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The Vermont Supreme Court, in Ditech v. Bisson (2025
VT 54), recently overturned a trial court’s dismissal with prejudice holding
that the trial court abused its discretion. This matter stemmed from a
foreclosure that began in 2015. In 2018, the plaintiff obtained judgment after
a full evidentiary trial against an active defendant. The defendant appealed
the entry of judgment of foreclosure.
In Vermont, a party must seek permission to appeal before
the appeal will be accepted. In this case, the defendant’s permission to
appeal was denied. The defendant then filed for bankruptcy, which, along with
the COVID-19 stays, stayed the case for quite some time. In 2023, the plaintiff
filed a motion to substitute the current plaintiff, which was granted. The
defendant then filed multiple motions to dismiss, which were all denied. In
2024, the defendant filed a motion to vacate the order substituting the new
plaintiff, which, against objection, was granted by the court. The
substance of the motion was that there was no apparent authority for the
mortgage loan servicer to act in the name of the plaintiff due to Ditech’s
bankruptcy.
The trial court held that although there was a power of
attorney executed before judgment was entered, the power of attorney did not
state who the real party in interest was in 2024, even though judgment was entered
in 2018. Despite evidence submitted at the hearing to the contrary, the
trial court held that the plaintiff failed to prove that it or the prior
servicer exited the prior plaintiff’s bankruptcy with continued control over
the judgment or loan.
The court rejected the plaintiff’s argument that Vermont
Rule of Civil Procedure 25e permitted the action to continue with the original
party because the original party no longer existed and dismissed the action
with prejudice. Plaintiff sought permission to appeal, which was granted.
The Vermont Supreme Court, which is the only level of
appellate jurisdiction in Vermont, held that the trial court abused its
discretion in dismissing the case. In its opinion, the Court held that the
dismissal in this case was similar to a sanction against the plaintiff and was
not in fact a jurisdictional adjudication, which is the sole purpose of a
motion to dismiss. Since the trial court made no findings that the plaintiff
failed to pursue the case, caused delay, or demonstrated noncompliance with the
court’s orders, nor did the plaintiff fail to attend any hearing or respond to
any request from the court, the trial court abused its discretion in dismissing
the case. The dismissal was reversed by the Vermont Supreme Court and the
judgment was reinstated.
Typically, appellate courts give wide latitude to trial
courts’ discretion, but this case shows clearly that foreclosing plaintiffs
should not shy away from appealing trial court decisions when those courts fail
to follow the law or accepted principles of jurisprudence. This case also shows
the importance of creating an adequate record for appeal.
The Appellate Court of Maryland delivered a consequential interpretation of the Credit Grantor Closed End Credit Provisions ("CLEC") in Lakeview Loan Servicing LLC & Nationstar Mortgage LLC v. Tonda M. Baxter, No. 691, September Term 2024 (filed Nov. 25, 2025). The Court held that mortgage loan servicers who acquire servicing rights under a CLEC-governed loan qualify as "credit grantors" and are subject to CLEC’s fee restrictions throughout the life of the loan. The court further held that CLEC prohibits unauthorized "convenience fees" assessed post-origination, even on firstlien residential mortgage loans.
The case arose from Nationstar’s practice of charging borrowers optional phone-payment convenience fees of $14 for automated payments and $19 for live-agent payments after it became sub-servicer on Ms. Baxter’s mortgage loan. Although the loan was originated by a different lender, expressly elected CLEC, and was secured by a first lien on residential property, Ms. Baxter alleged that the fees violated CLEC’s strict limitations on permissible charges. The circuit court agreed, and the appellate court affirmed.
The servicers’ principal argument was jurisdictional in nature: They contended that CLEC regulates only originating lenders or assignees of the note itself, not entities that merely service loans. The court rejected that distinction. Focusing on CLEC’s statutory definition of "credit grantor," which includes "any person who acquires or obtains the assignment of an agreement for an extension of credit," the court held that an assignment of servicing rights is sufficient to bring a servicer within CLEC’s scope. The opinion emphasized that Lakeview and Nationstar held, and exercised, core rights under the debt instrument: collecting payments, assessing late charges, applying payments, managing escrow, and communicating directly with the borrower — and with those rights come corresponding statutory obligations.
The court’s reasoning was grounded in statutory text, legislative history, and practical consequences. It found that CLEC’s remedial structure, including severe forfeiture penalties and limited cure provisions, would be incoherent if entities empowered to charge and collect fees could evade regulation simply because they did not originate the loan or hold recorded title to the note. The General Assembly’s 1990 expansion of the "credit grantor" definition was intended to cover "any subsequent holder of the debt instrument," a phrase the court interpreted broadly to include those who hold enforceable rights under the loan, whether as owners, assignees, or agents.
Equally significant is the court’s holding on fee timing. Lakeview and Nationstar argued that CLEC regulates only origination-stage fees and does not reach post-origination servicing charges that a borrower voluntarily elects to incur. The court flatly rejected that position. The Court found that CLEC regulates the ongoing credit relationship, not a single moment in time, and strictly defines the universe of fees a credit grantor may impose, and that "convenience fees" for payment methods are not among them. Absent express statutory authorization or clear permission in the loan documents consistent with CLEC, such fees are impermissible, regardless of when they are assessed.
The court also addressed the common industry assumption that first-lien residential mortgage loans are largely exempt from CLEC fee restrictions. While CLEC does exempt such loans from certain origination-fee caps, that exemption does not extend to service fees and consumer-borrower protections under § 12-1005(b) and (d). Those provisions continue to apply and sharply limit the types of reimbursable expenses a servicer may charge.
For mortgage loan servicers, the implications are substantial. The decision confirms that CLEC compliance is not limited to loan origination or note ownership. Servicers operating in Maryland must assume that they stand in the shoes of the original credit grantor for CLEC purposes and that unauthorized fees — even small, optional, or widely used convenience charges — can trigger draconian remedies, including forfeiture of all interest and charges. Compliance programs, fee matrices, and vendor arrangements should be reassessed accordingly. The court’s message is clear: In Maryland, CLEC follows the loan and includes the servicer.
As one of only two U.S. cities to host a pair of its own MLB
teams, Chicago, IL, is accustomed to midsummer grand slams. In July 2023, the
USFN Compliance and Legal Issues Seminar hit another, with a speaker lineup led
by three big league keynote speakers.
First on deck was Mark McArdle, Assistant Director of Mortgage
Markets for the Consumer Financial Protection Bureau, who was introduced by
Richard Nielson of Reimer Law Co.
McArdle has been with the CFPB since 2017, serving under
five directors and acting directors. Prior to his tenure with the CFPB, he
served as the Deputy Assistant Secretary for Financial Stability at the U.S.
Department of the Treasury. In that role, McArdle led the office that managed
the Troubled Asset Relief Program (TARP). He played a key role in the
development of the HAMP Program and oversaw the creation of the Hardest Hit
Fund, which provided funding to state housing finance agencies for foreclosure
prevention efforts.
McArdle discussed the current regulatory environment and its
impacts on homeowner assistance.For
context, he recalled the record and document-driven process which governed
HAMP, where the rules were designed around the paperwork. He then confirmed
that the current goal of the CFPB is to streamline the rules so the paperwork
necessary for loss mitigation is designed around the rules.
McArdle confirmed that the CFPB is working in conjunction
with other agencies, particularly through the Financial Stability Oversight
Council to increase liquidity for non-bank mortgage originators. He noted that
six of the 10 largest mortgage originators are non-banks, and account for 60%
of mortgage originations. However, those entities have no access to emergency
liquidity funds. If those entities suddenly exit the market, who will originate
those mortgage loans?
Finally, McArdle encouraged maintaining open lines of
communication with the CFPB, specifically encouraging the use of the Regulatory
Inquiries Line for questions. He mentioned that the CFPB’s current enforcement
actions are a good measure of its priorities. Currently, eliminating junk fees
is high on that list. When asked what constitutes a “junk fee,” McArdle
stressed that the CFPB recognizes good faith and referred to the CFPB’s Request
for Information on the subject. He gave a very straightforward practical
response, “Is there a cost to the service provider that roughly relates to the
fee? Or, is it a $100 fee for an event which costs the lender/provider nothing?”
The second keynote speaker was William Collins, the Director
of the Department of Housing and Urban Development’s National Servicing Center,
in Oklahoma City, OK. Collins was presented, townhall interview style, by
Jeffrey Weisserman of Trott Law, P.C. Asked about the recovery since COVID-19,
“how has it gone?” Collins had a positive outlook. He stressed that redefault
rates remain low and that current default rates are at pre-COVID levels. The
most telling figures was that FHA had approximately 950,000 loans in
forbearance in the second quarter of 2022, versus only 150,000 in July
2023.
In a moment that would have been the bright spot at any USFN
seminar, Collins foretold of an anticipated proposed Rule which will modify how
interest debenture curtailments are assessed. Collins could have been
channeling any of the USFN member firms when he described the disconnect
between the actual harm caused by missing a first legal action deadline by one
day, and the penalty as currently assessed. Weisserman said, “I was sure that
would get an applause from this group.” Having received permission, applause
did ensue.
Of course, no conversation regarding FHA loans would be
complete without some discussion of the “face-to-face” requirement for loss
mitigation solicitations. Collins confirmed the trend toward allowing servicers
to leverage technologies to accomplish the same goals of the face-to-face
meeting.
Collins also fielded a question regarding the
“marketability” versus “insurability” standards for title to real property
acquired by the Department of Housing and Urban Development. It did not
surprise those in attendance to learn that there were no changes on the horizon
on that issue.
Finally, Collins confirmed that HUD is making efforts to
allow cash-for-keys to be offered to borrowers prior to a foreclosure sale. The
hope is to increase the volume of foreclosure sales that are acquired by
investors and to increase the utility of the claims without conveyance of title
and second chance auction programs.
The final keynote presentation was delivered by Manuel
(“Manny”) Newberger of Barron & Newburger, P.C.Newburger is recognized nationally for his
expertise in consumer and commercial law, consulting on FDCPA, FCRA, and TCPA
compliance.
Newburger discussed the upcoming U.S. Supreme Court argument
in Consumer Financial Protections Bureau v. Community Financial Services Association
of America, which is scheduled for oral arguments in October 2023. In an
almost prophetic statement quoting from the Art of War, Newburger said that
“Strategy without tactics is the slowest route to victory. Tactics without
strategy is the noise before defeat.” Newburger included necessary critiques of
the CFPB, though warning that “you don’t want the CFPB to go away.”
This final keynote presentation then hinged on three
proposed Rules. First was the CFPB’s proposed Registry to Detect Repeat
Offenders. This Rule, which was proposed without a SBREFA hearing, would
require certain nonbank financial firms to register with the CFPB when they
become subject to certain local, state, or federal consumer financial
protection agency or court orders. This Rule would require an entity to
designate a responsible executive to be the highest-ranking person responsible
for overseeing your compliance with the Rule or Order. That executive would
then be required to file an attestation each year confirming compliance. Newburger
predicts that this Rule would significantly decrease an entity’s willingness to
enter into an Agreed Order.
The second proposed Rule was the CFPBs proposed Rule to
require nonbanks that are subject to CFPB supervision, and which use form
contracts to impose terms and conditions that limit or purport to limit
consumer rights and legal protections to register with the CFPB. Newburger
considers this an end run around the CFPB’s failed rule to prevent financial
companies from using arbitration clauses. The prior Arbitration Agreements Rule
was upended on November 1, 2017, by a joint resolution passed by Congress and
signed by then President Donald Trump.
The third proposed Rule was announced in January 2023, the
day after three Consent Orders were entered involving non-compete agreements
which the CFPB asserted were excessively broad and abusive. Newburger
interprets the CFPB’s messaging on this front to be, “this is the CFPB’s
litigation strategy, whether or not the Rule is enacted.”
Newburger summed up his experience with the CFPB to remind
those in attendance that forms, processes and templates have proliferated to
comply with the Rules created by the CFPB. For example, without Regulation F,
the model validation notice (which has been adopted industrywide) would likely
run afoul of the straightforward text of the FDCPA. He has had generally fair
and positive experiences with those who work for the CFPB and implores his
audience to abide by “Manny’s Rules”:
External optics must match internal legal
positions; and
If you don’t want the government to think you
are criminals, don’t act like criminals.
These keynote presentations along with evening networking at
the House of Blues, a morning walk-run through downtown Chicago led by Doug
Oliver of McCalla Raymer Leibert Pierce, LLC, and a host of presentations by
USFN members and servicers alike, knocked the ball out of the park for a grand
slam in the summer of 2023.
On June 14, 2023, the U.S. Court of Appeals for the 4th
Circuit confirmed that a Chapter 13 debtor who earns more than the median
income may use their actual mortgage payments when calculating disposable
income available to pay unsecured creditors. The opinion in Bledsoe v. Cook,
70 F.4th 746 (2023) aligns the 4th Circuit with the 6th
and 9th Circuits on this issue.
In 2021, Mr. and Mrs. Cook filed a Chapter 13 Petition in
the U.S. Bankruptcy Court for the Eastern District of North Carolina. In
calculating their disposable income to be paid in their court-approved plan, they
deducted their actual monthly mortgage payment. The trustee objected, arguing
that the National and Local Standards issued by the IRS caps the amount a
debtor may deduct for secured mortgage payments. The Bankruptcy Court overruled
the trustee’s objection and, on the request of the trustee, certified an appeal
directly to the 4th Circuit Court of Appeals under 28 U.S.C. §
158(d)(2)(A).
The 4th Circuit took a “plain language” approach
in affirming the Bankruptcy Court. The Court noted that 11 U.S.C. §
707(b)(2)(A)(iii) allows a debtor to deduct amounts “contractually due to
secured creditors” or “any additional payments to secured creditors necessary
for the debtor . . . to maintain possession of the debtor’s primary residence.”
The Court reasoned that if petitioners were not permitted to deduct their
entire mortgage payment, they may be unable to afford to maintain their primary
residence in direct conflict with the plain language of the Bankruptcy Code. They
rejected the trustee’s argument that actual mortgage payments may only be
deducted upon proof that the amount above the relevant Local Standards is
“reasonable.”The Court disagreed noting
the legislative intent of the Bankruptcy Abuse Prevention and Consumer
Protection Act (BAPCPA) was to curtail bankruptcy court discretion and declined
to restore the discretion Congress sought to remove.
While the holding in this case is fairly simple and its arguments
are straightforward, it will have fairly significant effects on bankruptcy
courts in the Fourth Circuit. Since the inception of BAPCPA in 2005, bankruptcy
courts have split on the proper treatment of mortgage payments in calculating
disposable income under Chapter 13. This ruling will allow debtors with
mortgage payments that exceed the allowances in the Local Standards to create a
more reasonable budget, resulting in an increased likelihood of plan
completion. Mortgage servicers incur significant
costs with repeat filers who fall in and out of bankruptcy as they try to forge
a feasible plan. Hopefully, this opinion will result in fewer repeat filers as
more Chapter 13 Plans are satisfied and seen to their intended conclusions.
On January 12, 2023, the Michigan Court of
Appeals issued a published opinion in the case of Kessler v. Longview Agricultural Asset Management, LLC, No. 360375,
concerning the recording of a sheriff’s deed outside of the statutory 20-day
period listed in MCL 600.3232. The court ruled that the redemption period after a mortgage
foreclosure by advertisement runs from the date of the sheriff’s sale, regardless of when the sheriff’s deed is recorded.This is true even if the sheriff’s deed is
not recorded until more than 20 days after the date of the sale. The
statute at issue provided in part:
“[S]uch deed or deeds shall, as soon as practicable, and within
20 days after such sale, be deposited with the register of deeds of the county
in which the land therein described is situated, and the register shall endorse
thereon the time the same was received, ..[.]”
In Kessler, plaintiffs’
farm was foreclosed by advertisement and sold at sheriff’s sale on August 21,
2020. The sheriff’s deed was not recorded until September 24, 2020, 34 days
after the sale. The Kesslers argued that since the purchaser failed to
record the sheriff’s deed within 20 days of the date of the sale, the statutory
redemption period did not begin to run until the date of recording the sheriff’s
deed.
The trial court rejected plaintiffs’
argument and granted summary disposition in favor of the defendant. The Court
of Appeals affirmed the ruling and held the statute requiring recording of the
deed within 20 days after the sale merely “delineates the procedural
obligations on the sheriff and the clerk” at the Register of Deeds and
that “there are no penalties for noncompliance contained within the statute.”
Prior to the ruling, it was implied that
the recording of a sheriff’s deed beyond the 20-day period meant the redemption
period started to run from the date of recording, not the date of the sale.
This would result in redemption periods being extended longer than the specific
period set forth under statute because of deeds being rejected or not recorded
by the county Register of Deeds within the 20-day time frame. The Court,
however, arrived at a different conclusion by analyzing the specific language
found in the redemption statute, MCL 600.3240, and contrasting it with the
language referenced above under MCL 600.3232. The Court held that failure to
timely record a deed from a sheriff’s sale does not extend the date to redeem
the property. The Court went on to declare that “only MCL 600.3240 delineates the
commencement for the [redemption] period and states that it runs ‘from the date
of the sale.’” Therefore, the date the deed is recorded is irrelevant to the
calculation of the redemption period and does not extend the deadline.
USFN gathered at the beautiful
Drake Hotel in Chicago on July 14 and 15, to discuss the legal issues affecting
our industry at its annual Legal Issues Seminar. The event started with a
networking dinner at The Signature Room at the 95th, located in one
of Chicago’s charming historic buildings. It was wonderful to see old faces and
meet new ones as we were treated to stunning views of Chicago.
Getting down to business, USFN
offered four great sessions of CLE-worthy content, discussing both issues from
the past year and emerging items of interest.
The first
session centered on recent case law and legislative updates. One major focus of
the session was the New York legislation in response to Freedom
Mortgage Corporation v. Engel, and the efforts to limit the time in
which a foreclosure case must be completed. There is no clear answer right now
as to how servicers should proceed, other than to continue conversations with
their New York counsel. This session also touched on the CFPB’s intention to
start using their UDAAP authority to scrutinize and target discriminatory
practices.
The second
session continued the discussion on the CFPB and their recent aggressive focus
on supervision and enforcement actions. It is more critical than ever to remain
mindful of the CFPB’s requirements and regulations. Another important takeaway
from this session was regarding the HAF programs and their administrative
variances from state to state. Servicers should be cognizant of each state’s
unique portal and requirements and reach out to counsel as needed. There was
also a conversation surrounding technology and how it can support both servicers
and our members. The session wrapped with a lively discussion of hot topics
from FNMA.
In the
third session, we heard about regulation and what we can expect over the coming
year. Ancillary fees were a major point of interest. The CFPB is strongly
opposed to allowing ancillary fees where the fee is significantly higher than
the actual cost of the service. This includes a push to prohibit “convenience
fees,” which are often charged for making a monthly payment over the telephone
or online. It is likely that the CFPB may allow a pass-on fee from a vendor,
but the servicer cannot make any profit. There was also some discussion surrounding
the persistent challenge of itemization requirements for debt validation
letters that fall outside of the special rule for the FDCPA. There are still
few answers, but, as an industry, we are continuing to discuss it and seek
resolution.
In the
final session of the day, we discussed staying ethical in a remote-work world.
Some things to think about:
·How are you meeting confidentiality and security
requirements when people are working from home?
·How do you account for Siri and Alexa?
·How do you prevent “Zoom bombing?”
·How do you supervise your staff?
·How are you safeguarding personal identifying information?
Many of these
questions have been addressed by the American Bar Association in Formal
Opinion 498.
Finally, if you are living in a jurisdiction where you are
not licensed, be aware of the rules about the unauthorized practice of law in
both the state where you are living and the state where you are practicing.
Overall, it was a great day and a half together, where we enjoyed the
sights and sounds of Chicago, as well as stimulating conversations about the
issues affecting our industry. We hope you can join us next year in Chicago.
Stay tuned to USFN’s events website
for dates and details.
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First on deck was Mark McArdle, Assistant Director of Mortgage
Markets for the Consumer Financial Protection Bureau, who was introduced by
Richard Nielson of Reimer Law Co.