Source: http://updates.mwbllp.com/2017_07_23_archive.html
Timestamp: 2019-01-18 20:55:01
Document Index: 729101098

Matched Legal Cases: ['§ 953', '§ 3953', '§ 3953', '§ 3953', '§ 3953', '§ 90', '§ 673', '§ 673']

Financial Services Law Developments: 7/23/17 - 7/30/17
FYI: Fla App Ct (2d DCA) Holds Trial Court Erred in Applying Texas Law to Foreclosure Deficiency Claim
The District Court of Appeal of the State of Florida, Second District, recently held that where loan documents provided that Florida law applied to foreclosure claims, the trial court erred in applying Texas law because the deficiency claim in the case was part of the Florida foreclosure process.
Two limited liability companies and their principals borrowed $6,100,000 to develop real estate, signing a promissory note, mortgage and personal guarantees. The loan documents provided that they would be governed by Texas law, except that in case of foreclosure, Florida law would apply as the state where the property was located.
The borrower defaulted and the lender sued the borrowers and guarantors in Florida state court. The complaint contained claims for foreclosure, promissory note and guaranty.
The trial court entered a final judgment of foreclosure in May of 2012, reserving jurisdiction to enter a deficiency judgment. A foreclosure sale took place in June of 2012 and the mortgagee was the successful bidder.
The mortgagee then filed a motion for deficiency judgment pursuant to section 702.06, Florida Statutes, alleging that the fair market value of the mortgaged property on the sale date was less than the debt owed under the foreclosure judgment.
The defendants claimed in their amended answer that the property value exceeded the indebtedness.
Shortly before the case went to trial on the promissory note and guaranty claims, the mortgagee argued for the first time that Texas law applied to these claims for damages, and that the defendants had "waived their right under Texas law to have the fair market value of the property considered when determining the amount of deficiency."
On the other hand, if Florida law applied to the deficiency claims, "the borrowers and guarantors had not waived such right and could present evidence concerning the property's fair market value."
The trial court held that Texas law applied "to the lender's claims for damages based on the language of the documents and that while Florida law appl[ied] to the foreclosure, Texas law appl[ied] to the deficiency claim."
The defendants moved for reconsideration on whether Texas law applied to the deficiency claim, but the trial court denied the motion. The trial judge then granted the defendant's motion to disqualify her and a replacement judge was assigned. The successor judge denied the motion for reconsideration after hearing.
The mortgagee later moved for partial summary judgment, and the trial court granted the motion, ruling that under Texas law, "the deficiency would be calculated as the difference between the amount of the judgment of foreclosure and the bid price, with the difference being $6,892.125."
After a trial on the issue of whether certain events occurred that would trigger a default, the trial court entered judgment in the mortgagee's favor for the deficiency amount plus approximately $1.1 million in interest, for a total just under $8.1 million. The borrowers and guarantors appealed.
The Appellate Court agreed with the borrowers' and guarantors' argument that "the trial court erred in applying Texas law to the lender's claim for deficiency because the loan documents provide for the application of Florida law to foreclosure and a claim for deficiency is a continuation of a claim for foreclosure."
The Court first addressed whether "the final judgment entered is a deficiency judgment." It reasoned that because under Florida law a lender "has the right to pursue both a claim for foreclosure of the mortgage and a claim for damages on the note" and "a deficiency does not exist without a foreclosure judgment and sale[,] … the final judgment on the note … must be treated as a deficiency determination."
However, the Appellate Court held, because the "language of the note and the mortgage provide[d] that Florida law governs the foreclosure of the lien created by the mortgage, and we conclude that this includes the lender's claim for deficiency[,] … the trial court erred in applying Texas law to the deficiency determination…."
Thus, the portion of the final judgment that determined the amount of the deficiency was reversed and the case remanded so the parties could "address how a new determination on the issue of deficiency under Florida law affects the lender's claims on the guarantees."
The trial court's judgment was affirmed in part, reversed in part and the case remanded for further proceedings consistent with the Appellate Court's opinion.
Posted by Ralph T. Wutscher at 7:22 AM
FYI: 4th Cir Holds SCRA Does Not Apply to Mortgage Loan Incurred During Service, Even If Borrower Re-Enlists
The U.S. Court of Appeals for the Fourth Circuit recently held that the federal Servicemembers Civil Relief Act ("SCRA') does not apply to a mortgage loan obligation incurred while a borrower is a member of the military, even where he subsequently leaves and then later re-enlists in the military prior to a foreclosure sale.
The borrower ("Borrower") obtained a mortgage loan to purchase his home from the lender while he was serving in the U.S. Navy. After his discharge from the Navy, the Borrower defaulted on his mortgage loan, and the current loan owner ("Mortgagee") began foreclosure proceedings.
During the foreclosure proceedings, but before the sale was held, the Borrower enlisted in the U.S. Army. The Owner continued the foreclosure action and sold the property at a foreclosure sale while the Borrower was an active member of the Army.
After the sale, the Borrower also executed a "Servicemembers' Civil Relief Act Addendum and Move Out Agreement," in which he stated that he was "affirmatively waiv[ing] any rights and protections provided by [50 U.S.C. § 953] with respect to the May 15, 2008 Deed of Trust . . . and the May 13, 2009 foreclosure sale."
More than five years after the foreclosure sale, the Borrower filed a lawsuit against the Mortgagee alleging the foreclosure sale was invalid under the SCRA.
As you may recall, the SCRA requires a lender to obtain a court order before foreclosing on or selling property owned by a current or recent servicemember where the mortgage obligation "originated before the period of the servicemember's military service." 50 U.S.C. § 3953(a), (c).
The parties filed cross-motions for summary judgment, and the trial court granted summary judgment to the Mortgagee, ruling that because the Borrower obtained his mortgage loan during his service in the Navy, the loan was not subject to SCRA protection. The trial court found that the resolution of the case "turn[ed] on the interpretation of the phrase 'originated before the period of the servicemember's military service,'" which the trial court noted was an issue of first impression where the borrower had multiple periods of military service.
The trial court noted that, on its own, "the language . . . is unclear on whether it contemplates multiple periods of military service," but "the specific context of the language indicates that the statute does not apply to obligations incurred while one is in the military, because the underlying concern is the impact military service may have on a servicemember's income and status, uncontemplated at the time when they incurred the obligation."
The trial court accordingly concluded that "[b]ecause it is undisputed that [the Borrower's] mortgage originated while he was in the military, that obligation does not qualify under [§ 3953(a)]" and, "[ a]s a result, the Borrower cannot claim the remedy provided in [§ 3953(c)]."
Because of its ruling, the trial court did not reach the Mortgagee's alternative argument that the Borrower had waived his rights under the SCRA by executing the addendum to his move-out agreement.
On appeal, the Borrower argued that because he incurred his mortgage loan obligation during his service in the Navy, the SCRA applied.
The Fourth Circuit disagreed. In reaching its conclusion, the Fourth Circuit agreed with the trial court's interpretation of the SCRA, that it was "designed to ensure that servicemembers do not suffer financial or other disadvantages as a result of entering the service," and that the SCRA accomplishes this goal "by shielding servicemembers whose income changes as a result of their being called to active duty, and who therefore can no longer keep up with obligations negotiated on the basis of prior levels of income. Such a change in income and lifestyle was not a factor in [the Borrower's] case, as the mortgage at issue here originated while he was already in the service."
The Fourth Circuit further held that the SCRA "explicitly creates two classes of obligations those protected and those not. It provides protection to only those obligations that originate before the servicemember enters the military service. It thus grants protection to obligations incurred outside of military service, while denying protection to obligations originating during the servicemember's military service."
Because the Borrower's obligation originated when he was in the Navy, it "was not in the class of obligations protected by the statute."
The Borrower further argued that even though his mortgage loan was not a protected obligation at the time he incurred it, he obtained retroactive protection when he later entered the Army because the obligation was incurred before he entered the Army.
The Fourth Circuit disagreed, noting that such an interpretation of the SCRA "reads the singular word 'before' myopically," and that "[i]t would lead to inconsistent treatment of substantially identical obligations and would introduce arbitrariness into Congress' distinction between protected an unprotected obligations."
The Court therefore held that "because [the Borrower's] mortgage obligation originated when he was in the Navy, it was not a protected obligation under § 3953(a), and his later enlistment in the Army did not change that status to afford protection retroactively. Accordingly, we affirm the district court's judgment."
Because of the ruling, the Fourth Circuit did not determine whether, in the alternative, the Borrower executed a valid waiver of his rights under the SCRA.
Posted by Ralph T. Wutscher at 7:45 AM
FYI: 3rd Cir Serves Up Double Fault in FDCPA, TCPA Decision
A recent ruling from the U.S. Court of Appeals for the Third Circuit examines both the provision of consent under the federal Telephone Consumer Protection Act (TCPA) and the bona fide error defense for debt collectors under the federal Fair Debt Collection Practices Act (FDCPA).
The ruling has dire implications for debt collectors, creditors and any commercial enterprise using telephone technology and QR codes in communicating with customers.
First up is the TCPA. The trial court ruled that the collection agency violated the TCPA when it used an automated dialing system to call the consumer to collect a medical debt without prior consent because the defendant's deposition witness previously testified that "the dialer does the dialing."
In an attempt to fix this error, the collector later submitted an affidavit stating that the telephone dialing system used "human intervention" to make the calls. The trial court labeled this a "sham affidavit" and would not consider it. Worse, even though the consumer appears to have provided his cell phone number to the hospital where he incurred the medical debt, the Third Circuit ruled "more is required" than the simple provision of the cell phone number to an intermediary hospital that was not a creditor.
Distinguishing rulings from the Sixth and Eleventh Circuits (Baisden and Mais, respectively), the Third Circuit pointed out that in those cases the hospital intake forms gave permission to release the consumer's information for payment purposes. Here, there was no evidence that the consumer released his information to be used for payment purposes. The court affirmed an award to the consumer of $34,000 for 69 telephone calls.
Now for the FDCPA ruling — the Third Circuit held that a debt collector cannot rely on a trial court decision to escape FDCPA liability. That's tough because as new theories develop, companies will often adjust their practices to align with applicable decisions.
In this case, the debt collector had made operational changes to use Quick Response codes in its mail communications to consumers. It did so relying on two trial court decisions that found that the use of QR codes visible on the face of envelopes did not violate the FDCPA. When the debt collector was later sued for using such QR codes, the trial court here found that it did violate the FDCPA, but the debt collector was exempt from liability under the FDCPA's bona fide error exception because it relied on the earlier trial court decisions.
Posted by Ralph T. Wutscher at 10:20 PM
FYI: Fla App Ct (4th DCA) Upholds Judgment for Borrower in Foreclosure Where Mortgagee Did Not File Allonge
The District Court of Appeal of the State of Florida, Fourth District, recently affirmed a final judgment in favor of a borrower because the foreclosing mortgagee failed to file the original allonge to the note, holding that as a result the mortgagee lacked standing for foreclose.
A mortgagee sued to foreclose the mortgage, attaching copies of the promissory note and an "Endorsement and Assignment of Note" to the complaint. The endorsement was "blank."
At trial, the mortgagee offered the original note into evidence, but only a copy of the endorsement. After briefing, the trial court entered judgment in favor of the borrower and the mortgagee appealed.
On appeal, the mortgagee argued "that the endorsement and assignment was merely an assignment for which the original document was not required." The Appellate Court rejected this argument and agreed with the borrower that "the subject document was an allonge and, as such, [the mortgagee] was required to file the original."
The Appellate Court explained that "'[a] promissory note is a negotiable instrument …' [and] [w]here a document is a negotiable instrument, the best evidence rule, as codified [in § 90.953(1), Florida Statutes] requires the production of the original." Subsection 90.953(1) provides that "[a] duplicate is admissible to the same extent as an original, unless … [t]he document or writing is a negotiable instrument …. 'Therefore, a party who seeks to foreclose on a mortgage must produce the original note.'"
The Appellate Court explained further that an allonge was "an addition to a negotiable instrument" that must be "so firmly affixed thereto as to become a part thereof. … Although Florida's Uniform Commercial Code does not specifically mention an allonge, the Code provides that '[f]or the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a party of the instrument … [under § 673.2041(1), Florida Statutes]."
The Appellate Court the reasoned that when an allonge is blank or "does not identify a specific payee[,]" it is "payable to bearer." "If an instrument is payable to bearer, it may be negotiated by transfer of possession alone" [pursuant to§ 673.2011(2), Florida Statutes]."
The Appellate Court concluded that since 'an allonge is part of the note, and an original note is required, it follows that an original allonge is required. … "or a satisfactory reason must be given for failure to do so."
"Because [the mortgagee] failed to produce the original allonge and did not plead a lost instrument count," the Appellate Court affirmed the trial court's judgment in favor of the borrower.
Posted by Ralph T. Wutscher at 10:22 AM
FYI: Ill App (1st Dist) Holds Borrower Could Not Challenge Foreclosure Sale Notice As Unlawfully Discriminatory
The Illinois Court of Appeals, First District, recently determined that a borrower in a foreclosure matter did not have standing to challenge whether the mortgagee's notice of sale was in violation of the Illinois Human Rights Act ("IHRA").
Following the entry of a judgment of foreclosure, the plaintiff mortgagee published its notice of sale, in which the mortgagee required that anyone attending the sale possess a "photo identification issued by a government agency."
The mortgagee purchased the property at the sale, and then moved for an order confirming the sale. The borrower objected to the mortgagee's motion, arguing that the language in the notice requiring government-issued identification violated the IHRA because it discriminated on the basis of national origin.
The Appellate Court concluded that borrower did not have standing to assert the notice was discriminatory because he had not identified any individual, including himself, who went to the sale with adequate funds to purchase the property but was denied access because they did not have the required identification.
In the absence of such evidence, the Appellate Court held that the borrower failed to identify a distinct and palpable injury traceable to the language in the notice. Accordingly, the Appellate Court affirmed the trial court's confirmation of the order of sale.
The trial court entered a judgment of foreclosure and sale on the borrower's property in favor of the mortgagee. Following a judicial sale in which the mortgagee purchased the property, the mortgagee moved for any order confirming the sale pursuant to 735 ILCS 5/15-1508.
The borrower did not contest the judgment of foreclosure, but objected to the motion to confirm the sale, asserting that the published notice of sale was discriminatory and violated the IHRA.
The mortgagee's notice of sale contained the following language: "You will need a photo identification issued by a government agency (driver's license, passport, etc.) in order to gain entry into our building and the foreclosure sale room . . ." The borrower contended this language violated the IHRA and prevented the court from confirming the sale under section 15-508(b).
Following a hearing, the trial court entered an order approving the sale. In its order, the trial court stated "the court makes a finding that [borrower] has not met [his] burden to show that the sale should not be approved. Further, the court finds that [borrower] has not proven that the notice of sale violated the IHRA or that [borrower] has standing to raise that issue."
The borrower filed a notice of appeal, challenging the confirmation of the sale.
On appeal, the Appellate Court observed that borrower did not address at all the trial court's finding that he did not have standing to challenge whether the notice of sale was discriminatory.
Instead, the Court noted, the borrower only challenged the notice as discriminatory, alleging that the notice discriminated on the basis of national origin. In particular, the borrower argued that persons who had entered the country without proper documentation, particularly Mexican nationals, were prohibited from obtaining a government-issued identification and, thus, would be unable to participate in the judicial sale of the property.
The borrower therefore asserted that the terms of the sale were unconscionable and not commercially reasonable because the "universe of potential buyers" would be limited.
In response, the mortgagee argued that the borrower had forfeited any challenge to the trial court's finding that he lacked standing to contest the notice because he did not address it in his appellate brief. The mortgagee also argued that the notice did not violate the IHRA because (1) the language requiring a government-issued identification does not discriminate on the basis of national origin, and (2) the IHRA does not bar discrimination based on citizenship status.
The Appellate Court acknowledged that the borrower did not address the standing issue in his brief, but determined that forfeiture is a limit on the parties, not the court, and the Court could exercise its discretion to review an otherwise forfeited issue.
The Court first addressed the broad discretion given to trial courts under section 15-508 of the Illinois Code of Civil Procedure, which among other things states that the trial court shall confirm a foreclosure sale unless the trial court finds that (i) proper notice of the sale was not given, (ii) the terms of the sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done. Section 15-508 also provides that the trial court's decision to confirm or reject a judicial sale will not be disturbed absent an abuse of the court's discretion.
Addressing the standing issue, the Court established that "a plaintiff possesses standing to sue when the plaintiff has suffered an injury in fact to a legally cognizable interest." Noyola v. Board of Education of the City of Chicago, 227 Ill. App. 3d 429, 432 (1992). The Court continued, "the claimed injury may be actual or threatened, and it must be (1) distinct and palpable, (2) fairly traceable to the defendant's actions, and (3) substantially likely to be prevented or redressed by the grant of the requested relief." Glisson v. City of Marion, 188 Ill. 2d 211, 221 (1999).
The Court determined that, at the trial court level, the borrower had not identified any person, including himself, who went to the judicial sale with the adequate funds to purchase the property but was denied access due to a lack of government-issued identification. Indeed, citing I.C.S. Illinois, Inc. v. Waste Management of Illinois, 403 Ill. App. 3d 211, 225 (2010), the Appellate Court noted that the plaintiff could not establish standing to challenge the result of a bidding competition without establishing that he would have been successful "but for the defendant's conduct."
The Court also observed that the borrower did not present any evidence at the trial court level that any undocumented person was actually discouraged from bidding. According to the Appellate Court, in the absence of such evidence borrower's claim is "purely speculative."
As a result, the Court held, the borrower did not establish a distinct and palpable injury fairly traceable to the notice of sale. Thus, the borrower failed to establish he had standing to assert a violation of the IHRA as a basis to challenge the sale.
Posted by Ralph T. Wutscher at 5:29 PM
FYI: Fla App Ct (2d DCA) Holds Trial Court Erred i...
FYI: 4th Cir Holds SCRA Does Not Apply to Mortgage...
FYI: 3rd Cir Serves Up Double Fault in FDCPA, TCPA...
FYI: Fla App Ct (4th DCA) Upholds Judgment for Bor...
FYI: Ill App (1st Dist) Holds Borrower Could Not C...