Source: https://consumerfinancewatch.com/tag/new-york/
Timestamp: 2019-04-18 20:31:02+00:00

Document:
In Wells Fargo Bank, N.A., as Trustee, in Trust for the Registered Holders of Park Place Securities, Inc., Asset-Backed Pass-Through Certificates, Series 2005-WCW1 v. Doron Eitani, Index No. 2014-9426 (2d Dept. Feb. 8, 2017), the New York Appellate Division, Second Department, determined the novel issue of whether a plaintiff, such as the Trust, who is a successor in interest as the holder and owner of the note and mortgage, is entitled to take advantage of the savings provision of CPLR 205(a). The Second Department decided in the affirmative by affirming the denial of defendant David Cohan’s motion pursuant to CPLR 3211(a)(5) to dismiss the foreclosure action on the grounds that it was time-barred.
The New York Supreme Court, Appellate Division, Third Department, recently held that a 2007 default letter demanding payment of all past due amounts under a mortgage did not accelerate borrowers’ mortgage debt and therefore did not trigger the six-year statute of limitations to bring a foreclosure action. Goldman Sachs Mortg. Co. v. Mares, 23 N.Y.3d 444, 445 (3d Dep’t 2016). Consequently, the Third Department held that the plaintiff’s action, which was commenced in 2014, was not time-barred. Id.
In Mares, the foreclosing plaintiff moved for summary judgment striking defendants’ answer, and the defendants, two borrowers under the mortgage, cross-moved for summary judgment alleging that the action was time-barred. Id. When the lower court denied borrower’s cross-motion, the borrowers appealed. Id.
Failure to pay the total amount past due, plus all other installments and other amounts becoming due hereafter . . . on or before the [30th] day after the date of this letter may result in acceleration of the sums secured by the mortgage.
Id. (emphasis added in original). Instead, the Third Department found that the demand letter was “nothing more than a letter discussing a possible future event.” Id. (citing Pidwell v. Duvall, 28 A.D3d 829, 831, 815 N.Y.S.2d 754 (3d Dep’t 2006)).
This decision highlights the importance of the language of default letters, while clarifying the legal standard for assessing the statute of limitations in mortgage foreclosure actions. Mare is also significant because it defeats the borrowers’ bars’ recent attempts to argue that the statute of limitations has expired based on default letters sent to borrowers.
The New York State Department of Financial Services recently issued new regulations requiring debt collectors to provide additional disclosures to consumers. The new regulations (see 23 NYCRR § 1) are intended to provide protections beyond what is currently required by the Fair Debt Collection Practices Act (“FDCPA”). These new debt collection regulations will become effective in March 2015, except that provisions regarding required disclosures for charged-off debt and substantiation of a charged-off debt will become effective in August 2015.
The regulations require enhanced initial disclosures when a new debt collector first contacts an alleged debtor. The newly mandated disclosures include specific notices that are not formally required by the FDCPA. Specifically, pursuant to 23 NYCRR § 1.2, the debt collector must, within 5 days of the initial communication with the consumer, provide “clear and conspicuous written notification” that 1) debt collectors are prohibited from engaging in “abusive, deceptive, and unfair debt collection efforts” under the FDCPA; and 2) a written statement that if a creditor or debt collector receives a money judgment against the consumer in court, state and federal laws may prevent certain types of income from being taken to pay the debt, including, among others, social security, public assistance, unemployment and disability benefits, pensions and veterans’ benefits.
Similarly, with respect to debts that have been charged-off, the debt collector must, within 5 days of the initial communication with the consumer, provide a “clear and conspicuous” written notification about the debt, including 1) the name of the original creditor; and 2) an itemized accounting of the charged-off debt, including the amount owed as of charge-off, total amount paid on the debt since the charge-off and the total post charge-off interest, charges and fees. 23 NYCRR § 1.2(b).
The regulations also require disclosures regarding the collection of debts for which the statute of limitations has already expired. 23 NYCRR § 1.3. Further, the debt collector must maintain reasonable procedures to determine the applicable statute of limitations of a debt and to determine whether the statute of limitations has expired. The FDCPA does not contain such requirements.
Under the New York regulation, if a debt collector “knows or has reason to know” that the statute of limitations for a debt may have expired, the debt collector must provide a “clear and conspicuous” notification to the consumer that 1) the debt collector believes that the statute of limitations may be expired; 2) suing on a debt for which the statute of limitations has expired is a violation of the FDCPA, and, if the consumer is sued, the consumer may present evidence to the court that the statute of limitations has run; 3) the consumer is not required to provide the debt collector with an admission of any kind that the debt is still owed, or to waive the statute of limitations; and 4) a partial payment of the debt, or other admission that the debt is owed, may restart the statute of limitations. 23 NYCRR § 1.3(a)-(b). Further, the regulation provides specific language that would comply with the notice requirement.
The regulations also contain important changes regarding a debt collector’s obligations when a consumer disputes the validity of a charged-off debt. 23 NYCRR § 1.4. Currently, under the FDCPA, consumers must dispute the debt in writing and request verification of the debt within 30 days of the first collection attempt. See 15 U.S.C. § 1692g. Under the new New York regulations, consumers may request “substantiation” of the debt at any time during the collections process, and may do so orally. Once a request is received, the debt collector must provide the consumer written substantiation of a charged-off debt within 60 days of receiving the request. 23 NYCRR § 1.4(b). The debt collector must also cease collection until written substantiation has been provided to the consumer. The regulation further lists the various forms of documentation required to substantiate the debt.
In addition, the New York regulation includes a document retention requirement related to a request for substantiation of a charged-off debt under 23 NYCRR § 1.4. 23 NYCRR § 1.4(d). Specifically, debt collectors must retain evidence of the consumer’s request for substantiation and all documents provided in response to such request until the charged-off debt is discharged, sold or transferred.
The regulations also include procedures for documenting any agreement between the consumer and the debt collector to satisfy or otherwise settle the debt. 23 NYCRR § 1.5. The FDCPA does not regulate communications from a debt collector regarding settlement. Under the new regulations, a debt collector must, within 5 business days of agreeing to a debt payment schedule or other agreement to settle the debt, provide the consumer with 1) written confirmation of the debt payment schedule or agreement, including all material terms and conditions relating to the agreement; and 2) a notice stating that if a creditor or debt collector receives a money judgment against the consumer in court, state and federal laws prevent certain types of income from being taken to satisfy the debt. The debt collector is also required to provide the consumer with 1) an accounting of the debt on at least a quarterly basis while the consumer is making scheduled payments; and 2) a written confirmation of the satisfaction of the debt, along with the name of the original creditor and the account number, within 20 days of receipt of the final payment. 23 NYCRR § 1.5.
Debt collection companies that operate in New York should review their current policies and take steps to comply with the new regulations in advance of the 2015 effective dates. Specifically, debt collectors should ensure that initial disclosures satisfy the new regulations, that disclosures inform consumers regarding the potential expiration of the statute of limitations and that procedures are in place to substantiate the debt upon a debtor’s request.
 Debt collectors who transfer a charged-off debt should consult the CFPB rules regarding mortgage servicing transfers to the extent applicable.
 This notice provision is identical to the statement required in the initial disclosures (23 NYCRR § 1.2) noted above.
 23 NYCRR § 1.6 provides that, after mailing the initial disclosures required by Section § 1.2, a debt collector and consumer may communicate via email, if the consumer voluntarily provides an email address and consents to receiving email correspondence regarding a specific debt.
On November 18, 2014, the Bankruptcy Court of the Southern District of New York issued an opinion and order finding, inter alia, that two residential mortgage borrowers are judicially estopped from bringing claims against debtor GMAC Mortgage, LLC (“GMAC”) in its chapter 11 proceeding because the factual events underlying the claims preceded the borrowers’ own chapter 7 bankruptcy case and the borrowers never disclosed the claims as assets in their bankruptcy case. In re Residential Capital, LLC, et al., Case No. 12-12020 (MG) (Bankr. S.D.N.Y. July 24, 2014).
The Bankruptcy Court’s decision disallowed and expunged the borrowers’ claims by invoking Section 521(1) of the Bankruptcy Code and the doctrine of judicial estoppel. Section 521(1) requires a debtor in a bankruptcy proceeding to disclose all of her actual or potential assets, including any and all known causes of action. See 11 U.S.C. §§ 521(1); 1306. To invoke judicial estoppel in the Second Circuit, “(1) the party against whom it is asserted must have advanced an inconsistent position in a prior proceeding, and (2) the inconsistent position must have been adopted by the court in some matter.” Peralta v. Vasquez, 467 F.3d 98, 205 (2d Cir. 2006). Judicial estoppel does not apply where the inconsistent statement in the first proceeding was the product of a “good faith mistake or an unintentional error.” Ibok v. Siac-Sector, Inc. 2011 WL 293757, at *7 (S.D.N.Y. Feb. 2, 2011).
The Bankruptcy Court found that all of the factual allegations supporting the borrowers’ claims preceded their chapter 7 bankruptcy filing. Specifically, the Conversion occurred in October 2006, the borrowers’ mortgage was referred to foreclosure in May 2010, GMAC foreclosed on the Loan in February 2011, and the borrowers commenced their chapter 7 proceeding in July 2011. Further, the borrowers’ schedules of assets in their joint chapter 7 proceeding (1) failed to disclose any potential claims against GMAC, and (2) were relied upon by that court to calculate the discharge the borrowers ultimately received. Accordingly, the borrowers’ claims were barred by the doctrine of judicial estoppel.
In reaching this decision, the Court discounted any possibility that the borrowers’ failure to list the causes of action in the chapter 7 proceeding was the product of a “good faith mistake or unintentional error.” Indeed, the fact that the borrowers had scheduled certain potential causes of action against other parties as assets in the chapter 7 proceeding belied any possibility that the borrowers lacked knowledge of the significance of scheduling potential causes of action as assets.
The Bankruptcy Court further noted that even assuming the borrowers’ claims were not barred, the borrowers also failed to meet their burden on the merits. Specifically, the Bankruptcy Court explained that a mortgage loan servicer that changes its name “d[oes] not violate sections 2605(b)-(c) of RESPA, which require transferor and transferee mortgage loan servicers, respectively, to notify the applicable borrower in writing of any transfer of loan servicing.” Under RESPA, transfers between affiliates or resulting from mergers or acquisitions are not considered “transfers” requiring a RESPA notice if “there is no change in the payee, address to which payments must be delivered, account number, or amount of payment due.” See Madura v. BAC Home Loans Servicing L.P., 2013 WL 3777094, at *8-9 (M.D. Fla July 17, 2013) (citing 24 C.F.R. 3500.21(d)(1)(i)).
This decision highlights the importance of mining borrower’s prior bankruptcy filings when evaluating borrower claims that are subsequently asserted against a mortgage loan servicer. Such filings may provide ammunition that bars a borrower’s claims.
A recent Second Circuit Court of Appeals decision ruled that mandatory water and sewer charges are not subject to the Fair Debt Collection Practices Act (“FDCPA”). In Boyd v. J.E. Robert Co., Inc., 2014 U.S. App. LEXIS 16620 (2d Cir. Aug. 27, 2014), the Second Circuit affirmed a New York district court’s holding that liens for mandatory water and sewer charges, which are imposed as an incident to property ownership, do not involve a “debt” as that term is defined in the FDCPA and therefore are not subject to the statute.
In Boyd, the defendants purchased water and sewer lien certificates from the City of New York before commencing foreclosure actions on the plaintiffs’ properties. The putative class action plaintiffs were property owners who alleged that the defendants violated the FDCPA by obtaining unauthorized attorneys’ fees and costs in connection with the foreclosure actions. The district court granted summary judgment for defendants and dismissed the FDCPA claims on the basis that, inter alia, the liens did not involve a “debt” as defined by the FDCPA.
On appeal, the plaintiffs argued that the district court erred in dismissing their FDCPA claims. The Second Circuit rejected plaintiffs’ argument and denied FDCPA recovery, noting that any violation of the FDCPA must occur in connection with the collection of a “debt,” which is defined as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which  the subject of the transaction [is] primarily for personal, family, or household purposes . . . .” (emphasis added).
Further, the Second Circuit distinguished the Third Circuit’s holding in Piper v. Portnoff Law Assoc., Ltd., 396 F.3d 227 (3d Cir. 2005), which held that certain water and municipal charges are subject to the FDCPA. Specifically, the Second Circuit highlighted that the water and sewer services in Piper were first requested by the property owner before they could be charged by the City. Accordingly, the payment obligation in Piper arguably arose out of the “transaction” of requesting water services and therefore constituted “debt” within the meaning of the FDCPA.

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