to be seen how title insurers will deal with any potential insurability issues, and who will bear the cost of corrective action, if needed.

Proposed Resolutions:

1. The most practical solution would be for HUD to consider this ruling an opportunity to confirm and clarify by Mortgagee Letter that it is and has been HUD’s policy to consider junior liens in their favor to have been divested if the mortgaged property was properly foreclosed in accordance with state and local law in the jurisdiction where the property is located, whether by judicial or non-judicial process. This solution would be the most cost effective for all involved and would provide certainty for all stakeholders, including borrowers, servicers and their counsel, title insurers, and past and future third-party buyers of foreclosed properties.

2. In the alternative, HUD should develop a streamlined waiver process to reduce the cost and risks of foreclosure-related losses. This approach is supported by law, specifically 28 U.S.C. § 2410(e), which contemplates a method by which a release of a government lien may be requested. Clear, consistent, and centralized procedures for either requesting a release of lien or granting permission to proceed nonjudicially where a junior lien in favor HUD exists would resolve many of the issues and would provide a relatively cost-effective solution for all interested parties.

As a corollary to the above, USFN also proposes that HUD confirm to servicers that it will waive curtailments related to restarts or protracted timelines that were caused by the uncertainty and effect of this decision. 

We greatly appreciate HUD’s willingness to discuss this matter with USFN, and stand ready to provide any additional information that you may need to fully consider the proposed resolutions.

Sincerely,

Jeffrey Weisserman                                                                 Pamela  Donahoo

Chair, USFN Advocacy Committee                                          CEO, USFN