Source: https://www.usfn.org/blogpost/1296766/Article-Library?tag=&DGPCrSrt=&DGPCrPg=34
Timestamp: 2020-08-04 19:41:37
Document Index: 317713588

Matched Legal Cases: ['§ 52', '§ 33', '§ 33', '§ 33', '§ 33', '§ 52', '§ 42', '§ 42', '§ 600', '§ 600', '§ 600', '§ 600', '§ 44', '§ 44', '§ 544', '§ 544', '§ 10085', '§ 2944', '§ 802', '§ 2929', '§ 17980', '§ 2929', '§ 2924', '§ 415', '§ 781', '§ 2923', '§ 2924', '§ 2920', '§ 2924', '§ 2923', '§ 2923', '§ 2924', '§ 2923', '§ 2924', '§ 2924', '§ 2923', '§ 2923', '§ 2924', '§ 2924', '§ 2924', '§ 2923', '§ 2924', '§ 2924', '§ 2920', '§ 2924', '§ 2924', '§ 2924', '§ 44', '§ 44', '§ 44', '§ 44', '§ 23', '§ 44', '§ 44', '§ 11']

CT: Borrowers’ Unsupported Assertions Insufficient to Open a Judgment
Posted By USFN, Monday, March 11, 2013
The Connecticut Appellate Court has recently ruled that the mortgagors were not entitled to have a judgment of foreclosure opened. Specifically, in PHH Mortgage Corporation v. Jean-Jacques, 139 Conn. App. 683, 57 A.3d 788 (Dec. 18, 2012), the appellate court held that the mortgagors’ failure to file a responsive pleading or appear at the hearing on the mortgagee’s motion for judgment of strict foreclosure was inexcusable, and that the mortgagors were not entitled to an order opening a default judgment of foreclosure.
In Jean-Jacques, the mortgagors alleged in their motion to open that plaintiff’s counsel had purposely confused them. According to the motion, the mortgagors contended that the plaintiff had marked the motion for judgment “ready” and, on the same day, the plaintiff also filed a form with the court to claim the motion for a hearing to be held on a different day. (In Connecticut, to have a motion considered by the court, a party must file a claim form to have the motion placed on the calendar.)
As recited in the appellate court’s decision, the factual background is that: “On November 29, 2010, the plaintiff filed a motion for default for the defendants’ failure to file a responsive pleading, which motion was granted by the trial court clerk on December 15, 2010. The plaintiff then moved for a judgment of strict foreclosure. This motion was claimed by the plaintiff on June 15, 2011, and was placed on the court’s short calendar for argument on July 5, 2011. The plaintiff marked the motion ‘‘ready,’’ and the defendants received notice of the hearing from the court and from the plaintiff. On July 5, 2011, the defendants failed to appear for argument on the motion and a default judgment of foreclosure by sale was entered. The sale date was set for
October 8, 2011. On September 12, 2011, the defendants, then represented by counsel, filed an amended motion to open the judgment. The defendants attributed their failure to appear at the July 5 hearing to a second short calendar reclaim on the same motion, filed by the plaintiff on June 27, 2011. The defendants received notice from the court of a July 18 hearing, which corresponded with the second reclaim, and allegedly assumed that this later hearing indicated the plaintiff’s intention to postpone the July 5 hearing.”
The trial court had a hearing on the motion to open. The hearing occurred on two separate days. However, the mortgagors did not testify on either day, nor did the mortgagors present any evidence to support their allegations. The trial court ruled in the plaintiff’s favor, and did not open the judgment. The mortgagors appealed.
The test that courts use in considering a motion to open a judgment is found in Connecticut General Statutes § 52-212. That statute requires that on a motion to open a judgment the movant must show both a valid reason to excuse his absence and a defense. The defendants had filed a (belated) answer and defense, challenging the plaintiff’s standing. However, the court did reach that defense. While standing had been an issue that could require a trial court to have an evidentiary hearing, the appellate court merely mentioned the standing issue in a footnote. The standing allegation was that the plaintiff did not allege when it came into possession of the note, and that the plaintiff was not licensed to do business in the state. Those allegations did not require the court to open the judgment.
There was evidence that defendants had received actual notice of the hearing from two sources — the court and the plaintiff. The court also concluded that a judgment should not be opened based on the defendants’ negligence. The appellate court found that, “[b]ecause of the defendants’ failure to testify and the unsupported arguments advanced regarding the effect of reclaiming the same motion more than one time, it was not unreasonable for the [trial] court to exercise its discretion and to deny the motion to open.” Id. at 687. Accordingly, it is clear that the court is not obligated to take the bald assertions advanced by borrowers or their counsel. Thus, based on the fact that there was no evidence of a valid reason for the defendants’ failure to appear at the hearing on the judgment, the trial court was correct in denying the motion to open.
Editor’s Note: The author’s firm represented PHH Mortgage Corporation in the case summarized here.
Proposed Changes to Connecticut’s Foreclosure Mediation Program
On February 7, 2013, Governor’s Bill No. 6355 was referred to the Committee on Banks. Among other things, the bill proposes sweeping changes to how the foreclosure mediation program (FMP) operates, the degree of authority and responsibilities of the court’s mediation specialists, the parties permitted or required to participate, as well as changes to the eight-month litigation bar and good faith mediation requirements.
Under current practice, the court’s mediation specialists file a report after the first and last mediation session. The bill proposes to require a report after each session, which becomes part of the public record. More significantly, it proposes that the court shall conduct hearings after each mediation session beyond the third one, inquiring as to the status of the case and “the reasons for which a resolution has not yet been achieved.” Further, for mediation to extend beyond six months from the return date (irrespective of the number of times the court is able to schedule the parties to meet during that time), “the court shall make particularized findings on the record for granting such an extension.”
Further, the bill proposes a vast increase in the authority of the court’s mediation specialists. Under the proposed legislation, the mediation specialists are empowered to recommend sanctions to the court. The bill also proposes giving the mediation specialists sole discretion as to whether a “reasonably complete package of financial documentation” has been submitted to the mortgagee. Should this determination be made, the bill goes on to mandate that the “mortgagee shall use such information to evaluate the mortgagor and treat such information as current under all applicable rules.”
The bill redefines “mortgagee” for purposes of the FMP in a way inconsistent with other Connecticut statutes by requiring the participation of the “owner of the debt.” The bill proposes only permitting the participation of an agent if that agent has “full settlement authority,” which is defined at length in the bill. That definition includes the ability to act immediately, without requiring the approval of any other person, and does not include settlement authority provided on a pre-established basis.
Additionally, the bill permits the presence of a mortgagor’s spouse in the mediation session, provided that the spouse resides at the subject property, regardless of whether he or she is on the note or mortgage, or is even a party to the action.
Under current Connecticut law, there is a period of up to eight months from the return date during which parties participating in the FMP may make no “motion, request or demand” except those that deal with the FMP. This eight-month bar, however, is considered waived by the mortgagor if he does bring a non-FMP “motion, request or demand.” The bill proposes to specifically exempt the filing of an answer, special defense, or counterclaim from the waiver language, thus permitting a mortgagor to file a counterclaim on a matter in the FMP while preventing the mortgagee from responding to it.
The current Uniform Foreclosure Mediation Standing Orders require that “while in mediation each party and each party’s attorney must make a good faith effort to mediate all issues,” but leave “good faith” undefined. The bill proposes a lengthy definition and also includes a provision that “[d]emonstrating that a party or attorney failed to mediate in good faith does not require a showing that such party or attorney acted with malice, intent to injure or an otherwise affirmative showing of bad faith.” The bill also goes into detail regarding sanctions, codifying as statutorily acceptable: the commonly sought imposition of fines payable to the court or aggrieved party; dismissal of the foreclosure action; a bar of interest accrual; an award of attorneys’ fees; compensation for lost income and expenses; and, forbidding the mortgagee from charging the mortgagor for the mortgagee’s attorneys’ fees.
On February 19, 2013, a public hearing on the bill was held.
Sixth Circuit Applies FDCPA to Foreclosure Firms and its Lawyers
by Christopher L. Palmer
Just when you think it’s safe to rely on well-reasoned decisions handed down in one federal circuit, another circuit issues an opinion that paints, with broad strokes, an entirely different picture.
Recently, the U.S. Court of Appeals for the Sixth Circuit rendered an opinion that both foreclosure firms and their lawyers, whose principal business purpose is mortgage foreclosure, are “debt collectors” and, therefore, potentially liable under the federal Fair Debt Collection Practices Act. [Glazer v. Chase Home Finance LLC, No. 10-3416, 2013 WL 141699 (6th Cir. Jan. 14, 2013)]. (The Sixth Circuit is comprised of Kentucky, Michigan, Ohio, and Tennessee.)
As set forth in the Glazer opinion, the facts involved a foreclosure action filed in state court in which summary judgment was granted and a decree of foreclosure entered. That ruling was later vacated, and Chase dismissed the foreclosure action without prejudice. Prior to that dismissal, however, the plaintiff filed his suit in federal district court, alleging violations of the FDCPA by both the servicer and the law firm handling the foreclosure.
In many circuits, the generally accepted principle has been that the FDCPA only applies to “debt collectors” as defined by the FDCPA and that, specifically, mortgage foreclosure is not “debt collection.” Therefore, law firms hired to conduct the foreclosure were not considered to be debt collectors or otherwise subject to the Act. This view was based on the premise that foreclosure lawyers and their law firms were tasked with the duty of enforcing a security interest and not conducting traditional debt collection activity. The act of enforcing a security interest does not fit the customary definition of a debt collection practice.
In the Glazer case, the Sixth Circuit could find no clear definition of “debt collection” in the Act and, as a result, focused its attention on what it described as whether “the purpose of an activity taken in relation to a debt is to ‘obtain payment’ of the debt.” The justices opined that the act of foreclosure was a means of collecting a debt because the action taken in the acquisition of the real property was designed with the ultimate goal of collecting money. A sale conducted post-foreclosure would produce money, which would be applied to satisfy a portion of the indebtedness. In other words, the basic activity was in fact debt collection. The justices then went a step further and chose not to distinguish between judicial and nonjudicial foreclosures.
Even if the proceeding is in rem rather than in personam, the lawyers are, according to the Sixth Circuit, debt collectors and, as such, are subject to the FDCPA. More specifically, lawyers engaged in the foreclosure process and charged with the responsibility of communicating and negotiating with debtors, regardless of the nature of the proceeding, are “debt collectors” in the business of collecting debts and are, therefore, subject to the FDCPA.
Illinois Legislative Update: Governor Signs SB16
Posted By USFN, Friday, February 8, 2013
by Lee Perres & Nicholas Schad
Fisher and Shapiro, LLC -USFN Member (Illinois)
Editor's Note: This article is excerpted from the USFN Report (Winter 2013 ed.) and is republished here to inform readers that on February 8, 2013, Illinois Governor Quinn signed SB16. It is effective June 1, 2013.
On December 5, 2012, SB16 (the Bill) passed both houses of the 97th Illinois General Assembly, set to become effective June 1, 2013. At the timing of the writing of this article, the bill is awaiting the governor’s signature.
The Bill has four main components: (1) funding for housing counseling and foreclosure prevention; (2) an expedited process to foreclose abandoned properties; (3) additional notice requirements to aldermen, if the property is located in the city of Chicago, and to the last-known property insurers; and (4) clarification of the requirements of the form of a properly recorded Illinois mortgage. The Bill applies to standard mortgages and “revolving credit” loans.
Funding for Housing Counseling and Foreclosure Prevention — The Bill authorizes the Illinois Housing Authority to establish and administer a Foreclosure Prevention Program. The program uses monies in the Foreclosure Prevention and Counseling Fund, appropriated for that purpose, to make grants to HUD-certified housing counseling agencies to support pre-purchase and post-purchase home ownership education and foreclosure prevention counseling. Seventy-five percent of the fund monies are to be used for housing counseling outside of the city of Chicago, and twenty-five percent for counseling in Chicago. Funding for the Foreclosure Prevention and Counseling Fund and the Abandoned Residential Property Municipality Relief Fund comes from additional filing fees charged to plaintiffs in foreclosure actions. The amount of the additional fee is determined by a “tier system” based on the number of foreclosure complaints filed by a plaintiff, “together with its affiliates” (defined as “any company that controls, is controlled by, or is under common control with another company” by the Bill), during the calendar year immediately preceding the filing of the subject foreclosure:
Number of Complains filed by Plaintiff together
with its Affiliates
Amount of additional
filing fee per case
175+ foreclosure complaints $500
50 – 174 foreclosure complaints $250
0 – 49 foreclosure complaints $50
A fee of $500 per case applies in the following instances: (1) the plaintiff, together with its affiliates, is a “tier one” filer and files the subject complaint on its own behalf as the holder of the indebtedness; (2) the plaintiff, together with its affiliates, is a “tier one” filer and files the subject complaint on behalf of a “tier one” mortgagee; or (3) the plaintiff, together with its affiliates, is not a depository institution (defined as a bank, savings bank, savings and loan association, or credit union chartered, organized, or holding a certificate of authority to do business under the laws of Illinois, another state, or the United States by the Bill) and files the subject complaint on behalf of a “tier-one” mortgagee.
A fee of $250 per case applies in the following instances: (1) the plaintiff, together with its affiliates, is a “tier two” filer and files the subject complaint on its own behalf as the holder of the indebtedness; (2) the plaintiff, together with its affiliates, is a “tier one” or “tier two” filer and files the subject complaint on behalf of a “tier two” mortgagee; (3) the plaintiff, together with its affiliates, is a “tier two” filer and files the subject complaint on behalf of a “tier one” mortgagee; or (4) the plaintiff, together with its affiliates, is not a depository institution and files the subject complaint on behalf of a “tier two” mortgagee.
A fee of $50 per case applies in the following instances: (1) the plaintiff, together with its affiliates, is a “tier three” filer and files the subject complaint on its own behalf as holder of the indebtedness; (2) the plaintiff, together with its affiliates, is a “tier one,” “tier two,” or “tier three” filer and files the subject complaint on behalf of a “tier three” mortgagee; (3) the plaintiff, together with its affiliates, is a “tier three” filer and files the subject complaint on behalf of a “tier one” mortgagee or “tier two” mortgagee; or (4) the plaintiff, together with its affiliates, is not a depository institution and files the subject complaint on behalf of a “tier three” mortgagee.
To determine which fee the plaintiff must pay, a verified statement is to be filed by the plaintiff at the time the complaint is filed, stating which tier applies to the plaintiff. The clerk of the court may specify other processes by which a plaintiff may certify its eligibility for exemption from the additional fee. The additional fees will expire on January 1, 2018.
Expedited Process to Foreclose Abandoned Property — The Bill amends Illinois Mortgage Foreclosure Law (IMFL) to permit a mortgagee to file a “motion to expedite the judgment and sale” at filing or any time thereafter on abandoned residential property (735 ILCS 5/15-1505.8). “Abandoned residential property” is defined as “residential real estate that either is unoccupied by a lawful occupant as a principal residence or contains an incomplete structure if the real estate is zoned for residential development, where the structure is empty or otherwise uninhabited and is in need of maintenance, repair or securing,” and, in either case, two or more of the following conditions exist:
Construction was initiated on the property and was discontinued prior to completion, leaving a building unsuitable for occupancy, and no construction has taken place for at least six months;
Multiple windows on the property are boarded up, closed off, or are smashed through, broken off, or unhinged, or multiple window panes are broken and unrepaired;
Doors on the property are smashed through, broken off, unhinged, or continuously unlocked;
The property has been stripped of copper or other materials, or interior fixtures to the property have been removed;
Gas, electrical, or water services to the entire property have been terminated;
There exist one or more written statements of the mortgagor or the mortgagor’s personal representative or assigns, including documents of conveyance, which indicate a clear intent to abandon the property;
Law enforcement officials have received at least one report of trespassing or vandalism or other illegal acts being committed at the property in the last six months;
The property has been declared unfit for occupancy and ordered to remain vacant and unoccupied under an order issued by a municipal or county authority or court of competent jurisdiction;
The local police, fire, or code enforcement authority has requested the owner or other interested or authorized party to secure or winterize the property due to the local authority declaring the property to be an imminent danger to the health, safety, and welfare of the public;
The property is open and unprotected and in reasonable danger of significant damage due to exposure to the elements, vandalism, or freezing; or
There exists other evidence indicating a clear intent to abandon the property; or
The real estate is zoned for residential development and is a vacant lot that is in need of maintenance, repair, or securing (735 ILCS 5/15-1200.5).
The Bill excludes the following from the definition of “abandoned residential property”: (1) property undergoing active construction; (2) property that is seasonably inhabited but otherwise secure; (3) property on which appear bona fide rental or “for sale” signs; (4) property that is otherwise secure, but is subject to probate, quiet title, or ownership dispute; or (5) a property that is otherwise secure and substantially complies with all applicable codes, regulations, and laws (735 ILCS 5/15-1200.7).
The motion must be supported by an affidavit that sets forth facts demonstrating the mortgaged real estate is abandoned residential property under Section 15-1200.5. If the motion is filed with the complaint, or before the period to answer the foreclosure complaint has expired, a hearing on the motion “shall be held no earlier than before the period to answer the foreclosure complaint has expired and no later than 15 days after the period to answer the foreclosure complaint has expired.” If the motion is filed “after the period to answer the foreclosure complaint has expired, the motion shall be heard no later than 15 days after the motion is filed with the court.” If the court determines that the property is abandoned, the court shall grant the motion for expedited judgment and the matter can immediately proceed to “trial of the foreclosure.” While the section is not clear, these authors are hopeful that the judgment hearing will proceed as it always does, by affidavit.
A court may not grant a motion for expedited judgment if the mortgagor, unknown owner, owner, or lawful occupant, appears in the action before or at the hearing and objects to a finding of abandonment. The court is required to vacate an order granting a motion for expedited judgment and sale if the mortgagor or lawful occupant appears in the action at any time before the order confirming sale and presents evidence establishing that the mortgagor or lawful occupant has not abandoned the property. The Bill does not offer guidance regarding the proof that the court will require from an objecting defendant.
The reinstatement period and redemption period for the abandoned property shall expire 30 days after entry of judgment, and the property is to be sold at the earliest possible time thereafter.
Upon confirmation of the sale, any personal property left in or upon the property shall be deemed to have been abandoned by the owner and may be disposed of or donated by the holder of the certificate of sale. The mortgagee, its successors or assigns, the holder of the certificate of sale, or purchaser at sale shall not be liable for the disposal or donation of personal property.
Statutory notices are required to be posted at the property address at least 14 days prior to the hearing on the motion requesting expedited judgment and sale, and at least 14 days prior to the hearing to confirm the foreclosure sale. All notices must be sent to the last-known address of the mortgagor.
Additional Notice Requirements — If the real subject property is located within a city of 2,000,000 or more people (Chicago), the party initiating the foreclosure must send the notice of foreclosure (lis pendens) to the alderman for the ward in which the real estate is located. The notice must be sent by first-class mail. The plaintiff must file an affidavit with the court attesting that the notice was sent to the alderman. Failure to comply with this requirement results in a dismissal without prejudice of the complaint or counterclaim upon the motion of a party or the court.
A copy of the confirmation order (the order confirming the foreclosure sale) must be sent to the last-known property insurer by first-class mail. Failure to send this notice shall not impair or abrogate in any way the rights of the mortgagee or purchaser or affect the status of the foreclosure proceedings.
Clarification of the Required Form of Mortgage — Finally, the Bill addresses a decision of a bankruptcy court in Illinois which invalidated mortgages that do not have the interest rate stated on the face of the mortgage. The Bill provides that “the failure of an otherwise lawfully executed and recorded mortgage to be in the form described in subsection (a) in one or more respects, including the failure to state the interest rate or the maturity date, or both, shall not affect the validity or priority of the mortgage, nor shall its recordation be ineffective for notice purposes regardless of when the mortgage was recorded.”
Arizona Statutory Safe Harbors and Trustee Liability
Posted By USFN, Wednesday, February 6, 2013
Routh Crabtree Olsen, P.C. – USFN Member (Oregon, Washington)
The Arizona Supreme Court has unanimously reaffirmed that Arizona law immunizes a completed foreclosure from challenge based on pre-sale objections. The court, however, did hint at trustee liability for improper “refusal to accept payment” of a successful bid. BT Capital LLC v. TD Service Company of AZ, 229 Ariz. 299, 275 P.3d 598 (2012).
Some background: In 2009, TD conducted a trustee’s sale where it made a $1 million credit bid on behalf of the beneficiary of the deed of trust, Point Center Financial, Inc. (PCF). The auction was re-done later the same day after BT Capital (BT) contended that the first sale was conducted earlier than the noticed time. In the subsequent sale, BT was the highest bidder at one dollar above TD’s initial one million dollar credit bid after the trustee mistakenly failed to make a further bid on PCF’s behalf. When BT tried to pay the one million plus one dollar bid, TD rejected it, contending that the second auction was void because there had been a mistake in communicating correct bid instructions.
BT sued TD and PCF. During the litigation, TD scheduled a new sale. BT received notice of the sale, but did not secure an injunction “before 5:00 pm … on the last business day before the scheduled date of the sale.” ARS § 33-811(C). TD conducted the sale and PCF acquired the property.
The court considered two main questions: (1) Do the Arizona statutes or does common law govern BT’s claims; and (2) Did the final sale eliminate BT’s claims? The court held that because the “deed of trust scheme is a creature of statutes,” § 33-811(C) prohibited BT from challenging the completed sale “based on pre-sale defenses or objections.”
§ 33-811(C) stops “the trustor, its successors or assigns, and all persons to whom the trustee mails a notice of sale” from judicially undoing a completed sale unless they obtain an injunction before the sale. The court’s reaffirmation of this protection is good news for trustees and lenders: as soon as you complete a sale, any objecting party waives all pre-sale defenses or objections. This also means that postponing a sale gives an objecting party more time to successfully sue based on their pre-sale defenses or objections.
The court continued on to state, “If [the trustee’s] refusal to accept payment was improper (an issue we do not decide), BT might have brought an action seeking to compel [the trustee] to complete the sale consistent with its statutory obligations.” Because the issue was not decided, the court’s language is arguably dicta and not binding. Nevertheless, it does warn trustees and beneficiaries that there may be situations where “refus[ing] to accept payment [is] improper.”
Bottom line: If you are concerned about a state law challenge, the sooner the sale is completed, the sooner § 33-811(C) is applicable. In any event, be sure that the sale is conducted properly so that you don’t find out firsthand what a court considers an “improper refusal of payment.”
Michigan: Foreclosure Sale Void or Voidable?
Orlans Associates, P.C. – USFN Member (Michigan)
On December 12, 2012, the U.S. Court of Appeals for the Sixth Circuit issued an opinion in Mitan v. Federal Home Loan Mortgage Corporation, __ F.3d __, 2012 U.S. App. LEXIS 25979 (6th Cir. 2012).
In Mitan, the plaintiff challenged the validity of the sheriff’s deed, claiming that he had been denied a loan modification opportunity under Michigan’s foreclosure statute. The trial court dismissed the case, finding that the redemption period had expired, and the plaintiff therefore lacked standing to maintain the suit. While the court of appeals acknowledged that Michigan law generally restricts a borrower’s ability to maintain claims once redemption has expired, it found that the violation of the loan modification opportunity was a structural defect in the foreclosure that voided the sale. If the foreclosure was void, the court reasoned, the redemption period would not have run and the borrower would have standing to maintain his claims. This case effectively extends the post-redemption opportunity for a borrower to challenge the sale simply by alleging a defect associated with loan modification efforts, even though the statute contains an exclusive remedial provision for such a violation that limits the borrower’s rights to enjoining the sale and demanding the foreclosure be done judicially.
The significance of Mitan may be short-lived, however. In reaching its decision, the court relied on Davenport v. HSBC Bank USA, 275 Mich. App. 344 (2007), a case that held structural defects in foreclosure proceedings render the sale void. The Michigan Supreme Court, nine days after Mitan was decided, issued Kim v. JPMorgan Chase Bank, NA, Docket No. 144690, __ Mich. __, 2012 Mich. LEXIS 2220 (Mich. Dec. 21, 2012), in which it expressly rejected Davenport and held that defects in the foreclosure process render the sale voidable instead of void. Moreover, Kim suggests that where a defect in the foreclosure exists, borrowers must nevertheless demonstrate prejudice showing they would have been in a better position to preserve their interest in the property absent the noncompliance with the statute. The standard set forth by Kim places a more stringent burden on borrowers than that found in Mitan.
The holdings of the two cases are contradictory, and at least one court in the Eastern District of Michigan has declined to follow Mitan as a result of Kim. [Acheampong v. Bank of New York Mellon, Case No. 12-13223 (Jan. 16, 2013)]. The Sixth Circuit has been asked to reconsider its Mitan decision in light of Kim, although no decision has been made on that petition at this time.
February e-Upda
Florida: Notices of Default –What Level of Specificity is Required?
Ronald R. Wolfe & Associates, PL – USFN Member (Florida)
After the recent opinion by the Second District Court of Appeal, lenders can expect another impediment to promptly completing foreclosure actions. [Judy LLC v. MSMS Venture LLC, WL 5935651 (Fla. Dist. Ct. App. Nov. 28, 2012)]. At issue in Judy was a defense that has been frequently raised in the last year or so in Florida. Defense attorneys have attempted to argue that the language in the letters meant to satisfy the notice of default/notice of intent to accelerate requirement under the mortgage (usually paragraph 22) is not sufficient.
In Judy, the court ruled that a summary judgment should be overturned because the plaintiff did not overcome an affirmative defense alleging the demand letter/notice of default was insufficient to satisfy the applicable notice requirement under the subject mortgage. The notice in that case did not specify the default and generally referred to the fact that there had been a default.
While the letter in Judy was devoid of any reference to what the default was, the appellate court’s holding in the case still warrants some cause for concern. Defendants will argue that notices of default do not contain, word for word, the language in the mortgage such that the borrower would be properly informed of his right to assert defenses in the lender’s foreclosure proceeding. The argument goes on to contend that due to the fact the language in the letter does not exactly match the language contained in the mortgage, the notice of default requirement has not been satisfied. By failing to fully satisfy this condition, the court may view the action as improvidently filed, forcing the lender to dismiss its case. The lender’s only option would then be to send out a new notice of default letter, utilizing the exact language set forth in the mortgage.
Despite the decision in Judy, all hope is not lost for actions where letters without precise language were sent to comply with the paragraph 22 notice. This author’s firm and others have been successful in the majority of the cases where this defense has been raised by pointing out that the language used in such letters is in substantial compliance with the language contained in the mortgage, and thus the requirement and condition precedent have been satisfied. While no foreclosure-specific opinion in Florida has been rendered to support this stance, there is a large body of Florida contract law to support the position. The recent opinion in Judy, however, will unavoidably make unfavorable rulings more likely.
Defense counsel will attempt to use the Judy case to support their position that the notices of default must be in strict compliance with the language used in the notice requirement under the mortgage. As a result, it’s advisable that future notices of default be revised to match the exact wording of the notice requirement under the mortgage. To cure a related attack as to the number of days of notice provided in the notice of default letters, it is also advisable that the date indicated by which to cure the default be 35 days from the date on the letter versus 30 days. The additional five days will allow for delays that may be experienced between the letter being generated and the letter being mailed out, and should negate an argument that a full 30-day period to cure has not been provided.
Connecticut: Note w/Prepayment Provision Requiring Notice Does Not Affect Negotiability
by Chris Picard
In Wells Fargo Bank N.A. v. Clegg, FBT-CV-11-6019620-S, the defendant, Laura Clegg, was non-appearing through the course of the foreclosure action until she filed a motion to open and vacate judgment.
Under Connecticut General Statute § 52-212, in order to be successful on a motion to open a default judgment rendered, a party must show: (1) that she had a viable defense to the action; and (2) a reasonable cause for non-appearance.
In the motion to open, the defendant claimed two defenses were available to her in support of the motion to open. The defendant first asserted that the note was not a negotiable instrument under Conn. Gen. St. § 42a-3-104(a) due to a provision instructing the defendant to notify the lender when she was going to make a prepayment. Next, the defendant raised an issue of standing by contending that Wells Fargo was merely the holder of the note and Fannie Mae was the owner.
In a case of first impression in Connecticut, the court reviewed a provision in the note instructing a borrower to notify his/her lender of any prepayment the party was going to tender. Specifically, the defendant claimed that the notification to the lender was an additional undertaking violating Conn. Gen. St. § 42a-3-104(a)(3), thereby removing the note’s negotiability. The court disagreed, holding that the defendant could elect to make a prepayment because such a prepayment was a voluntary action under the terms of the note rather than an additional undertaking.
Turning to the defendant’s second argument, she claimed Fannie Mae owned the note and, as a result, Wells Fargo did not have standing to bring the action. The note in this instance was endorsed in blank and presented in court during the hearing on the motion to open. Further, Wells Fargo executed an affidavit setting forth: (1) the Fannie Mae guidelines that temporarily relinquish possession of the note to the servicer; and (2) Wells Fargo was in possession of the note prior to the commencement of the action. Under the provisions of the UCC and Connecticut case law, the court found that Wells Fargo was the party in possession of a bearer instrument, was entitled to enforce the note and, accordingly, had standing to bring the action.
Finally, the court found no reasonable cause for the defendant’s non-appearance. The defendant maintained that she suffered from debilitating depression and could not defend herself in the action. The court determined that the defendant provided no evidence supporting this.
California: Appellate Decision Upholds HUD Regulated Face-to-Face Meeting with Borrower
by Kimberley V. Deede
Pite Duncan, LLP – USFN Member (California)
The California Court of Appeals has adopted an expansive application of HUD’s requirement of face-to-face meetings prior to foreclosure for FHA-insured home loans. Pfeifer v. Countrywide Home Loans, 2012 WL 6216039 (Cal. Ct. App. Dec. 13, 2012). The face-to-face meeting requirement applies to loans secured by deeds of trust with language that specifically references compliance with “regulations of the Secretary” or HUD.
The Pfeifer court, relying heavily on the Virginia Supreme Court opinion in Mathews v. PHH Mortgage Corporation, 283 Va. 723 (April 20, 2012), rejected a multitude of defenses presented by the lender and held that HUD regulations were incorporated by reference into the deed of trust and, thus, a failure to satisfy the face-to-face meeting required under HUD regulations is grounds for injunctive and declaratory relief precluding foreclosure until the lender complies with the HUD servicing regulations. (See 24 CFR 203.604(b)).
The regulation provides five exceptions to the face-to-face meeting requirement. 24 CFR 203.604(d). The most notable exception subject to interpretation provides that the face-to-face meeting is not required when the mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either. 24 CFR 203.604(d)(2). The regulation, however, fails to identify what constitutes a “branch office.”
HUD had previously released an article noting that, for the purposes of face-to-face meetings, the term “branch office” is only to be interpreted as a “servicing office.” Notwithstanding, the Mathews court held that the common definition is controlling and the term “branch office” includes “every type of business and service supplied by the mortgagee, including loan origination,” despite whether the office holds qualified or adequately trained staff. The Pfeifer court noted the issue but declined to rule as to the proper interpretation of “branch office.” Thus, it is unclear whether the 200-mile exception applies in relation to loan servicing offices, loan origination offices, or offices providing general banking services. However, if the California courts follow the expansive interpretation of the term “branch office” as proposed in the Mathews decision, the exception would essentially be eliminated for those lenders and servicers who have loan origination, bank branch, and servicing offices throughout the state of California.
Finally, the Pfeifer court noted that violation of the face-to-face requirement only provides grounds for injunctive and declaratory relief and does not provide a basis for a claim for monetary damages. Furthermore, the decision appears to be limited to pending foreclosures and is likely inapplicable to invalidate completed foreclosure sales.
Mortgage Transfers by Operation of Law
by Matthew Theunick
USFN Member (Michigan)
On December 21, 2012, the Michigan Supreme Court issued its opinion distinguishing mortgage transfers by voluntary act with those by operation of law or involuntary transfers. Kim v. JP Morgan Chase Bank, NA, Docket No. 144690, __ Mich. __, 2012 Mich. LEXIS 2220. In doing so, the court looked to the seminal case Miller v. Clark, 56 Mich. 337 (1885) and noted, “The assignments which are required to be recorded are those which are executed by the voluntary act of the party, and this does not apply to cases where the title is transferred by operation of law….” (emphasis added).
By way of background, the court of appeals’ opinion, Kim v. JP Morgan Chase Bank, 295 Mich. App. 200, 2012 Mich. App. LEXIS 20 (Mich. Ct. App. Jan. 12, 2012), dealt with a mortgage transfer from Washington Mutual Bank (the Bank), to the FDIC, and then a subsequent transfer from the FDIC to JP Morgan. In reviewing the validity of these transfers vis-a-vis JP Morgan’s foreclosure-by-advertisement, the court of appeals used the statutory framework provided in MCL § 600.3204(3), which requires a “record chain of title” to exist prior to the date of sale for the party foreclosing a mortgage, and concluded that under Davenport v. HSBC Bank USA, 275 Mich. App. 344, 347-348; 793 N.W.2d 383 (2007), the foreclosure proceedings were void ab initio as there was no assignment to JP Morgan.
With respect to the transfer of assets from the Bank to the FDIC, the Michigan Supreme Court noted that the initial transfer pursuant to 12 U.S.C. 1821(d)(2)(A) was by operation of law. However, the court noted that, with respect to the subsequent transfer, “The dispositive question in this case is whether the second transfer of WaMu’s assets — the transfer from the FDIC to defendant — took place by operation of law.”
In reviewing this transfer, the court held that this did not take place by operation of law as JP Morgan acquired the assets in a voluntary transaction, through a direct sale. Interestingly, the court noted that had a merger occurred under the FDIC’s statutory authority, JP Morgan would have a strong argument it had stepped into the shoes of the Bank, as the transaction would have occurred without any voluntary action and likely would not have implicated MCL § 600.3204(3).
However, the court noted, “Because we have held that defendant acquired plaintiffs’ mortgage through a voluntary transfer, we need not decide whether MCL § 600.3204(3) applies to the acquisition of a mortgage by operation of law.” [See Footnote 26 of the majority opinion]. Thus, while Kim seemingly safeguards involuntary transfers from MCL § 600.3204(3), the actual holding doesn’t quite reach that far.
Nonetheless, in what will likely be interpreted as the key holding of Kim, the Michigan Supreme Court held that the court of appeals’ interpretation of the foreclosure by advertisement sale of JP Morgan as being void ab initio, under Davenport, was contrary to the established precedent of this court. The court further noted, “We have long held that defective mortgage foreclosures are voidable” and in order to determine whether a foreclosure sale should be set aside, due to defects or irregularities, the key test is whether the foreclosed borrowers are able to “show that they were prejudiced” and that “To demonstrate such prejudice, they must show that they would have been in a better position to preserve their interest in the property absent [the] defendant’s noncompliance….”
Winter 2013 USFN Report
Who has Standing to Foreclose?
by Kimberly Wright and Adam Silver
In Georgia, the foreclosure sale of real property must be conducted by the “secured creditor,” in accordance with O.C.G.A. § 44-14-162, 44-14-162.1, and 44-14-162.2. Although the term “secured creditor” appears in multiple places in the foreclosure-related statutes of the Georgia Code, it is not defined in these statutes. Consequently, the definition of the term “secured creditor” has been interpreted in various ways by the Georgia Court of Appeals and the federal district courts in Georgia.
The majority of federal courts in Georgia addressing the question of defining “secured creditor” under this state’s law have held that an assignee of the security instrument containing a power of sale provision is the “secured creditor” and may initiate nonjudicial foreclosure proceedings against the property, even without also holding the subject promissory note evidencing the underlying indebtedness. See, e.g., LaCosta v. McCalla Raymer, LLC, No. 1:10-CV-1171-RWS, 2011 U.S. Dist. LEXIS 5168 (N.D. Ga. 2011). The reasoning behind this analysis is that under Georgia law a security instrument that includes express language granting the holder of the security instrument an assignable power of sale is a contract and the provisions under the security instrument are controlling as to the rights of the parties and their privies. Moreover, O.C.G.A. § 44-14-64(b) expressly provides that the underlying indebtedness follows the transfer of the security instrument.
The minority of federal courts in Georgia have held that in order to conduct a nonjudicial foreclosure pursuant to a power of sale contained in a security instrument, the “secured creditor” must be the holder of the promissory note and/or possess an interest in the underlying debt in addition to being the holder of the security instrument. See Stubbs v. Bank of America, 844 F. Supp. 2d 1267, 1273, n.3 (N.D. Ga. 2012).
Recently, in Reese v. Provident Funding Associates, LLP, 730 S.E.2d 551, 553 (Ga. Ct. App. July 12, 2012), the majority opinion, in dicta, appeared to equate the term “secured creditor” with “owner” of the loan without explicitly defining the term “secured creditor” as part of its holding and found that the servicer of the loan did not qualify as a “secured creditor” under Georgia foreclosure law.
As a result of the split of authority on this issue, the Chief Judge of the U.S. District Court for the Northern District of Georgia, in You v. JPMorgan Chase Bank, N.A., No. 1:12-CV-00202-JEC, Doc. 16 (N.D. Ga. Sept. 7, 2012), certified three questions to the Supreme Court of Georgia, asking the court to provide guidance and clarity on the legal issues pertaining to Georgia foreclosure law. The relevant question states: “Can the holder of a security deed be considered to be a secured creditor, such that the deed holder can initiate foreclosure proceedings on residential property even if it does not also hold the note or otherwise have any beneficial interest in the debt obligation underlying the deed?”
The certified questions were docketed in the Georgia Supreme Court on September 13, 2012 and oral arguments were held on January 7, 2013. During oral arguments, the justices addressed certain cases in the parties’ briefs and the applicability of those cases to the facts in You. Specifically, the court requested additional briefing on Milani v. One West Bank FSB, No. 11-15378, 2012 U.S. App. LEXIS 21559 (11th Cir. 2012) (unpublished opinion).
As of the time that this article went to print, the Supreme Court of Georgia has been briefed on the Milani case by counsel on both sides, and a holding is expected in the near future. For the time being, many investors and servicers have chosen to err on the side of caution when foreclosing in Georgia by: (1) recording assignments prior to the initiation of the foreclosure action; and (2) naming the loan investor in addition to the note holder in statutory foreclosure notices.
LEGAL ISSUES UPDATE Eminent Domain for Underwater Mortgages
by Hassan Elrakabawy
The controversial proposal, first floated in San Bernardino County to seize and restructure the mortgages of homeowners who are current but underwater, appears to have retreated in the past few months in the face of vocal, organized opposition, but the proposed program could still go forward in 2013.
The concept, hatched early in 2012 by Mortgage Resolution Partners (MRP), a San Francisco firm, has attracted attention from several municipalities across the country — including Wayne County, Michigan; Chicago, Illinois; and, of course, several towns in California. It would allow local governments to use their power of eminent domain to seize mortgages, permitting private investors to purchase the mortgages at a discount, write them down to fair market value, and then create modified payments for borrowers based on the reduced principal balance due. The loans would then be sold to hedge funds, pension funds, or other investors, with the proceeds being used to pay off outside investors, obtained by MRP, who are funding the eminent domain process. MRP would take a fee for each loan seized and modified, and the original bondholder would be out the difference between what was owed on the original mortgage and the renegotiated loan at current market value. The county would retain the mortgage notes.
Several industry groups including, among others, the American Bankers Association, the American Securitization Forum, the Association of Mortgage Investors, the California Bankers Association, the Community Mortgage Banking Project, the Mortgage Bankers Association, Sifma, and the Financial Services Roundtable have banded together to oppose the proposal. Some federal agencies have even issued statements warning that it could make it harder for borrowers to get loans and force lenders to levy additional fees as a safeguard against government mortgage seizures.
In September 2012, U.S. Rep. John Campbell (R-Irvine, CA) introduced federal legislation to prohibit the nation’s top four mortgage lenders — Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Veterans Administration — from purchasing or guaranteeing loans in counties or cities that use eminent domain to seize underwater mortgages. That bill has since died in session, but it or something similar could very well be introduced or reintroduced. On the other side of the issue, U.S. Attorney General Eric Holder and California Lieutenant Governor Gavin Newsom have recently requested that federal prosecutors investigate any attempts by Wall Street investors and government agencies to “boycott” California communities that are considering such moves.
It remains to be seen what the next steps will be. San Bernardino County has formed a joint-powers authority (JPA) with the cities of Ontario and Fontana to consider MRP’s proposal. The JPA met in late January and decided against considering proposals that would utilize eminent domain to “fix” the mortgage crisis in that California county. Other towns and communities around the nation facing depressed housing values will surely be watching for any further developments early in the New Year on this issue. If nothing gets accomplished in the first half of the year, many observers predict MRP will give up on the concept.
National Uniform Servicing Standards Under the CFPB
by Donna M. Case-Rossato
The Consumer Financial Protection Bureau, or CFPB, was empowered by the Dodd-Frank Wall Street Reform and Consumer Protection Act to enforce new requirements upon servicers, including default servicers, and to promulgate rules to effectuate the enforcement. To that end, the CFPB proposed rules, invited comment on those rules, and then released final mortgage servicing rules in January 2013.
The rules themselves are designed to ensure increased accountability and transparency of the servicing practices they address. CFPB announced the final rules at the time this article went to print. Accordingly, please see http://files.consumerfinance.gov/f/201301_cfpb_servicing-rules_summary.pdf and http://www.consumerfinance.gov/regulations/2013-real-estate-settlement-procedures-act-regulation-x-and-truth-in-lending-act-regulation-z-mortgage-servicing-final-rules/; there are links to each on the USFN website.
The rules are grouped in two categories: Issues related to the Real Estate Settlement Procedures Act (RESPA) and those related to the Truth in Lending Act (TILA). While the TILA-related proposed rules address items such as the timely crediting of payments and a time frame to deliver payoff quotes (with violations subjecting servicers to damages and attorneys’ fees), the proposed RESPA-related rules may have a larger direct impact on the default servicing departments.
The proposed RESPA-related rules address expansion of qualified written requests (QWRs) and error resolution; issuance of force-placed insurance; establishment of information management procedures and policies; and early intervention via loss mitigation, including a dedicated contact for the customer. Changes proposed for QWRs originally included oral requests as well as written ones. The rule, 12 CFR 1024.34, as passed, includes written requests only. Error has been defined to include:
Failure to accept a payment that conforms to servicer’s written requirements;
Failure to apply an accepted payment pursuant to the terms of the mortgage loan and applicable law;
Failure to timely credit a payment to the mortgage loan;
Failure to timely pay for escrowed charges;
Imposing a fee or charge without a reasonable basis;
Failure to timely provide an accurate payoff balance;
Failure to provide accurate loss mitigation options and foreclosure information;
Failure to provide accurate and timely information regarding transferring of mortgage loan servicing;
Failure to appropriately file the first notice as required by state law;
Failure to appropriately move for foreclosure judgment or order of sale; and
Any other error relating to the servicing of a mortgage loan.
The time to acknowledge the request was shortened to five days of receipt of notice, excluding legal public holidays and weekends. Additional time frames are provided for additional communications. Requests for information are similarly provided for in 12 CFR 1024.36.
Changes to the timing of force-placed insurance notices have also been promulgated in 12 CFR 1024.37. Specifically, the first notice of imposition of force-placed insurance shall be at least 45 days prior to charging for force-placed insurance. The second notice cannot be any earlier than 30 days after the initial notice. The CFPB has provided guidance for the content of the letter, to include:
Date of notice;
Servicer’s name and mailing address;
Borrower’s name and mailing address;
A request that the borrower provide hazard insurance information for the borrower’s property and identify the property by its physical address;
Notification that the borrower’s hazard insurance is expiring or has expired, and that the servicer does not have evidence of hazard insurance coverage past the expiration date and that, if applicable, identifies the type of hazard insurance for which the servicer lacks evidence of coverage;
Notification that hazard insurance is required on the borrower’s property and that the servicer has purchased or will purchase such insurance at the borrower’s expense;
A request that the borrower promptly provide the servicer with insurance information;
Describe the requested insurance information and how the borrower may provide that information and, if applicable, a statement that the information must be in writing;
Notice that insurance the servicer has purchased or purchases:
o May cost significantly more than hazard insurance purchased by the borrower;
o Not provide as much coverage as hazard insurance purchased by the borrower;
The servicer’s telephone number for borrower inquiries; and
If applicable, a statement advising the borrower to review additional information provided in the notice.
Prior to issuing the notice, the servicer must have a “reasonable” basis to believe that a customer has failed to maintain insurance. This should not be too dissimilar to the present basis if the servicer is a loss payee on the existing policy. In general, the insurer will notify a loss payee if a policy lapses. From there, the servicer will need to exercise a measure of due diligence to verify the lapse, as they should be doing presently.
Many of the concerns related to the above changes are rooted in the perception that a servicer may have inadequate management policies and procedures. The CFPB has promulgated rules to address this perceived inadequacy. See 12 CFR 1024.38. The policies must be reasonable for the scope, size, and nature of the servicer’s operations, though the CFPB does not define “reasonable.” The success of policies and procedures may be measured by considering whether the servicer regularly provides timely and accurate information to borrowers and courts or whether servicer personnel have prompt access to documents and information submitted in relation to loss mitigation efforts.
Loss mitigation as a whole is examined and addressed by the CFPB at 12 CFR 1024.41. This section does not impose a duty on the servicer to provide a specific loss mitigation option. Nor does it provide the borrower a right to enforce the terms of an agreement between the owner or holder of the loan and the servicer regarding loss mitigation options. Early intervention and a dedicated contact are encouraged. See 12 CFR 1024.39. There must be a good faith effort to notify a delinquent customer of their loss mitigation options. Provisions are made for the timing of applications and responses based upon the stage of the foreclosure itself, specifically as it relates to the foreclosure sale.
Reasonable policies and procedures covering loss mitigation personnel, access to borrower’s records, the providing of loss mitigation options and the status of loss mitigation applications will need to be developed. This is an attempt by the CFPB to address a common complaint of customers that the loss mitigation process is too segmented. Complete loss mitigation applications must be reasonably evaluated before proceeding with a foreclosure sale. Timetables are provided for contacting the borrower based upon a number of contingencies: receiving an incomplete package; reviewing the completed package; issuing denials; and appeals of the denials.
What remains to be seen is how these requirements will interface with state-mandated foreclosure mediation programs, whose timetables may differ greatly from the above, as well as how those conflicts will be resolved.
Impact on the day-to-day operations of servicers will be monumental, but the benefits to their customers well worth the effort.
Lien Avoidance Issues With a Look to Colorado and Georgia
by Teresa L. Bailey
Aldridge Connors LLP
by Elizabeth S. Marcus & Britney Beall-Eder
Real estate attorneys representing default servicers never find it easy to inform a client that its security interest is not recorded; is recorded — but in the wrong county; or is so flawed that it fails to provide notice of the lien. While these defects often can be remedied without a loss to the client, in other circumstances the blemishes can result in a complete failure of the lien. Outcomes vary state to state and often turn on the matter of notice. The injection of the federal bankruptcy process into this scenario further complicates the analysis and can lead to some unusual outcomes.
Under Bankruptcy Code § 544, a bankruptcy trustee may file an adversary proceeding to avoid a mortgage lien on the basis that the lien was not properly perfected prior to the filing of a bankruptcy. An order by a bankruptcy court determining that a mortgage lien may be avoided by a bankruptcy trustee will leave the lender with only an unsecured lien — a harsh result for the lender.
Whether or not a lien may be avoided by the trustee will be dictated by state law. [See, generally, Montoya v. Litton Loan Servicing, LLC, 367 B.R. 825 (Bankr. D.N.M. 2007) (mortgage lien avoided because applicable state law rendered the lien unperfected; Royal v. First Interstate Bank, 2011 Bankr. LEXIS 4481 (Bankr. D. Wyo.) (lien property perfected under state law when recorded).] However, the determination that a lien may be avoided is factually driven. For example, failing to record the mortgage lien in the correct county or failing to record the document at all will usually render the lien avoidable by the trustee. To the contrary, other technical issues potentially affecting lien perfection may not be so clear.
In Hamilton v. Washington Mutual Bank, FA, 563 F.3d 1171 (10th Cir. 2009), the Tenth Circuit held that the trustee was not entitled to avoid a mortgage lien under 11 U.S.C. § 544(a) due to a scrivener’s error. Specifically, the legal description in the mortgage described the property with an incorrect lot number. The Tenth Circuit concluded under Kansas law that a purchaser “would be on constructive notice that the Bank’s mortgage created a lien on that property or, at the least, a purchaser would be on constructive notice of facts that would require a reasonably prudent person to investigate and then determine that the Bank’s mortgage burdened the property.”
Similar to the Hamilton decision, the Bankruptcy Court for the District of Colorado issued its opinion in Hill v. Bayview Loan Servicing, LLC 422 B.R. 270 (Bankr. D. Colo. 2009). In Hill, both the recorded vesting deed and the deed of trust contained an error in the legal description listing Block 4 instead of Block 34. The chapter 7 trustee sought to use his “strong-arm” powers to avoid the lender’s deed of trust.
The court in Hill ruled that the trustee was not entitled to avoid the deed of trust, finding that sufficient information existed to place a reasonably prudent purchaser on inquiry notice. The court noted that under Colorado Real Estate Title Standards, an examination of title includes a “search of the direct and inverted (grantor-grantee) indices of recorded documents maintained by the clerk and recorder of the county in which the property is located,” and that, if such examination had been performed, the trustee would have been placed on notice to further investigate.
More recently, the case of Sender v. Cygan (In re Rivera, 11SA261, 2012 LEXIS 398 (Colo. June 4, 2012) has placed Colorado real estate lawyers, bankruptcy counsel and title insurers into a tailspin. In Cygan, the deed of trust in question contained the correct grantor, grantee, and property address. The document was recorded in the proper county. However, the legal description to be attached to the document as Exhibit A was omitted.
The Bankruptcy Court for the District of Colorado asked the Colorado Supreme Court for guidance under state law to determine whether the lien was properly perfected. The Colorado Supreme Court responded that the complete omission of the legal description rendered the deed of trust defectively recorded and could not provide the chapter 7 trustee with constructive notice of the lien. A petition for rehearing is pending as of this writing.
To appreciate the possible sweeping implications of this decision, the Land Title Association of Colorado’s amicus curiae petition states that between 2002 and 2011 approximately 4,000 deeds of trust and warranty deeds a year were recorded without the legal descriptions attached.
Similarly, the Supreme Court of Georgia is considering the impact of certain technical defects upon the perfection of a security deed. The case of Wells Fargo Bank N.A. v. Gordon, No. S122067, began as an adversary proceeding initiated by the bankruptcy trustee seeking to avoid Wells Fargo’s security interest in real property. The security deed at issue lacks the signature of an unofficial witness. On that basis, the trustee asserted that the security deed was not “duly recorded” under state law, as only security deeds that have been attested by or acknowledged before one official and one unofficial witness are permitted to be recorded by the clerk and deemed to provide constructive notice to subsequent bona fide purchasers.
The subject security deed expressly incorporates the terms of any rider attached thereto. Although the security deed lacked the signature of an unofficial witness, the attached rider was expressly incorporated into the security deed and contained the borrower’s signature, attested to by both an unofficial witness and an official witness with a notary seal.
Summary judgment avoiding the security deed was granted to the trustee by the bankruptcy court, and was affirmed by the district court. Wells Fargo appealed to the Eleventh Circuit. The Eleventh Circuit asked the Georgia Supreme Court for guidance regarding whether the security deed under these circumstances was “duly recorded, thereby placing a subsequent purchaser on constructive notice or, in the alternative, inquiry notice.
In its brief, Wells Fargo argues that if the rider and the security deed are treated as a single document, the proper execution of the rider satisfies the requirement of the statute, as both the rider and security deed incorporate the terms of the other, and the rider has all of the proper signatures, thereby providing constructive notice. Wells Fargo reasons that there is no prescribed form or limitation on where the borrower’s signature or the attestations to that signature may appear on the documents.
In the alternative, Wells Fargo asserts that if the rider was insufficient to rehabilitate the security deed, then the attestations created the appearance that the security deed was in recordable form as determined by the clerk who recorded the documents. There is Georgia Supreme Court precedent holding that a security deed is duly recorded when it appeared to be properly attested and was later recorded by the clerk.
Finally, Wells Fargo contends that should the court find that the security deed was not “duly recorded,” the rider was sufficient to put the world on inquiry notice of the existence of the security deed. The rider identified the grantor of the security deed, the date the interest was conveyed, and the lender. Thus, the rider alone should trigger the duty of a bona fide purchaser to investigate the nature of Wells Fargo’s interest in the property.
Oral argument before the Georgia Supreme Court took place on November 6, 2012. A decision will be made in the coming months.
Look for more coverage on this topic by USFN as further judicial decisions are issued in the pending cases referenced in this article, as well as in new cases.
State Legislative Updates -New Jersey
by Rosemarie Diamond
Phelan Hallinan & Diamond
USFN Member (New Jersey, Pennsylvania)
Since the stays of foreclosure that began in New Jersey in 2010, and the slow start-up of new processes after the release of the stays in 2011, many vacant properties have lingered in foreclosure, causing concerns and creating challenges in neighborhoods and local communities. To address these issues, the New Jersey legislature passed a provision in autumn 2012 allowing for the expedited foreclosure of vacant and abandoned residential properties that have fallen into disrepair. The bill, known as Senate Bill 2156, was signed into law by the governor on December 3, 2012. The final version of the signed bill has not been released as of this writing, but it should largely follow the legislative version described below. The law will take effect four months after it was enacted, i.e., in April 2013.
The new procedure allows lenders to use an expedited process to obtain final judgment in foreclosure if the property is vacant and abandoned. The lender may file a summary action at any time during an active foreclosure action. Unlike other uncontested foreclosure cases, for which all final judgments are processed at the centralized Office of Foreclosure in Trenton, New Jersey, the summary motion to expedite the foreclosure of vacant and abandoned property is filed in the county court, where the property is located. The lender must present clear and convincing evidence that the property is abandoned, as well as all other evidence required to prove the default and support the request for final judgment.
The sheriff has 60 days to take the property to sale. If the sheriff does not sell the property in 60 days, the lender can file a motion to appoint a special master to sell the property.
In order to prove the property is vacant and abandoned, the lender must present evidence of at least two of the following listed conditions, although this author’s firm recommends that as many relevant factors be identified as possible to show a good faith effort to request an expedited foreclosure in only the most appropriate circumstances:
Overgrown or neglected vegetation
The accumulation of newspapers, circulars, flyers, or mail on the property
Disconnected gas, electric, or water utility services to the property
The accumulation of junk, litter, trash or, debris, or hazardous, noxious, or unhealthy substances or materials on the property
The absence of window treatments such as blinds, curtains, or shutters
The absence of furnishings or personal items
Statements of neighbors, delivery persons, or government employees indicated that the residence is vacant and abandoned
Windows or entrances that are boarded up or multiple window panes that are damaged, broken, or unrepaired
Doors to the property that are smashed through, broken off, unhinged, or continuously unlocked
A risk to health, safety, or welfare of the public, or any adjoining or adjacent property owners, as a result of vandalism, loitering, criminal conduct, or physical destruction or deterioration of the property
An uncorrected violation of municipal building, housing, or similar codes during the preceding year
The mortgagee or other authorized party has secured or winterized the property due to the property being deemed vacant and unprotected or in danger of freezing
A written statement issued by the mortgagor expressing the clear intent to abandon the property
Or any other reasonable indicia of abandonment
The law does not apply if there is an unoccupied building that is undergoing construction, renovation, or rehabilitation that is proceeding diligently; if the building is occupied on a seasonal basis, but otherwise secure; or if the building is secure, but subject to a probate action or other ownership dispute.
Lenders are cautioned to draw a distinction between those properties that were vacant and abandoned prior to Hurricane Sandy, and those properties that were damaged during the hurricane and are awaiting evaluation for rehabilitation.
State Legislative Updates -California
Northwest Trustee Services, Inc.
USFN Member (California, Oregon)
Homeowner Bill of Rights — In 2008 the passage of SB 1137 constituted a major change in California’s foreclosure laws. SB 1137 enacted a loss mitigation statute as well as tenant protection and vacant property maintenance statutes. There had been no significant change in foreclosure laws until the passage of California’s Homeowner Bill of Rights (HOBR) in 2012. Similar to SB 1137, HOBR enacted a few code sections further targeting loss mitigation efforts, tenant protection, and vacant property maintenance, among others. Like SB 1137, HOBR had significant support in both the Assembly and the Senate, and was further sponsored by California’s attorney general. Unlike SB 1137, HOBR was introduced shortly following the signing of the National Mortgage Settlement (NMS), and sought to incorporate the concepts of NMS into the state’s nonjudicial statutory scheme. Thus, making California one of the first trustee states to codify the NMS concepts, and extend their application beyond the five major servicers.
The package known as HOBR consists of six bills that can be briefly summarized as follows:
AB1950 — Effective on January 1, 2013, this bill amended Business & Professions Code §§ 10085.6, 10130 and amends Civil Code § 2944.7 and Penal Code § 802. The bill extends indefinitely the sunset deadlines on existing prohibitions on persons arranging loan modifications from demanding upfront fees, requiring security as collateral, or taking a power of attorney from a borrower. This bill also extends the statute of limitations for prosecution of practicing law without a license, acting as a real estate broker, salesperson, or mortgage loan originator without a license, or in the case of arranging for a loan modification, collecting upfront fees, requiring security as collateral or a power of attorney from a borrower, from one year of the commission of the offense to three years from discovery of the offense or three years after completion of the offense, whichever is later.
AB2314 — Effective January 1, 2013, this bill amended Civil Code § 2929.3, and Health & Safety Code §§ 17980, 17980.7. The bill extends the sunset provision of Civil Code § 2929.3 indefinitely. The bill requires any entity that releases a lien securing a deed of trust or mortgage for which a notice of pendency of action is recorded against the property (by a government enforcement agency attempting to enforce state housing laws) to notify in writing the enforcement agency that issued the notice within 30 days of releasing the lien. The bill also authorizes a court to require the owner of a property to pay all unrecovered costs associated with receivership, in addition to any other remedy authorized by law.
AB2610 — This bill became effective on January, 1, 2013; however, changes to the notice to tenant are effective on March 1, 2013, or 60 days following the posting of a dated notice incorporating the amendments on the Department of Consumer Affairs’ website, whichever is later. This bill amends Civil Code § 2924.8 and Code of Civil Procedure §§ 415.46 and 1161b. Existing law requires a resident of property upon which a notice of sale has been posted to be provided a certain tenant notice. Existing law requires a state government entity to make translation of the tenant notice available in five specified languages. This bill revises certain portions of the tenant notice, including changing the notice period from 60 to 90 days. The bill requires the tenant notice to include certain verbiage. The bill also requires the Department of Consumer Affairs to make translation of the tenant notice available in five specified languages. The bill additionally mandates that in an unlawful detainer action resulting from a foreclosure sale of a rental housing unit, the provisions regarding objection to the enforcement of a judgment not limit the right of a tenant or subtenant to file a prejudgment claim of right of possession or to object to enforcement of a judgment or possession, regardless of whether the tenant/subtenant was served with a prejudgment claim of right to possession. Further, the bill changes the notice-to-quit period from 60 to 90 days, and extends the operation of provision to December, 31, 2019.
SB1474 — Effective on January, 1, 2013, this bill amended Penal Code §§ 781, 923. The bill authorizes the attorney general to convene a special statewide grand jury for cases involving fraud or theft that occur in more than one county, and were conducted by a single defendant or multiple defendants acting in concert.
SB900/AB 278 — Effective January 1, 2013, these two identical bills directly impact the nonjudicial foreclosure process. These bills enact 13 new code sections and amend an existing three sections. This article focuses on summarizing the new requirements and the changes in the foreclosure process. For ease of reference going forward, SB900/AB278 will be referred to as SB 900.
SB 900 (the successor to SB 1137) incorporates the concepts of the NMS. SB 900 was introduced in March 2012, shortly after the National Mortgage Settlement was reached among the five major mortgage servicers and the attorneys general of 49 states. The bill incorporates the concepts of the national servicing standards (NSS) into California’s nonjudicial foreclosure statutes. The stated purpose of SB 900 (See Civil Code § 2923.4) is to ensure that borrowers are considered for and have a meaningful opportunity to obtain available loss mitigation options. California has had a loss mitigation statute since the passage of SB 1137 in 2008; however, SB 900 places greater focus on loss mitigation efforts, and provides for new penalties and remedies in case of noncompliance.
Application of SB 900 — SB 900 applies to first liens for properties that are owner-occupied and secured with residential property (1-4 units) (see Civil Code § 2924.15). The bill contains new definitions for mortgage servicer, foreclosure prevention alternative, borrower, and first lien (see Civil Code § 2920.5). The bill contains two categories of code. The majority of sections apply to entities that conduct more than 175 foreclosures per year. A smaller group of sections govern entities conducting 175 foreclosures or less per year. SB 900 further breaks down into sections that took effect on January 1, 2013, and those that will take effect on January 1, 2018. In reading the bill, care needs to be taken that the correct governing code (more than 175 foreclosures per year or less), and the correct time frame (effective date of January 1, 2013 or January 1, 2018) is utilized.
Standing Requirement before Starting Foreclosure — The amended Civil Code § 2924 requires that only the holder of the beneficial interest, or its authorized agent acting within the scope of authority or original or substituted trustee may record a notice of default or start the foreclosure process.
New Pre-foreclosure Notices Required For Over 175 FCs — For those entitles conducting more than 175 foreclosures per year, loss mitigation efforts are no longer governed by Civil Code § 2923.5. The new section governing loss mitigation efforts is Civil Code § 2923.55, which requires that two new pre-foreclosure notices be sent to the borrower as follows: (1) Servicer shall send a written Servicemembers Civil Relief Act notice to the borrower; and (2) Servicer shall send a written statement to the borrower that the borrower is entitled to receive a copy of the promissory note, copy of the deed of trust, copy of any assignment, if applicable, and a copy of the borrower’s payment history. A notice of default (first legal action) cannot be recorded until the new pre-foreclosure notices are sent.
Loan Modification Processing For Over 175 FCs — Prohibition on Dual Tracking — Newly enacted Civil Code § 2924.10 requires that when a borrower submits a “Complete First Lien Loan Modification Application” (a defined term), the servicer shall acknowledge receipt in writing within five business days. The initial acknowledgment of receipt also needs to set forth a detailed description of the loan mediation or foreclosure prevention alternative process, including any deadlines and documents required. After the initial acknowledgment of receipt, any time a borrower submits additional documents, the servicer must acknowledge receipt in writing within five business days. Further, the amended Civil Code § 2923.6 mandates that when a borrower submits a “Complete Loan Modification Application,” a notice of default cannot be recorded while the application is pending review or on appeal. This provision is part of the prohibition on dual tracking. Dual tracking refers to the practice of discussing loss mitigation options with the borrower while foreclosure proceeds concurrently.
After an application review, if the borrower is offered a loan modification, the notice of default cannot be recorded until 14 days after the borrower does not accept the offer, or until the borrower breaches any agreement. If the borrower is denied a loan modification, there is a 30-day appeal period, and the notice of default cannot be recorded until 31 days after the borrower is notified in writing of the denial. If a borrower is denied a loan modification, the servicer has to send a denial letter to the borrower, stating the specific reason for the denial.
Following the denial letter, the borrower has 30 days to appeal a denial, and a notice of default cannot be recorded during the appeal period. The notice of default cannot be recorded until 14 days after the borrower does not accept an offer or, if the borrower accepts the offer, until the borrower breaches any agreement.
As an additional prohibition on dual tracking, the newly enacted Civil Code § 2924.11 provides that if a foreclosure prevention alternative is approved in writing prior to recording a notice of default, a notice of default shall not be recorded while the borrower is complying with the terms or, in the case of a short sale, while a foreclosure prevention alternative is approved by all parties in writing, and proof of funds or financing has been provided to the servicer. If a foreclosure prevention alternative is approved in writing after the notice of default is recorded, then a notice of sale cannot be recorded under the two circumstances just stated. Moreover, any recorded notice of default shall be rescinded and any sale set needs to be cancelled. When a borrower signs a permanent foreclosure prevention alternative, the servicer shall provide a fully signed copy to the borrower.
Civil Code § 2924.11 also prohibits charging an application or processing fee for a foreclosure prevention alternative, and prohibits charging late fees while a foreclosure prevention alternative is under review, on appeal, or the foreclosure prevention alternative is being exercised. If the loan servicing transfers, the subsequent servicer is bound by an agreement entered into with the prior servicer.
Multiple Applications Throughout the Foreclosure Process — SB 900 permits a borrower to submit a complete loan modification application at any time before or during the foreclosure process; and every time a complete application is submitted, the foreclosure process must go on hold. A borrower may submit multiple applications for the purpose of delay. Civil Code § 2923.6 does provide that a servicer is not obligated to evaluate a repeat application from a borrower who has previously been reviewed or afforded a fair opportunity to be reviewed, unless there has been a material change in the borrower’s financial circumstances. “Material change” is not a defined term. The statute is ambiguous as to how many times and under what circumstances repeat applications need to be reviewed.
Single Point of Contact Requirement for Over 175 FCs — Newly enacted Civil Code § 2923.7 requires that upon a borrower requesting a foreclosure prevention alternative, a servicer shall establish a single point of contact (SPOC).The SPOC can be a team of people that have certain enumerated responsibilities, and need to remain assigned to the borrower until all loss mitigation options (loan modification, deed-in-lieu, short sale) have been exhausted or the borrower’s account becomes current.
Document Review Requirement Applies to All — Newly enacted Civil Code § 2924.17 is the document review provision, and it requires that any notice of default, notice of sale, assignment of a deed of trust, substitution of trustee, or declaration or affidavit recorded or filed with the court shall be accurate and complete, as well as supported by competent and reliable evidence. Before recording or filing any of these listed documents, a servicer shall ensure that it has reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose.
New Notice is Required after Recording the NOD for Over 175 FCs — Newly enacted Civil Code § 2924.9 requires that unless a borrower has previously exhausted the first lien loan modification process, within five business days after recording the notice of default the servicer shall send a written communication to the borrower stating that the borrower may be evaluated for a foreclosure prevention alternative, and explaining the process for application. Furthermore, amended Civil Code § 2924 requires that whenever a sale is postponed by at least 10 business days, written notice needs to be mailed to the borrower within five business days following the postponement. The sale postponement notice provision applies to all; it is not limited to entities that conduct over 175 foreclosures per year.
Government Action upon Non-Compliance — If a servicer engages in repeated violations of the document review provision, a government entity may bring action for a civil penalty up to $7,500 per deed of trust or mortgage. Additionally, the Department of Corporations, the Department of Financial Institutions, and the Department of Real Estate may adopt regulations necessary to carry out the purpose of the act.
Borrower’s Private Right of Action — A borrower has a private right of action to bring a lawsuit for a material violation of SB 900. Before a trustee’s deed upon sale is recorded, a borrower may sue for an injunction, as well as reasonable attorneys’ fees if successful in obtaining injunctive relief. The servicer has an opportunity to remedy the violation and if the violation is remedied, there is no liability (other than the borrower’s attorneys’ fees). After a trustee’s deed upon sale is recorded, a borrower may sue for actual damages and reasonable attorneys’ fees. At this point, the servicer no longer has an opportunity to remedy the violation.
If a court finds that the violation was intentional, reckless, or willful, the court can award punitive damages in the amount of three times the borrower’s actual damages, or $50,000, whichever is greater. A violation by a person licensed by the Department of Corporations, the Department of Financial Institutions, or the Department of Real Estate shall be deemed to be a violation of that person’s licensing law. After a trustee’s deed upon sale is recorded, the servicer, mortgagee, trustee, beneficiary, or authorized agent faces joint and several liability for the borrower’s damages.
Entities Conducting 175 Foreclosures Or Less a Year — SB 900 is less burdensome for entities that conduct 175 or less foreclosures annually. Civil Code § 2923.5 continues to govern the loss mitigation activities for those entities. In addition, the prohibition on dual tracking listed in Civil Code § 2924.18 and the borrower’s private right of action listed in Civil Code § 2924.19 govern. The definitions set forth in Civil Code §§ 2920.5 and 2924.15 apply to all entities. Furthermore, the standing and postponement notice requirements of Civil Code § 2924, the document review provision of Civil Code § 2924.17, and the penalties of Civil Code § 2924.20 apply to all entities.
Conclusion — SB 900 significantly changes the nonjudicial foreclosure process in California, imposes additional responsibilities on servicers, affords borrowers multiple opportunities for a foreclosure prevention alternative, and dictates the protocol for conducting the loss mitigation efforts. While 2012 has been a year of considerable regulatory changes, California is one of the first nonjudicial states to incorporate the concepts of national serving standards into its nonjudicial statutory scheme.
BANKRUPTCY UPDATE More Changes Ahead?
by Deanna Westfall
Chair, USFN Bankruptcy Committee
Vice Chair, USFN Bankruptcy Committee
Recently, the Chapter 13 Form Plan Working Group for the Advisory Committee on Bankruptcy Rules released its current proposals for comment. These proposals are broad, encompassing both a proposed National Chapter 13 Plan form and significant rule changes. As explained more fully below, the proposed rules and National Chapter 13 Plan are heavily weighted against mortgage lenders’ and servicers’ interests. Uniformity, which is one of the stated goals of the Working Group, is generally beneficial to our industry. However, these proposals, if approved, will likely add significant risks and costs to loan mortgage servicing that far outweigh any benefit obtained by uniformity.
Starting with the proposed rules, the most disturbing new provision would require secured creditors to file a proof of claim in Chapter 13 plans to get paid. In other words, if the debtor’s proposed plan correctly states the amount of arrearage to be cured, the servicer is still required to file a proof of claim in order to receive distributions. Directly in contrast with this requirement is a provision stating that the terms of the confirmed plan will trump any contrary proof of claim. Since the plan would control regardless of the arrearage amount stated in the timely-filed proof of claim, there will likely be an increase in plan objections by creditors seeking to protect their rights.
The proposed rules indicate that the deadline to object to the plan will be at least seven days prior to the confirmation hearing, unless ordered by the court. Likewise, the proof of claim bar date would be decreased to 60 days from the petition filing, rather than 90 days from the first scheduled Section 341 meeting of creditors. This shortens the bar date by more than 90 days and will create further pressure on lenders/servicers to timely file proofs of claim that comply with all of the various requirements of the rules. When combined with the changes to the proof of claim process that became effective in 2011 (e.g., escrow analysis, itemization for attachment A to B-10 form, etc.), these proposed rules would greatly increase the burdens of servicing mortgages in Chapter 13 proceedings.
The proposed rules and the uniform Chapter 13 plan further provide that claim objections, cram downs, and lien strips that currently require a separate objection, motion, or adversary complaint, may be completed in the plan confirmation process. Thus, a claim may be disallowed, a lien stripped, or a cram down approved without the separate additional notice historically required via a claim objection, motion, or adversary proceeding. The proposed rules will also allow a debtor to file a motion to obtain an order confirming a secured claim has been satisfied after payment or discharge of the claim. Accordingly, the proposed rules will mandate increased lender/servicer vigilance to ensure that plan objections, as well as proofs of claim, are timely filed in order to protect the creditor’s rights from being impaired/modified under a Chapter 13 plan.
Finally, the new proposal leaves unresolved the question of what happens to a late-filed proof of claim or to a claim that is not filed at all. Precedent tells us that a secured creditor is not required to file a proof of claim and may simply “ride out” the Chapter 13 process relying on its lien for future satisfaction. See, 11 U.S.C. Section 506(d); Long v. Bullard, 117 U.S. 617, 6 S. Ct. 917 (1886); In re Taylor, 132 F.3d 256 (5th Cir. 1998); and In re Tarnow, 749 F.2d 464 (7th Cir. 1984). Furthermore, Section 1325(a) clearly states that a debtor’s personal liability for long-term debts secured solely by a debtor’s principal residence that mature after plan completion is not discharged. Whether the new rule proposals will effect a waiver of arrears for those creditors who do not timely file proofs of claim and object to the plan (in the absence of any corresponding change to the Bankruptcy Code) remains to be seen.
The final proposals are likely to be released in August 2013 for official comment by the Rules Committee, but the Working Group is soliciting comments now. While it may be tempting to discount the proposals as improper attempts to legislate through the rules/forms process, and that position may be legally correct, it is risky to rely on that argument. It is evident from the draft rules and the proposed National Chapter 13 Plan that lenders/servicers’ views have not yet been appropriately considered and, therefore, the Working Group needs to receive feedback from mortgage lenders/servicers and their legal counsel. Further, it would be appreciated if industry participants would share with USFN their comments and feedback to the Working Group by forwarding a copy to info@usfn.org.
State Legislative Updates -Illinois
Editor's Note: On February 8, 2013, Illinois Governor Quinn signed SB16. It is effective June 1, 2013.
Number of Complaints filed by Plaintiff
together with its Affiliates
Amount of additional filing
175+ foreclosure complaints
50 – 174 foreclosure complaints
0 – 49 foreclosure complaints
Florida: Recent Change to Statutes Governing Estoppel Letters on Mortgage Loans
Posted By USFN, Friday, January 4, 2013
Last year the Florida legislature enacted some changes to Florida Statute 701.04 relating to estoppel letters on mortgage loans. The changes became effective on January 1, 2013.
Under the old law, mortgagors could request and receive from the mortgagee, within 14 days, an estoppel letter about their loan. Generally, only the mortgagor was able to receive this information from the mortgagee. Due to the privacy requirements of the federal Gramm-Leach-Bliley Act, some mortgagees refused to provide estoppel letters to anyone other than the mortgagor.
However, persons other than the mortgagor may have a legitimate interest in knowing the loan information. These other parties include an heir or devisee through probate, a surviving spouse who was not on the note, or a junior lienholder that has foreclosed on the property against the mortgagor.
The revised law (http://laws.flrules.org/2012/49) now allows an estoppel letter to be requested by: (1) the mortgagor; (2) a record title owner of the property; (3) a fiduciary or trustee lawfully acting on behalf of a record title owner; or (4) any other person lawfully authorized to act on behalf of a mortgagor or record title owner of the property.
As under the old law, the mortgagee is required to provide the estoppel letter within 14 days after receipt of a written request.
If the request is made by anyone other than the mortgagor, they must provide a copy of the instrument proving title in the property ownership interest or lawful authorization.
If the requestor is not the mortgagor, the estoppel letter does not have to contain an itemization of the unpaid balance of the loan secured by the mortgage, but it must include a per-day amount for the unpaid balance.
The new law provides that the mortgagee or servicer of the mortgagee, acting pursuant to the request, is not liable to any person because of the release of the requested information, other than the obligation to comply with the terms of the estoppel letter. A mortgagee is authorized to provide the information required under this law to a person authorized to request the financial information notwithstanding laws that would otherwise prohibit the disclosure of the information.
As a result of this change in the law, it will allow a record title owner of a property, a fiduciary or trustee lawfully acting on behalf of a record title owner, or any other person lawfully authorized to act on behalf of a mortgagor or record title owner of the property access to information in order to pay off a mortgage.
Posted By Jeff McIntosh, Wednesday, January 2, 2013
Wisconsin: Appellate Court Upholds Summary Judgment to Lender
Posted By USFN, Wednesday, January 2, 2013
by Christopher C. Drout, Jr.
The Wisconsin Court of Appeals recently affirmed a circuit court’s decision to grant the bank’s motion for summary judgment. PNC Bank, N.A. v. Bierbrauer, 2012 Wisc. App. Lexis 916 (Wis. Ct. App. Nov. 20, 2012). The defendants argued that PNC failed to establish that it was the holder of the note and, therefore, failed to establish a prima facie case for summary judgment. The court of appeals disagreed and affirmed the judgment.
This case involved an action for foreclosure of a first mortgage held by PNC where the defendants failed to make payments. The defendants filed an answer, alleging general denials regarding the default and an affirmative defense that the original loan was with First Franklin.
PNC moved for summary judgment by submitting the affidavit of a document control officer for the servicer. The officer averred that the servicer has possession, control, and responsibility for the accounting and other mortgage loan records relating to the defendants’ loan. Further, the officer stated that the affidavit is made from her personal inspection of the records and her own personal knowledge of how those records are created and kept and maintained. Lastly, the affidavit stated that PNC is the current holder of the note and mortgage.
The defendants did not file a response to the motion for summary judgment; however, they appeared at the hearing and argued that the affidavit did not establish PNC’s right to enforce the note. The circuit court agreed and denied the motion. PNC moved for reconsideration. The circuit court reversed its earlier decision, reasoning that the defendants failed to submit any affidavit or other evidence in opposition to PNC’s summary judgment motion and failed to raise a genuine issue of material fact.
The defendants then moved for reconsideration; however; the circuit court denied their motion, reiterating that PNC made a prima facie case that it was entitled to enforce the note. An appeal was filed, alleging that the affidavit cannot establish PNC as the holder of the note because the affidavit does not establish that the officer had personal knowledge regarding the transfer of the note.
The appellate court affirmed the decision, reasoning PNC made a prima facie case that it was the holder of the note. The affidavit of the servicer’s document control officer was sufficient as it established that the servicer had possession of the accounting and other mortgage loan records and that the affidavit was made from the officer’s personal inspection of said records. The court reasoned the affidavit asserted that PNC was the current holder of the note based upon this personal knowledge of the records. Furthermore, the defendants failed to submit any counter affidavits or contrary evidence in opposition to the motion for summary judgment. The instant case is a positive decision for lenders in Wisconsin and illustrates a trend towards requiring specific pleadings and defenses.
Michigan Legislature Extends Foreclosure Prevention/Mediation Program
by Jeffrey D. Weisserman
As expected, the Michigan Legislature approved Senate Bill 1172 on December 13, 2012, thereby extending Michigan’s Foreclosure Prevention/Mediation program for another six months without change. The governor signed the bill on Friday, December 28, and assigned it Public Act No. 521. The program, which would otherwise have expired on December 31, 2012, will now continue until at least June 30, 2013. The legislature expects to revisit the program and determine whether any changes need to be made to it in the next session.
Who is the “Secured Creditor” with Standing to Foreclose under Georgia Law?
Georgia’s foreclosure statutes mandate that any foreclosure sale of real property must be conducted by the “secured creditor.” See O.C.G.A. § 44-14-162; O.C.G.A. § 44-14-162.1; O.C.G.A. § 44-14-162.2. Because Georgia’s foreclosure statutes impose duties upon the “secured creditor” in connection with the foreclosure process, an understanding of exactly who qualifies as a “secured creditor” is important to ensure statutory compliance and alleviate uncertainty in the foreclosure process. However, despite the fact that the term “secured creditor” is utilized in multiple places within Georgia’s foreclosure statutes, the term is not defined in the relevant provisions of the Georgia Code. See O.C.G.A. §§ 44-14-160, et seq.; O.C.G.A. § 23-2-114. Consequently, the definition of the term “secured creditor” under Georgia foreclosure law has been varyingly interpreted by the Georgia Court of Appeals, as well as by the federal district courts in Georgia.
The majority of federal courts sitting in Georgia addressing the issue of how “secured creditor” is defined under Georgia foreclosure statutes have held that an assignee of the security instrument containing a power of sale provision is the “secured creditor” and may initiate nonjudicial foreclosure proceedings against the property, even without also holding the subject promissory note evidencing the underlying indebtedness. See, e.g., LaCosta v. McCalla Raymer, LLC, No. 1:10-CV-1171-RWS, 2011 WL 166902, at *4 (N.D. Ga. 2011) (Story, J.) (“Plaintiff does not direct the Court’s attention to any Georgia statute or decision that requires that the Note be legally transferred to the entity carrying out the foreclosure sale, if that entity is in possession of the security deed to the property.”); Kabir v. Statebridge Co., LLC, No. 1:11-CV-2747-WSD, 2011 WL 4500050, at *5 (N.D. Ga. 2011) (Duffy, J.) (same); Smith v. Saxon Mortgage, 446 F. App’x 239 (11th Cir. 2011) (unpublished opinion) (same).
The reasoning behind this analysis is that under Georgia law, a security instrument that includes express language granting the holder of the security instrument an assignable power of sale is a contract and the provisions under the security instrument are controlling as to the rights of the parties and their privies. See McCarter v. Bankers Trust Co., 247 Ga. App. 129, 132, 543 S.E.2d 755, 757 (2000) (citations and punctuation omitted). Moreover, O.C.G.A. § 44-14-64 expressly provides that the underlying indebtedness follows the transfer of the security instrument; i.e., the security deed or deed to secure debt. See O.C.G.A. § 44-14-64(b) (“Transfers of deeds to secure debt … shall be sufficient to transfer the property therein described and the indebtedness therein secured, whether the indebtedness is evidenced by a note or other instrument or is an indebtedness which arises out of the terms or operation of the deed, together with the powers granted without specific mention thereof.”) Thus, the security instrument constitutes a separate contractual agreement between the lender and the borrower and “stands alone” so long as the underlying indebtedness remains on the subject promissory note. See Decatur Federal Sav. & Loan v. Gibson, 268 Ga. 362, 364, 489 S.E.2d 820, 822 (1997).
However, the minority view among federal courts sitting in Georgia is that Georgia law mandates that in order to conduct a nonjudicial foreclosure pursuant to a power of sale contained in a security instrument, the “secured creditor” must be the holder of the promissory note and/or possess an interest in the underlying debt in addition to being the holder of the security instrument. See Stubbs v. Bank of America, 844 F. Supp. 2d 1267, 1273 n.3 (N.D. Ga. 2012) (Totenberg, J.); Morgan v. Ocwen Loan Servicing, LLC, 795 F. Supp. 2d 1370, 1376 (N.D. Ga. 2011) (Totenberg, J.) (citing Weems v. Coker, 70 Ga. 746, 749 (1883)).
Recently, the Georgia Court of Appeals in Reese v. Provident Funding Associates, LLP, 730 S.E.2d 551, 553 (Ga. Ct. App. July 12, 2012), the majority opinion, without explicitly defining the term “secured creditor” as part of its holding, in dicta, appeared to equate the term “secured creditor” with the “owner” of the loan for purposes of Georgia’s foreclosure statutes and found that the servicer of the loan does not qualify as a “secured creditor” under Georgia foreclosure law. However, the majority opinion of the Georgia Court of Appeals in Reese did not clarify whether a party is also required to be a “holder in due course” of the promissory note, in addition to being the owner of the loan in order to qualify as a “secured creditor” for purposes of Georgia’s foreclosure statutes. This created more confusion as to how “secured creditor” is defined under Georgia foreclosure law because Georgia’s Uniform Commercial Code (UCC) makes a clear distinction between a “holder in due course” and the “owner” of a negotiable instrument. See O.C.G.A. § 11-3-301 (setting forth who qualifies as a “holder in due course” entitled to collect on a negotiable instrument, such as a promissory note). Under Georgia’s UCC, there is a clear distinction between “owners” of negotiable instruments and persons “entitled to enforce” those instruments and, as a result, more litigation has ensued as to whether the “owner” or “holder of the loan” is defined as the “secured creditor” under Georgia’s foreclosure statutes based on Stubbs and Reese.
As a result of the great ambiguity created by the split of authority defining the term “secured creditor” under Georgia foreclosure law, on September 7, 2012, the Chief Judge of the U.S. District Court for the Northern District of Georgia, in You v. JPMorgan Chase Bank, N.A., No. 1:12-CV-00202-JEC, Doc. 16 (N.D. Ga. Sept. 7. 2012), certified three questions to the Supreme Court of Georgia, asking the state Supreme Court to provide guidance and clarity on the legal issues pertaining to Georgia foreclosure law. The question relevant to defining the secured creditor states:
“Can the holder of a security deed be considered to be a secured creditor, such that the deed holder can initiate foreclosure proceedings on residential property even if it does not also hold the note or otherwise have any beneficial interest in the debt obligation underlying the deed?”
Id., No. 1:12-CV-00202-JEC, at Doc. 16, p. 2 of 3. The certified questions were docketed in the Georgia Supreme Court on September 13, 2012 and were assigned case number S13Q0040. They are presently pending before the Georgia Supreme Court and oral arguments were presented on January 7, 2013.
The recent court decisions related to the party having standing to prosecute foreclosure cases in Georgia that have diverged from the longstanding rule allowing the assignee of the mortgage the right to foreclose have created inefficiencies and delays in the Georgia foreclosure process. Today, as a result of the recent case law, many investors and servicers have chosen to err on the side of caution when foreclosing in Georgia by taking the following actions: (1) recording assignments prior to the initiation of the foreclosure action; and (2) naming the loan investor in addition to the note holder on the statutory foreclosure notices. However, investors, servicers, and law firms handling foreclosures all hope that when the Supreme Court of Georgia hears this issue, the court will specifically address the meaning of secured creditor.
Alabama Title Insurance Act and New Residency Requirements
by Jeff G. Underwood
Sirote & Permutt, P.C. – USFN Member (Alabama)
On January 1, 2013, House Bill 460, “The Alabama Title Insurance Act,” (the Act) became effective. The Alabama Department of Insurance has adopted regulations that implement the provisions of the Act, which also became effective on that date. The Act is codified in Title 27-25-3, et seq. The Act requires higher qualification standards and strengthened residency requirements for title insurance agents or agencies in the state of Alabama.
The new law dictates that in order to receive a title insurance agent’s license, an applicant must be at least 19 years of age and a bona fide resident of the state of Alabama or a fulltime employee of a duly licensed title agency with its principal place of business physically located in the state. The applicant must not have committed any act that would provide grounds for revocation, suspension, or refusal of license by the Department of Insurance. The applicant must complete a pre-licensing educational course approved by the Department of Insurance (parties with five years of uninterrupted title insurance experience can be exempted from this requirement). The applicant must successfully pass a title licensing exam and pay the necessary licensing fee to the state.
Further, the law compels that business entities which are title agents must have a principal place of business physically located in Alabama. This “brick and mortar” requirement is a key change to the existing law. Failure to comply with this act would subject individuals or agencies to license denial, nonrenewal, or revocation, in addition to the potential for civil fines of up to $10,000 per violation.
Clients should analyze their current title vendors to ensure that the existing title agents meet the licensing requirements outlined under this law, especially in light of the punitive measures put into place under the new provisions.
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