By Michelle Motyka

Affinity Consulting Group

USFN Associate Member

In today’s diverse workplace, it is important to create an environment where individuals feel comfortable expressing their true selves. People from diverse backgrounds bring unique perspectives and experiences to work with them every day. It is important to do more than just recognize these differences, but to also create a safe space for people to be their authentic selves at work.

Why is authenticity so important in the workplace? Authenticity refers to being true to oneself and embracing your own unique qualities without fear of judgment or criticism. Creating a collaborative work environment that allows people to bring their whole selves to work yields numerous benefits for both the individual and the organization.

For the individual, it builds trust and open communication among team members. Having that trust and a feeling of acceptance leads to free sharing of thoughts and ideas. For the organization, having increased participation from a diverse group of people can lead to improved problem solving and teamwork. Accepting people for their true selves can also reduce workplace discrimination, fostering a sense of belonging which can help prevent biases from impeding collaboration and productivity.

Keep in mind, your authentic self is made up of many different parts. It is your gender, race, sexual orientation, and religious beliefs, but also includes other personality traits, like communication style, that make up who you are. You may be an introvert or extrovert, be a big picture thinker or love the minutia of the details. You may be more vocal, or a listener, more emotional or more logical; the list goes on. If we are not careful, we can easily cause offense or feelings of judgment by appearing to be unaccepting of these traits.

How can we work toward embracing authenticity in the workplace?

1. Conduct diversity and inclusion training to help build empathy and understanding. One challenge with the true self is that for many of us, our own unique backgrounds can result in unconscious bias. Education helps us recognize, challenge, and move past these biases.
2. Provide training about communication styles.  There are various tools available, such as the DiSC assessment, which can help people better understand their own communication style, as well as the styles of those they work with. Improving employee communication can help them to align their focus and create a more cohesive team. These exercises also demonstrate how important it is for people with different styles to be involved to make a group more successful.
3. Encourage open communication among team members. Create opportunities for individuals to share perspectives and challenges with each other. At the outset, it might be necessary for leaders to talk to team members individually to understand what would help each of them feel more included or more comfortable speaking up in meetings.
4. Organize events and activities that celebrate different cultures, traditions, and identities. Ask people to share stories of their holiday experiences. Have a monthly virtual happy hour where you ask people to share a hobby, or a favorite place they have traveled, to build a community and give everyone a chance to speak.

Accepting a co-worker's authentic self is not only the right thing to do, but it is also a crucial building block for a thriving, inclusive, and innovative workplace. By creating an environment that values diversity and embraces everyone’s unique qualities, organizations can unlock the full potential of their employees. Let us strive to foster a workplace culture where everyone feels respected, accepted, and empowered to be their authentic selves.

USFN Copyright @2023

June 2023 USFN e-Update

By KatieDickinson, Esq.

BWW Law Group, LLC*

USFN Member (DC, MD, VA)

            Banks, mortgage servicers, and other professionals and institutions in the mortgage lending industry are familiar with the provisions of Regulation Z of the Truth in Lending Act (“TILA”) concerning periodic statements for mortgage loans, contained in 12 C.F.R. § 1026. For a few special types of mortgage loans, however, there are lingering misconceptions about certain exemptions contained in Regulation Z. As defaults and foreclosures have increased with the end of the Covid-19 moratorium, consumer attorneys are scouring their clients’ mortgage loans for any noncompliance with federal laws and regulations. This heightened awareness in both default and bankruptcy contexts makes it an ideal time to review internal procedures for best practices and to improve them wherever possible.

This article discusses two exemptions with especially thorny implications which create opportunities for improvements: the exemption for loans in bankruptcy and the exemption for charged-off loans. These exemptions, though significant, apply under relatively narrow circumstances, which has caused considerable confusion and, in many cases, failure to fully comply with the Regulation.

The Bankruptcy Exemption Is Extremely Limited

The periodic statement requirements for consumers who are in active bankruptcy cases or whose personal liability was previously discharged in bankruptcy (referred to throughout this article as “debtors”) have created particular problems for servicers. As is evident in Freedom Mortgage Corporation’s recent victory in the United States District Court (Freedom Mortgage Corp. v. Dean, 647 B.R. 789 (2023)), even perfectly compliant periodic statements can result in costly litigation. Many servicers are under the impression that the requirement to send periodic statements to debtors is waived entirely; however, the bankruptcy exemption under section 1026.41(e)(5) only applies to loans with debtors meeting one of the following criteria:

1.     The debtor has requested the servicer stop sending periodic statements;

2.     The debtor’s bankruptcy plan either (a) surrenders the property; (b) strips the lien; or (c) otherwise does not provide for payment of the mortgage arrearage or post-petition payments;

3.     The bankruptcy court either (a) grants the servicer’s motion for relief from the automatic stay; (b) enters an order approving a lien strip; or (c) requires the servicer to stop sending statements to the debtor; or

4.     The debtor files a statement of intention to surrender the encumbered property AND the debtor has not made any partial or periodic payments after the commencement of the bankruptcy.

This means that if a debtor makes a single post-petition payment and the Chapter 13 Plan makes some provision for payment of any arrearage, the foregoing exemption is not triggered and the requirement to send periodic statements remains in effect. Over the course of the bankruptcy case, this would only change if the debtor amended the Plan in such a way that it met one of the criteria above or if the bankruptcy court granted the servicer relief from the automatic stay. Furthermore, if a debtor did fall into one of these categories at some point in the bankruptcy case and the servicer had properly suspended sending periodic statements under section 1026.41(e)(5), if the debtor subsequently requests that the servicer resume sending periodic statements (or reaffirms personal liability on the loan), the requirement springs back into effect upon the request or reaffirmation. Note that section 1026.41(e)(5)(iii) permits servicers to require such requests to be directed to a specific address, as long as the consumer is notified “in a manner that is reasonably designed to inform the consumer of the address.”

            Modified Statement Requirements for Loans in Bankruptcy

If the mortgage loan does not fall into one of the four (4) exemption categories under section1026.41(e)(5), the Regulation requires servicers to modify the statements to include certain additional information upon a consumer filing for bankruptcy or receiving a discharge of personal liability for the mortgage loan in bankruptcy. Under section 1026.41(f), while the periodic statement may omit certain information which would have been required absent the bankruptcy or discharge, each periodic statement must now disclose all of the following activity that has occurred since the last periodic statement the servicer issued:

1.     Each post-petition payment received, and the total amount of all such payments received;

2.     Each pre-petition payment received, and the total amount of all such payments received;

3.     Post-petition fees and charges; and

4.     Payments of post-petition fees and charges.

Each statement is also required to disclose the current balance of the debtor’s pre-petition arrearage and the total of all pre-petition payments received since the beginning of the debtor’s bankruptcy case. Finally, the Regulation requires inclusion of a series of bankruptcy-specific disclosures in each periodic statement listed in section 1026.41(f)(3)(vi).

            Compliance with section 1026.41(f) requires servicers to identify all mortgage loans that are subject to these modified requirements and ensure the associated periodic statements contain the necessary disclosures and data. At the same time, for the data included to remain current and accurate, servicers must properly apply each payment received from the borrower and the bankruptcy trustee. As servicers have experienced, this can pose a substantial challenge, since borrowers in bankruptcy frequently miss payments (whether to the servicer or to the bankruptcy trustee) and amend their Chapter 13 plans to alter the arrearage and payment schedule. Of course, servicers already have internal procedures in place to address fluctuating trustee payments and pre-petition arrearages and to monitor the loan for any lapse in post-petition payments, which could necessitate a request for relief from the automatic stay. Nevertheless, because the nature of a bankruptcy case places the borrower and servicer in somewhat adversarial postures, providing these internal numbers to the borrower (and, by extension, the borrower’s bankruptcy counsel) on a monthly basis creates frequent opportunities for conflict where it might not otherwise arise.

            Charged-Off Loans and Dormant Second Mortgages

            Though less complex, the exemption for charged-off loans under section 1026.41(e)(6) may also create trouble for servicers, particularly in the current residential housing market. A servicer is relieved from the obligation to send periodic statements if the servicer:

(i)              Has charged off the loan in accordance with loan-loss provisions; and

(ii)            Will not charge any additional fees or interest on the account; and

(iii)          Provides, within thirty (30) days of charge off or the most recent periodic statement, a periodic statement clearly and conspicuously labeled “Suspension of Statements & Notice of Charge Off – Retain This Copy For Your Records.”

If a servicer complies with the foregoing but later fails to treat the loan as charged off or charges any additional fees or interest on the account, the servicer must resume sending periodic statements to remain compliant with the Regulation and may not retroactively assess fees or interest for the period of time during which the exemption applied. This has become significant recently because of the increase in foreclosures on dormant second mortgages; that is, loans held subject to one or more senior mortgages, which were long considered uncollectible because of a lack of equity in the secured property but are now being transitioned to foreclosure status because of the sharp escalation in home values. This practice has come under special scrutiny among consumer attorneys, in the press, and even before Congress. Because of this increased visibility, problems may arise if servicers take steps to accelerate and foreclose on mortgage loans that have been treated as exempt under section 1026.41(e)(6) when they have failed to resume sending periodic statements for those loans to the consumers.

            Liability and Damages

            There is potential liability under both TILA and the Real Estate Settlement Practices Act (“RESPA”) for failure to comply with Regulation Z, but it is severely limited. A consumer who files a civil action for a knowing violation under TILA section 108 is entitled to actual damages, including charges and interest that could have been avoided, claims for emotional distress, and attorneys’ fees. However, there is a one-year statute of limitations for such actions, which begins to run on the date the violation occurred. RESPA provides for additional statutory damages of $2,000.00 for violations, but only if a servicer displays a pattern or practice of noncompliance (12 U.S.C. §§ 2605(f)(1) & (f)(3)).  Despite the short statute of limitations and the narrow circumstances under which statutory damages are available, class action litigation is not off the table and has actually been initiated against certain entities.

            Final Thoughts

Despite relatively limited statutory liability, consumer attorneys are becoming more interested in identifying these violations as a way of interrupting foreclosures, which may increase costs, liability, and other types of exposure. Servicers need to understand the exemptions and modifications to the periodic statement requirements under Regulation Z and the potential liability for failing to comply, while recognizing that perfect compliance may impose an additional burden and create commensurate costs. Even servicers that implement exemplary procedures may experience errors on their periodic statements. But it remains prudent to make best efforts to comply, as independent, accidental errors presumably will not rise to the level of a ‘knowing’ violation or a pattern of noncompliance. In the current climate, every lending institution and mortgage servicer should examine its periodic statement practices for opportunities to minimize liability exposure.

Copyright @2023
Spring USFN Report - Read this article here on our digital magazine platform

Aldridge Pite, LLP (USFN Member – AK, AL, AZ, CA, FL, GA, HI, ID, NM, NV, NY, OR, TN, TX, UT, WA) celebrates the inclusion of Marissa G. Connors, General Counsel, and T. Matthew Mashburn, Partner, Commercial Finance, in the 2023 edition of "Georgia Super Lawyers" magazine for Real Estate Law.

Connors is a founding Partner of Aldridge Pite and advises the firm on corporate and legal matters, including managing complex business transactions and negotiating key contracts for the firm.

Mashburn specializes in commercial real estate law, creditors’ rights, foreclosure, banking law, and landlord tenant law. This is his 11th consecutive time being chosen for the Super Lawyer recognition.

@2023 USFN Spring Report

By John S. Kay, Esq.

Hutchens Law Firm*

USFN Member (NC, SC)

     On May 17, 2023, the South Carolina Supreme Court issued an Order rescinding the requirements and obligations established by the Court’s previous Administrative Order issued on May 22, 2009, and the revised Order issued by the Court on May 11, 2011.  This new Order affects all loss mitigation activities in foreclosure actions in the state.  

     In response to the foreclosure crisis at the time, the South Carolina Supreme Court issued an Order in 2009 to ensure compliance with the new Home Affordable Modification Program (HAMP) initiated by the U.S. Treasury. The Order developed procedures to establish uniformity in how loss mitigation activity would be handled in the foreclosure process throughout the state. The 2009 Order was amended in 2011 to include provisions and adjustments designed to ensure loss mitigation was occurring in foreclosure cases where required by law.

     Because the HAMP program has now ended, the S.C. Supreme Court has issued its new Loss Mitigation directive stating that the 2009 and 2011 Orders, and their procedures, are no longer necessary. However, the Court has also noted that the 2023 Order is not meant to indicate that lenders and their counsel do not have to comply with all federal regulations regarding loss mitigation.

     In the current Order, the Court made it clear that the Order does not prevent any judge from “…inquiring about the status of loss mitigation or requiring that counsel for a Mortgagor confirm or certify there are no loss mitigation efforts underway, that a Mortgagor has failed to qualify for a program, or a Mortgagor defaulted under a loss mitigation agreement prior to scheduling a final hearing, entering a final order of foreclosure, or conducting a sale.” We expect that some lower courts may establish various procedures or certification requirements regarding the completion or failure of loss mitigation activities in pending cases.      

     At this time, the Masters in Equity and Special Referees that hear foreclosure cases in South Carolina are working on their procedures eliminating the requirements established by the 2009 and 2011 Administrative Orders and establishing what, if any, certification that lender’s counsel will need to provide to the Court to comply with the Supreme Court’s language stated above.

      USFN members in South Carolina will follow these developments closely and will issue further statements once any new rules or procedures by local courts are established.

USFN Copyright @ 2023
USFNews - May 31, 2023

* Denotes firm is a 2022 USFN Award of Excellence recipient.

Mortgagee Letter 2023-03, which in part extends COVID-19 recovery loss mitigation options and expands the options to include additional eligible borrowers, goes into effect April 30, 2023. Ahead of this effective date, the Federal Housing Administration (FHA) has published the following FAQs:

• Trial payment plans
• Successors in interest
• Borrowers not in COVID forbearance

By Kristin Schuler-Hintz, Esq.

McCarthy Holthus, LLP*

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

               Foreclosure delays due to legislative changes after the 2008-2009 foreclosure crisis led to HOAs in Nevada foreclosing on their liens for unpaid assessments, revealing a split in the interpretation of Nevada HOA foreclosure statutes. Ultimately, the Nevada Supreme Court ruled that HOAs held a true super-priority lien capable of wiping out a first deed of trust despite the relatively small purchase price at many of these sales. Following that decision, further litigation ensued seeking to find ways to temper the original decision, which wiped out thousands of deeds of trust.

Following the flood of quiet title issues, the Federal Housing Finance Agency (FHFA) intervened and asserted federal preemption challenging the HOAs’ ability to extinguish a first priority deed of trust owned by Fannie Mae or Freddie Mac. 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 government-sponsored enterprises (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, the FHA and GSEs filed motions for summary judgment, which ended up before the Nevada Supreme Court asserting that section 4617(j) provides broad protection to the GSEs while under FHFA conservatorship, and that an HOA foreclosure could not extinguish the GSEs’ deeds of trust on the relevant property. Both the 9^th U.S. Circuit Court of Appeals and the Nevada Supreme Court ultimately agreed, holding that where the HOA foreclosed on property owned by Freddie/Fannie, the bar imposed by HERA was applicable and saved the deed of trust from extinguishment.

Failing to extinguish the deed of trust, the HOA purchasers sought out other grounds to retain the property free and clear. These “second gen” cases focus on obtaining injunctions (as most are filed on the eve of sale) to stop the sale of the property [KSJ1] and allege the deed of trust was wiped out by the ancient lien statutes rendering the deed of trust unenforceable, failure to provide statutory required information, or lack of possession of the original note. While the Nevada Supreme Court has issued a number of decisions on the ancient lien statute, preventing the issuance of an injunction has been more difficult.

Recently, however, at least one state court denied a request for injunction in a judicial foreclosure, holding that HERA, 12 U.S.C. § 4617(f)—bars the Court from staying execution of a judgment. 12 U.S.C. § 4617(f) provides that "no court may take any action to restrain or affect the exercise of powers or functions of [FHFA] as a conservator or receiver."  That statute "bars 'any' judicial interference with the 'exercise of powers or functions of [FHFA] as a conservator or a receiver."  Roberts v. Fed. Hous. Fin. Agency, 889 F.3d 397, 402 (7th Cir. 2018) (quoting 12 U.S.C. § 4617(f)) (emphasis in original).  "This shelter [from judicial interference] is sweeping [.]"  Id.  "The plain statutory text draws a sharp line in the sand against litigative interference—through judicial injunctions, declaratory judgments, or other equitable relief—with FHFA's statutorily permitted actions as conservator or receiver."  Perry Capital LLC v. Mnuchin, 864 F.3d 591, 606 (D.C. Cir. 2017).  Thus, "[a]t the same time [that] HERA broadly empowers [FHFA], it disempowers courts[.]" Roberts, 889 F.3d at 400.  A further request for stay on appeal followed in the Supreme Court and was denied.

While the Supreme Court did not provide the basis for denying the stay, the HERA provisions are another important tool to review and consider when formulating your litigation strategy.

By Lisa A. Lee, Esq.

KML Law Group, PC*

USFN Member (NJ, PA)

There is no doubt the pandemic had the effect of highlighting the benefits of face-to-face contact for all of us. Once the ability to be face-to-face with others is taken away, you realize just how important it is to building trust and lasting relationships.

The architects of the HUD default servicing requirements clearly believed in the importance of face-to-face contact long before anyone had ever heard of COVID-19. Servicers of HUD loans have long been subject to the provisions of 24 C.F.R.§203.604, which provide that a mortgagee “must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting before three full monthly installments due on the mortgage are unpaid.” There are several exemptions, including the circumstance where “[t]he mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either.”  Section 203.604 includes a description of what a “reasonable effort” to arrange such a meeting looks like. Specifically, mortgagees must send one letter to the mortgagor by certified mail and must make at least one trip to see the mortgagor at the mortgaged property, unless the property falls under the 200-mile exemption, or it is known that the mortgagor does not reside at the property.

Due to the public health emergency created by the COVID-19 pandemic, HUD instituted a temporary, partial waiver of the face-to-face contact requirements on March 13, 2020. The stated purpose of the waiver is to ensure the continuation of early default intervention, but with the pandemic constraints on face-to-face contact in mind. The initial waiver period was 12 months, and was extended twice, most recently on December 19, 2022, with a current expiration date of December 31, 2023.

The waiver requires that, in lieu of face-to-face contact, the mortgagee attempt contact with the borrower by alternate means (phone interviews, email, Skype, Zoom, Webex, etc.) in order to determine the borrower’s circumstances, to inform the borrower that credit reporting will continue, that they may qualify for a repayment plan or other assistance, and to provide the names and addresses of other HUD officials to whom communications can be addressed. The waiver is specific that all efforts at contact must be documented using the same protocols in place for face-to-face contact. It is worth noting that the waiver does not apply to mortgages insured under section 248 of the National Housing Act, which generally applies to mortgages on Indian reservation land.

The most recent version of the waiver expands on the reasons HUD considers the waiver necessary and advisable. Of course, the primary reason remains the continuing national emergency due to COVID-19, but also mentions the rising rates of Respiratory Syncytial Virus (RSV), increased rates of the seasonal flu, shortages of staff and resources at servicers and their vendors, and the success of alternate communication means during the pandemic. On this last point, HUD specifically stated that they had “seen the alternative methods of contact provided for in this, and prior, waivers be successful since initially implemented. Servicers have been able to reach defaulted borrowers using these methods as or more successfully than through using face-to-face interviews.” (Emphasis added).

So, what can the industry expect after the expiration of this temporary, partial waiver? It remains to be seen whether HUD will extend the waiver again, or potentially make it permanent, given the apparent success of the use of alternative communication methods. If HUD were to amend the requirement in favor of alternative communication methods, it would seem that the 200-mile exemption would no longer make sense and could also become a thing of the past. There will undoubtedly be more to come on this subject, and USFN will keep you up to date.

By Charles Ward, Esq.

Wilson and Associates, PLLC*

USFN Member (AR, MS, TN)

The Arkansas Court of Appeals recent opinion in First National Bank of Izard County v. Old Republic National Title Insurance Company, No. 33CV-18-69, 2022 Ark. App. 440 (2022), is a good lesson to lenders. The case concerned a mortgage lender’s claim that its mortgage, which was insured under a loan policy issued by Old Republic Title Insurance Company, was subordinate to a property interest not excepted to by the policy. In its decision, the Court of Appeals affirmed the trial court’s grant of summary judgment in favor of Old Republic and dismissed the lender’s complaint by applying the policy exclusion for title defects “created, suffered, assumed, or agreed to” by the lender.

The background circumstances of the case begin with one business partner buying out another partner. Both partners were represented by counsel and various agreements and documents were drawn-up to effectuate the buyout. Part of the transaction involved a transfer of real estate from the departing partner to the remaining partner, with the bank financing the remaining partner’s buyout with a mortgage on the property.

The bank’s CEO had “received and been copied on most, if not all, correspondence prior to the closing.” The terms and documentation of the transaction were also shared with the bank before closing. But, according to the court, the bank’s CEO “made a conscious decision not to read” the documents. One of the documents, a memorandum, provided for a reversionary interest that would be created in favor of the departing partner.

The court described the negotiations of the terms of the buyout as “prolonged and protracted.” Because of “animus” between the parties, the bank agreed to close the transaction itself at its office. The bank’s CEO handled the closing, and the parties executed the various agreements, notes, mortgages, and memoranda in his presence. The memorandum containing the reversionary interest was one of these documents. A bank employee was also present at the closing and notarized the documents. That same employee also handled the recording of the documents. When the documents were sent to the county clerk’s office for recording, a note was included instructing the recording office to record them in a certain order. When the recorded documents were returned to the bank, they were not reviewed to confirm they had been recorded in the right order. As it turned out, the documents were not recorded in the right order. The memorandum creating the reversionary interest was recorded before the bank’s mortgage, thereby creating an interest superior to the mortgage. After the documents were recorded, a local title agent for Old Republic issued the policy insuring the bank’s mortgage and first lien priority. Inexplicably, the policy did not take exception to the memorandum being recorded before the mortgage.

 Subsequently, the loan went into default, and the bank filed a foreclosure action. The holder of the reversionary interest asserted priority over the mortgage. The bank filed a claim against Old Republic and requested a defense against the reversioner’s claim. Old Republic denied the claim and refused to provide a defense. The bank proceeded with the foreclosure and settled with the reversioner. In the settlement, the bank conceded the priority of the reversionary interest over the insured mortgage. The bank also released the property from the mortgage. Then the bank sued Old Republic under its title policy. The parties filed competing motions for summary judgment. Old Republic argued that Exclusion 3(a) of the policy excepted the bank’s claim from coverage because the bank “created, suffered, assumed, or agreed to” the title defect. The trial court agreed and granted Old Republic’s motion.

In its opinion issued Nov. 2, 2022, the Court of Appeals relied on Bourland v. Title Ins. Co. of Minn., 4 Ark. App. 68, 627 S.W.2d 567 (1982), which had interpreted the “created, suffered, assumed, or agreed to” language of Exclusion 3(a) to apply to an insured that permits or has the power to prohibit the act giving rise to the title defect. The court rejected the bank’s argument that the exclusion requires that the insured have a “willful intent.” Instead, the court focused on the fact that the bank submitted the documents for recording and had the opportunity to review the recorded documents for errors, but did not do so. The court also noted the bank could have inquired into the terms of the memorandum that created the superior interest, but did not do so. The bank “could have prohibited and prevented the claim from arising” and “had within it the power to prohibit the memorandum from having priority over its mortgages,” but it did not protect itself. Consequently, the Court of Appeals held the bank’s claim was properly denied by Old Republic.

Although the court based its ruling on the bank’s failure to protect itself by recording the documents in the correct order, its opinion paints a broader picture of a lender that may have had a too casual attitude about the transaction. The lender had been in receipt of the transaction documents, including the one that created the superior interest, before closing, but purposely chose not to read them. The lender closed the loan itself instead of the local title agent and assumed the responsibility of recording the documents, but did not confirm they were recorded correctly.

The Court of Appeals briefly addressed the bank’s argument regarding “knowledge.” It rejected the argument about knowledge - who had it and when did they have it - as irrelevant. The court held that “knowledge, either actual or constructive, is immaterial” to Exclusion 3(a).

This case holds a useful reminder for lenders. Choosing to close a loan in-house instead of at the local title company may impose duties and risks on a lender that it is not aware of. Its actions as closer may adversely affect its rights as lender against other parties, in this case its title insurer.

Copyright @2022

USFNews - March 8

*Denotes firm is a 2022 Award of Excellence recipient

On February 14, 2023, New York’s highest court issued its long-awaited decision in Bank of America, N.A. v. Kessler. (Click here for a copy of the decision.) A lower appellate court had previously decided that statutorily required pre-foreclosure notices (“90-day Notices”) were invalid if they included additional information, such as FDCPA and SCRA warnings, or bankruptcy disclaimers, because 90-day Notices are required to be sent in a “separate envelope” from all other notices. In this great win for the industry, the Court held that “accurate statements that further the underlying statutory purpose of providing information to borrowers that is or may become relevant to avoiding foreclosure do not constitute an ‘other notice’ [under RPAPL 1304(2)]” and therefore do not violate the “separate envelope” rule. The decision saves many pending foreclosures from dismissal, and potentially allows others that were previously dismissed to be restored. Stay tuned for a more thorough article to be published in the USFNews next week that will discuss the import of the Kessler decision and its intersection with the Foreclosure Abuse Prevention Act enacted December 30, 2022.

USFN is extremely proud to have participated in the Kessler case as an amicus and is gratified to see arguments it advanced be accepted by the Court. USFN member McCalla Raymer Leibert Pierce, LLC (Rich Haber and Brian Scibetta) was counsel of record for USFN in connection with its amicus motion and brief filings, and the following USFN members also contributed to planning, drafting and editing: Frenkel Lambert Weiss Weisman & Gordon, LLP (Keith Abramson); Aldridge Pite, LLP (Susan West and Christopher Medina); Schiller, Knapp, Lefkowitz & Hertzel, LLP (Gary Lefkowitz); Berkman, Henoch, Peterson & Peddy, P.C. (Megan McNamara and Hillary Prada); and Bendett & McHugh, P.C. (Rob Wichowski, former USFN Amicus Brief Task Force Chair). Thank you to all participating firms for lending your time and expertise to this important issue!

If there is a matter now or in the future that you think might benefit from amicus support by USFN, please reach out to Rich Haber, current USFN Amicus Brief Task Force Chair (rich.haber@mccalla.com).

Steps, Takeaways to Help Plan for the Unknown

by Brian Vaughn

McCalla RaymerLeibert Pierce, LLC*

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

One thing the pandemic brought to light for me, and my husband, was the unknown of the future. I don’t mean reading the tea leaves or anything like that. As the only two in both of our families who could work remotely, we became the primary caregivers for our mothers, literally overnight. Both our mothers have underlying health issues, requiring us to be very cautious. This led to a bigger question, what do we do to prepare for our own future? With no kids of our own, who will be there to take care of us in our Golden Years?

This sparked a series of conversations with friends in similar circumstances, specifically those in the LGBTQ+ community, and the topic took on a life of its own. We have friends that are single with no family left, friends that have young children with special needs, and some friends who haven’t even stopped to evaluate their current situation. Either way, these discussions led to some detailed research, and hopefully, our findings can help others facing comparable challenges.

So, you have no kids to put you in the nursing home? This covers a lot of my friends, not just those in the LGBTQ+ arena, but many that simply chose not to have children. My gay friends came up with the idea of investing in a LGBTQ+ nursing home, think “Golden Girls” merged with a cruise ship feel. Sounds fun, but probably not practical. For us personally, we made the decision not to have kids because of the cost of surrogacy, and we felt our work travel schedules at the time were not conducive to raising a kid. The truth is that many barriers stood in our way. The legal and political landscape of the time didn’t support same-sex marriage, same-sex adoption, or foster care. Cost for surrogacy, adoption, and IVF treatments are outrageous for anyone, not just those in the LGBTQ+ community. Like many, both gay or straight, we made the decision at the time that was right for us.

So, here are some thoughts. First, save, save, save. If you don’t have a 401K, get one. If you can qualify for an IRA or Roth IRA, do it. If you are about to turn 50, like me, make sure you take advantage of the catch-up option in your 401K. If your company offers a Health Saving Account, use it. If you are one of the millions of Americans who live paycheck to paycheck, or are in a heap of credit card debt, work with a financial advisor or community organization to create a budget. The rule is always to pay yourself first.  Working in the financial services market, it is important to focus on the financial stability of our futures. There are many resources provided by banks, financial institutions, and community organizations, and many are even free. Software for personal finance and budgeting, such as NerdWallet, Quicken, Mint, GnuCash, AceMoney Lite, Personal Capital, and Buddi, are just a few options to consider as well.

Second, investigate long-term care insurance. This option can be costly, depending on when you start the process, and costs can vary depending on possible health screening. Ask your HR group if your company benefits include access to any insurance brokers. Many providers offer some form of cash benefit to be paid out to a beneficiary upon death, or even a cash out option, but the cash out options can have a hefty penalty. These policies help cover costs for assisted living and health benefits that are usually very high as you age. Currently, assisted living or memory care in the Dallas-Fort Worth area, for example, can run between $4,000 – $6,000/month. Some retirement communities offer a buy-in based on your financial situation, like buying a home to get into the community; but many are arranged to accommodate you as your health care needs change, starting with independent living, then assisted, nursing, and hospice care.

If you are one of the 20.9 million families with members who have disabilities or special needs, you are aware of the challenges ahead - like costs to prepare for the future if something were to happen to you. It is always key to talk to family about the unknown. Work with an attorney to prepare a will or trust and make each member of the family aware of your wishes. For those in a relationship but not married, you should ensure you have forms for domestic partnership, HIPPAA, hospital visitations, and beneficiary choices. Again, focus on financial security. Talk to other family members about their roles in care giving for your loved ones. Be prepared by looking for appropriate facilities near the family, even if it is only to gather information about costs and services offered.

Most importantly, and this goes for any situation, have a path forward. There is less burden on your family when they know your wishes, where to find your documentation, and have a map to follow. If you don’t have a will on the back of a bar napkin or tattooed on your arm, please prepare one. Many of the firms in our space have access to someone who can help if you prefer to have a live attorney guide you. It can cost anywhere from $100-$1,000 for the basics. This could also become a new benefit that your company offers its employees. If cost is a concern, using free sites, which is always an option and will guide you through the process.

I must leave you with a funny story. We were on a cruise, and the captain told us about a woman who lived on the ships, having traveled with the cruise line for years. The woman would sail from one port to another, and then switch ships for the next cruise. When questioned, she told the captain, “Why would I not? I have the best views each day, the best selection and variety of foods, a 24-hour doctor and health care, and I get to meet new people every day. It is also cheaper than my past house payments.”  Needless to say, this woman is my hero!!

So, what is your takeaway from this rant? Be prepared. Save, save, save. Talk to your person or persons.  None of us know what the future holds or how much time we have. Do not wait, start today.

Copyright @2023

USFN e-Update - February 2023

By Regina M.Slowey, Esq.

Orlans PC*

USFN Member (DC, DE, FL, MD, MA, MI, NH, PA, RI, VA)

            The District of Columbia has instituted significant changes to its eviction process.  Introduced first in the Fairness in Renting Congressional Review Emergency Amendment Act of 2022, the emergency legislation was originally temporary and then adopted in the permanent statute (see links below for full text of Emergency, Temporary, and Permanent versions). 

            For former owner occupied property, the changes are minimal. The most significant change involves service by posting, which affects all properties regardless of occupancy status.  If a notice is served by posting a copy on the premises, a photograph of the posted notice must be submitted to the court, and the photograph must include a readable timestamp that indicates the date and time of when the summons was posted. Failure to provide the court with this evidence will result in dismissal of the action. D.C. Code § 42–3505.01(a)(2) and (a)(4)(C). Though it is always best practice to have timestamped (and geo-tagged) photographs of posted service, this legislation not only requires it, but provides for dismissal (“The Court shall dismiss…” D.C. Code § 42–3505.01(a)(4)(C), emphasis added) if not filed with the entry package. 

            The most significant changes, however, affect tenant occupied property. For the time being, there are very specific requirements necessary to proceed in a nonpayment of rent claim against a tenant. These requirements are detailed in a court supplied Checklist (see link below) that must be filed with the entry package and reviewed by the presiding judge prior to the first hearing. Currently, a nonpayment of rent claim may only be filed against tenants who owe more than $600 in rent, and on properties which have been registered with the District. However, in order to register the property or to obtain a writ for a tenant owned property, the plaintiff must hold a Basic Business License issued by the newly created Department of Licensing and Consumer Protection. As a threshold matter, to obtain the Basic Business License, the plaintiff must certify it does not owe more than $100 to the District. This is a very difficult certification for foreclosing lenders, as fines and assessments pop up daily and without notice, and has proven to be a non-starter in most situations. Work with your foreclosure counsel to determine options, as some options to liquidate the asset do exist. Though some of the provisions of the Emergency/Temporary legislation will sunset naturally in July (for example, the $600 minimum rent requirement), the Business License Requirement to obtain the Writ is in the permanent legislation.

            There are exceptions to the Business License Requirement, and those are listed on the Writ Verification Form (see below for link), submitted with the request for Writ. The exceptions aside from a non bona fide tenant are for commercial tenancy, a terminated cooperative member, and a foreclosed homeowner. It may be possible in some circumstances (such as illegal activity as the basis of default) to request an “Other” exception from the court at the Writ stage as well. 

·       For the Checklist required for proceeding with Non-payment of Rent actions:  Checklist-Supplement-for-NPR-Cases.pdf (dccourts.gov)

·       For the Writ Verification included in the permanent legislation, required to be filed in order to proceed with a Writ in any eviction (commercial, former owner, non-bona fide occupant, or tenant):  Writ Verification

·       For the text of the D.C. Act 24-307. Fairness in Renting Congressional Review Emergency Amendment Act of 2022 (expired April 2022, but has the easiest to follow changes to the process):  Here

·       For the text of D.C. Code § 42–3505.01. Evictions (expires on July 26, 2023):  Here

·       For the text of this Permanent legislation:  Here

Copyright @2023

USFN e-Update - February 2023

USFN Associate Member and Visionary Circle Sponsor Shea Barclay Group has recently expanded and rebranded to become SGP Advisors (Shea Guercio Partners). Originally founded in 1995 by Vern Barclay, the company provided professional liability insurance to lawyers in Florida. Now the firm has grown to include additional lines of coverage and clients in all 50 states, offering a full line of business products catered specifically to the professional services industry, which includes law firms, medical groups, and architect/engineering practices. SGP has also expanded its footprint with additional offices in Clearwater and Orlando, Florida, and its most recent location in Dallas, TX. Connect with SGP Advisors via LinkedIn or learn more at https://sgpadv.com/.

USFN e-Update - February 2023

BY PATRICK HRUBY, ESQ.

BROCK & SCOTT, PLLC^∗

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

               Recently, the 11^th Circuit Court of Appeals heard an appeal from a bankruptcy court that required the 11^th Circuit to determine, in the context of a confirmed plan that addressed a claim secured by the debtor’s primary residence, whether antimodification or finality controls. In Mortgage Corporation of the South v. Bozeman (In re Bozeman), 57 F.4^th 895 (11th Cir. 2023), the 11^th Circuit appeared to depart from existing U.S. Supreme Court precedent, explained below, by holding that “when the two clash in the scenario this case presents… [w]e declare the antimodification provision the winner.”

               The secured creditor in this case held a mortgage secured by debtor’s principal residence, which as of the petition date had a principal balance of approximately $17,000 and approximately $6,800 in arrears. The creditor filed a proof of claim that only included the arrears but failed to account for the total amount outstanding on the loan. Debtor’s plan proposed to pay 58 payments of $454.00 per month, which would pay the creditor $26,332.00 over the life of the plan. However, debtor’s plan indicated that it was a full-payment plan, instead of a cure-and-maintain plan, which would cause creditor’s claim to be satisfied once the debtor made all the payments under the plan.

               The creditor did not object to the plan. It also failed to amend its claim to match the plan treatment. Ultimately, the bankruptcy court confirmed debtor’s plan as filed. After 16 months, the trustee filed a Notice of Final Cure Payment, which stated that because the debtor paid $6,817.42 (the proof of claim amount) to the trustee under the plan, she had no remaining payments due under the full-payment plan. The creditor objected based on debtor’s failure to make any payments on the remaining balance due under the loan in the amount of approximately $15,000.00, but instead only cured the arrears listed in the claim.

               Subsequently, the debtor filed a motion to release creditor’s lien on the property, arguing that by paying the claim in full she satisfied the lien. The creditor objected and advanced several arguments against the debtor’s attempt to have its lien satisfied. Most notably, it argued that the plan was unlawful upon filing, as the debtor impermissibly modified its claim on the debtor’s principal residence in violation of 11 U.S.C. § 1332(b)(2), also known as the antimodification provision.

               The debtor responded raising several arguments including that the creditor was barred from challenging the confirmation, even if improper, based on United Student Aid Funds, Inc. v. Espinosa, 130 S.Ct. 1367 (2010). In Espinosa, the debtor sought to modify his student loan through his plan instead of filing an adversary proceeding, as required, and proving “undue hardship.” The debtor’s plan was ultimately confirmed without objection, and upon plan completion, the court discharged the accrued interest on the debtor’s student loan. Years later, the student loan creditor sought to set aside the order confirming the plan as void, pursuant to Fed. R. Civ. P. 60(b)(4). The Supreme Court held that the confirmation order was not void simply because it was erroneous, and that R. 60(b)(4) was not a substitute for a timely appeal. Generally, Espinosa has since been broadly cited for the proposition that a confirmed plan is res judicata and cannot be collaterally attacked once the order is final.

               In Bozeman, the trial bankruptcy court granted the debtor’s motion to deem creditor’s lien satisfied. Creditor appealed that ruling to the district court, which affirmed the bankruptcy court's decision. Creditor then proceeded to appeal to the 11^th Circuit, which reversed and remanded for the following reasons.

               The 11^th Circuit explained that the antimodification provision in § 1322(b)(2) states that a debtor may not modify the rights of a claim secured only by a security interest in the debtor’s primary residence, subject to certain exceptions – none of which applied in this case. The court clarified that the Bankruptcy Code does not define “rights,” but under Alabama law (the controlling state law in this matter) the lien could not be satisfied until all outstanding indebtedness was paid, or no other obligations were outstanding under the mortgage.

               As such, the 11th Circuit, relying in large part on its own precedent established in Universal Am. Mortgage Co. v. Bateman (In re Bateman), 331 F.3d 821 (11th Cir. 2003), found it was required to declare that it was an impermissible modification of the homestead mortgage to find that the lien was satisfied without the creditor receiving payment in full on its loan. The bankruptcy court’s order satisfying the lien did just that; it impermissibly modified the homestead mortgage and gave no effect to the antimodification provision. The court further explained the additional precedent states that “a lien on a mortgage survives the … res judicata effect of a confirmed plan.” The fact that the debtor listed the claim in her plan as a “full-payment” treatment did not change that.

               Next, the court turned to what may be the biggest question, whether Espinosa abrogated the 11th Circuit’s prior precedent in Bateman. As noted above, Espinosa would likely require that the plan give res judicata effect, and the bankruptcy court’s order satisfying creditor’s lien would not be able to be challenged, as it was based on debtor’s compliance with her confirmed plan.

               The court stated that “Espinosa has no bearing on the release of a lien after a confirmed plan erroneously modifies a homestead-mortgagee’s rights.” As such, it listed five reasons why Espinosa did not abrogate Bateman. First, the 11th Circuit stated that the Supreme Court expressly limited Espinosa’s “holding to collateral challenges to confirmed Chapter 13 plans under … [Rule] 60(b)(4),” a procedure different than Bateman and the present case. That procedural difference was the court’s second reason.

               Third, the 11th Circuit explained that a “fair reading” of Espinosa demonstrated that the Supreme Court was focused on a “void” judgment under Rule 60(b)(4); and that even though the bankruptcy court’s confirmation in that case was erroneous, it was not “void.” Next, the court found that under Bateman, even though the debtor’s treatment in the confirmed plan violated the antimodification provision, there was still res judicata effect under § 1327, and the creditor there was bound by the confirmed plan. However, the 11^th Circuit distinguished Espinosa as only adjudicating the scope of 60(b)(4).  Based on that, the court noted that Espinosa and Bateman were “at peace with each other.”

               Finally, the court explained that it subsequently reaffirmed the holding in Bateman, regarding enforcing the antimodification provision even if a plan were erroneously confirmed, in Dukes v. Suncoast Credit Union (In re Dukes), 909 F.3d 1306 (11th Cir. 2018). Because Dukes was decided after Espinosa, the court explained that it was bound by Dukes due to the prior-precedent rule.

               Finding that there was no res judicata effect on the confirmation order’s full-payment treatment, the court examined the relationship of the antimodification provision and the confirmed plan. Acknowledging the importance of finality and the preclusive effect of a confirmed plan under § 1327, the court stated that even though the debtor’s plan should not have been confirmed, it was, and therefore is valid and enforceable. It explained that the creditor took no action relating to confirmation but, the court explained, that inaction does not change the fact that secured liens on real property that fall under the antimodification provision survive bankruptcy. Accordingly, while the debtor received a discharge and was no longer personally liable, the creditor maintained its in rem rights under state law relating to the property.  As the court explained, “[w]hile the finality provision confirms that it is too late to alter the Plan, it’s not too late for MCS to invoke the Code’s special protection for homestead mortgagees.”

               Bozeman may not be binding law in other Circuits, but for secured creditors with loans in the 11th Circuit, it provides an extra layer of protection for many mortgage loans. Of course, a key takeaway here is that even with the apparent safety net that the antimodification provision provides, acting timely, including properly reviewing plans and filing correct proofs of claim is important. The creditor here was forced to file two costly appeals to fix something that it could have likely prevented.

Copyright @2023 

USFNews - Feb. 8

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