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New York Supreme Court Holds That Foreclosing Mortgagee Does Not Need to Give Notice to Borrower’s Estate Banner Image

New York Supreme Court Holds That Foreclosing Mortgagee Does Not Need to Give Notice to Borrower’s Estate

Month: November 2016

New York Supreme Court Holds That Foreclosing Mortgagee Does Not Need to Give Notice to Borrower’s Estate

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The Supreme Court of New York, Westchester County, recently held that the notice provisions of New York Real Property Actions and Proceedings Law § 1304 (“RPAPL § 1304”) do not apply when the borrower is deceased, and a mortgagee foreclosing on a residential property therefore does not need to notify the estate.  See U.S. Bank N.A. v. Levine, 52 Misc. 3d 736 (N.Y. Sup. Ct. 2016).  Under RPAPL § 1304, a lender, assignee, or mortgage loan servicer must, at least 90 days before commencing a legal action on a home loan, provide a notice of default to the borrower indicating that the borrower is at risk of losing his or her home.  In this action, the borrower passed away in 2013 and the mortgagee commenced a residential foreclosure action on the borrower’s mortgage in 2015.  The mortgagee then moved for summary judgment, but the borrower’s estate opposed, arguing that the mortgagee had failed to provide notice to the estate under RPAPL § 1304.  Although the court noted that the Appellate Division has not addressed the issue, it referenced two other Supreme Court decisions in which the courts held that the notice provisions of RPAPL § 1304 do not apply if the borrower is deceased, and that the mortgagee does not need to give notice to the estate because the estate is not the borrower.  Accordingly, the court granted the mortgagee’s motion for summary judgment.

For a copy of the decision, please contact Michael O’Donnell atmodonnell@riker.com.

Seventh Circuit Holds Complaint’s Validation Notice Violated FDCPA

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The United States Court of Appeals for the Seventh Circuit recently held that a misleading validation notice in a debt collection complaint violated the fair Debt Collection Practices Act (“FDCPA”) because it would mislead an unsophisticated consumer as to his or her method and deadline to dispute the claim.  See Marquez v. Weinstein, Pinson & Riley, P.S., 2016 WL 4651403 (7th Cir. Sept. 7, 2016).  In the case, the debt collectors filed complaints against consumers, and each complaint included a provision stating “the debt referenced in this suit will be assumed to be valid and correct if not disputed in whole or in part within thirty (30) days from the date hereof.”  The consumers filed a putative class action against the debt collectors, claiming that this validation notice violated the FDCPA.  The debt collectors filed a motion to dismiss for failure to state a claim which the district court granted.  On appeal, the Seventh Circuit reversed the lower court’s dismissal.  First, it joined the other circuits that have addressed the issue and found that pleadings or filing in court can be subject to the FDCPA.  See, e.g., Kaymark v. Bank of Am., N.A., 783 F.3d 168 (3d Cir. 2015), cert. denied sub nom. Udren Law Offices, P.C. v. Kaymark, 136 S. Ct. 794 (2016).  Second, it found that the validation notice violated the FDCPA because it would mislead an unsophisticated consumer.  See 15 USC §1692e.  The debt collectors here had previously sent dunning letters to the consumers which stated that “unless you dispute this debt, or any portion of it, within 30 days from receipt of this notice, we will assume the debt to be valid” and that the consumers could dispute the debt by either calling a toll free number or writing to a specific law office.  The complaints, however, stated that “the debt referenced in this suit will be assumed to be valid” unless disputed within 30 days, without clarifying that it would only be assumed valid by the debt collectors and not by the court.  Based on this language, an unsophisticated consumer could believe that his or her time to answer the complaint was only thirty days from the date of the complaint, which was less than the time provided by law.  Additionally, because the validation notice in the complaint mirrored that of the dunning letters, the consumers might be misled to believe they could contest the complaint by calling the toll free number or writing to the law firm.  Therefore, the notice’s “presence in the complaint serves no purpose, . . . [and] is only to mislead” and constituted a violation of the FDCPA.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

Eleventh Circuit Holds That Servicer’s Conclusory Response to Borrower’s Request May Have Violated RESPA

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The United States Court of Appeals for the Eleventh Circuit recently held that a loan servicer may have violated the Real Estate Settlement Procedures Act (“RESPA”) for responding to a borrower’s qualified written request regarding an alleged error in her account only by informing the borrower that there had been no error and without providing any further information.  See Renfroe v. Nationstar Mortgage, LLC, 822 F.3d 1241 (11th Cir. 2016).  There, the plaintiff’s mortgage was transferred from one servicer to the defendant, and the monthly payments immediately increased by about $100.  After the plaintiff refinanced and the defendant was no longer her servicer, she sent the defendant a qualified written request demanding a detailed explanation for the payment increase and, if necessary, a refund.  Under RESPA, this letter triggered the servicer’s duty to conduct an investigation and either (i) make the appropriate correction, (ii) provide a written explanation containing “a statement of the reasons for which the servicer believes the account of the borrower is correct as determined by the servicer,” or (iii) provide a written explanation that the requested information is unavailable, and the reasons for this unavailability.  See 12 USC 2605(e).  The servicer, however, responded only that the loan documents were reviewed and that no error was found.

After the plaintiff commenced the action, alleging that the servicer’s response violated RESPA, the servicer filed a motion to dismiss.  The district court granted the motion, holding that the servicer’s response satisfied its duties under RESPA and that the plaintiff did not allege damages because the alleged overpayments occurred before she sent the request.  On appeal, the Eleventh Circuit reversed.  First, it held that the servicer’s response was insufficient because it simply made the conclusion that there was no error without explaining why the payments had increased or why the plaintiff was incorrect on her suspicion that an error had occurred.  Second, it held that the plaintiff had adequately pled damages based on the alleged overcharge.  It found that the district court’s conclusion that pre-notice errors did not give rise to RESPA violations was a “cramped reading of RESPA” because “a servicer notified of an account error could always avoid RESPA liability just by claiming it thought there was no error and correcting the error going forward.”  Therefore, it held that the motion to dismiss should have been denied because the plaintiff had pled both a violation and damages.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

Florida Appellate Court Holds That Liens Placed on Property Between Final Foreclosure Judgment and Sale Are Not Discharged Under Lis Pendens Statute

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A Florida appellate court recently affirmed a lower court’s decision that municipal liens placed on a property after a final judgment of foreclosure but before the judicial sale were not discharged.  See Ober v. Town of Lauderdale-by-the-Sea, 2016 WL 4468134 (Fla. Dist. Ct. App. Aug. 24, 2016).  In the case, a bank recorded a lis pendens on a property as part of a foreclosure action and eventually obtained a final judgment of foreclosure.  The local municipality recorded seven liens on the property after the final judgment but before the property was sold at a foreclosure sale.  After purchasing the property at the sale, the owner filed suit to quiet title and strike the liens, and the municipality counterclaimed to foreclose.  After the parties both filed motions for summary judgment, the court granted the municipality’s motion and denied the owner’s.  On appeal, the appellate court affirmed the lower court’s decision.  Although the appellate court acknowledged that the issue was not addressed by Florida’s lis pendens statute and had not been previously litigated, it noted previous decisions in which courts concluded that a lis pendens was valid until final judgment.  Therefore, any liens entered between final judgment and the judicial sale were not discharged.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

New Jersey Appellate Division Holds That Four-Year Statute of Limitations Applies to Actions to Collect Debts from Retail Store Credit Cards

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The New Jersey Appellate Division recently held that the six-year breach of contract statute of limitations does not apply to actions to collect debts arising from the use of a retail store’s credit card when the use of the card is restricted to that store and, instead, the Uniform Commercial Code’s four-year sale of goods statute of limitations applies.  See Midland Funding LLC v. Thiel, 2016 WL 4506119 (N.J. Super. Ct. App. Div. Aug. 29, 2016).  In the case, which was approved for publication, the Appellate Division addressed three lawsuits brought by Midland Funding, LLC (“Midland”) against three consumers.  In each case, the consumers obtained credit cards “from specific stores, issued by unaffiliated financial institutions, that limited the cards’ use to purchases from the specific store.”  Midland, who was assigned the accounts from the original creditors, initiated its actions against each consumer between four and six years after default.

The trial courts granted the defendants’ motions for summary judgment, holding that the Uniform Commercial Code’s four-year statute of limitations for the sale of goods applied.  See N.J.S.A. 12A:2-725.  Two of the courts further found that Midland had violated the Fair Debt Collection Practices Act (“FDCPA”) by seeking debts after the limitations period had run, and awarded the consumers $1,000 statutory penalties plus attorneys’ fees.  See 15 USC 1692e.  Midland appealed the grant of summary judgment, and the third consumer appealed the denial of his motion for summary judgment for his FDCPA claim.

On appeal, the Appellate Division affirmed the grant of summary judgment and reversed the denial of the third consumers’ motion for summary judgment under the FDCPA.  First, it reaffirmed that a court must examine the entire transaction between parties “and look to the essence or main objective” of the agreement to determine whether a contract is for a sale of goods.  With regard to these store-issued credit cards, it held that the New Jersey Supreme Court already found them to be a sale of goods.  See Sliger v. R. H. Macy & Co., 59 N.J. 465 (1971) (“the transactions were sales rather than loans or forbearances of money”).  Moreover, the fact that a third-party creditor provided the financing did not affect the nature of the underlying transaction.  Second, it held that Midland’s commencement of a lawsuit that it “knows or should know is unavailable or unwinnable by reason of a legal bar such as the statute of limitations” is a violation of the FDCPA, and Midland’s mistaken belief as to which statute of limitations applied did not affect this determination.  Therefore, it held that all three cases should be dismissed and all three consumers should prevail on their FDCPA claims.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

Eighth Circuit Holds That Time-Barred Proof of Claim Did Not Violate FDCPA

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The United States Court of Appeals for the Eighth Circuit recently held that a debt collector did not violate the Fair Debt Collection Practices Act (“FDCPA”) by filing a time-barred proof of claim in a bankruptcy proceeding.  See Nelson v. Midland Credit Mgmt., Inc., 2016 WL 3672073 (8th Cir. July 11, 2016).  There, a debtor filed a Chapter 13 bankruptcy petition, and the debt collector filed a proof of claim for a debt on which the debtor had defaulted nine years earlier.  The debtor objected and the bankruptcy court disallowed the claim.  The debtor then filed an action against the debt collector, alleging a violation of the FDCPA for falsely representing the legal status of a debt and threatening to take an action that could not legally be taken.  See 15 USC 1692e.  The district court dismissed the complaint and the debtor appealed.  The debtor argued, in part, that the Eighth Circuit should follow the Eleventh Circuit and find that the “filing of a time-barred proof of claim against [a debtor] in bankruptcy was ‘unfair,’ ‘unconscionable,’ ‘deceptive,’ and ‘misleading’ within the broad scope of [the FDCPA].”  Crawford v. LVNV Funding, LLC, 758 F.3d 1254, 1261 (11th Cir. 2014).  The Eighth Circuit, however, rejected the debtor’s argument and affirmed the dismissal.  It held that there is a distinction between a bankruptcy claim and an actual or threatened litigation, and that a debtor in a bankruptcy has the aid of a bankruptcy trustee to object to an unenforceable claim.  This distinction, along with other protections present in the Bankruptcy Code, are sufficient to “satisfy the relevant concerns of the FDCPA.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

Ninth Circuit Holds Nevada Statute Allowing Homeowners’ Associations to Foreclose Without Notice to Lienholders Was Unconstitutional

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The United States Court of Appeals for the Ninth Circuit recently reversed a district court’s decision and found a Nevada statute requiring lenders to “opt in” to receive notice if a homeowners’ association is going to foreclose and extinguish the lender’s lien is unconstitutional.  See Bourne Valley Court Trust v. Wells Fargo Bank, NA, 2016 WL 4254983 (9th Cir. Aug. 12, 2016).  In 2012, a homeowners’ association foreclosed on a property based on the owner’s nonpayment of $1,298.57 in association dues.  The property was sold for $4,145 at the foreclosure sale, and the purchaser filed a quiet title action to extinguish the first mortgage on the property, which had secured a $174,000 loan.  The district court held that the homeowners’ association lien had “super priority” over all other liens under Nevada Revised Statutes section 116.3116,  including the first mortgage that had been recorded ten years before the homeowners’ association lien.  The court further held that the foreclosure extinguished all liens under this statute, including the mortgage.  On appeal, the lender argued that the statute under which the association foreclosed was facially unconstitutional because it violated the due process rights of lenders.  Specifically, the statute at the time of the foreclosure—it was amended in 2015 to correct this issue—required a homeowners’ association to send notice of its lien and foreclosure to other lienholders only if the other lienholders had previously notified the homeowners’ association of their lien.  Thus, “the burden was on the mortgage lender to ask the homeowners’ association to please keep it in the loop regarding the homeowners’ association's foreclosure plans.”  The Ninth Circuit found that this provision unconstitutionally deprived lenders of their right to notice that an action had been taken to affect their property.  Although the homeowners’ association argued that it could not have violated the lender’s due process rights because it is not a state actor, the court found that the due process violation occurred when the statute was enacted. 

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.  

Tenth Circuit Holds That Revocable Access to Property Sufficient Under Title Insurance Policy

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The United States Court of Appeals for the Tenth Circuit recently affirmed a lower court’s grant of summary judgment to a title insurer and held that a parcel with a 30-year revocable right-of-way is not unmarketable and that the policy does not ensure a permanent right of access.  See Fid. Nat'l Title Ins. Co. v. Woody Creek Ventures, LLC, 2016 WL 3997434 (10th Cir. July 26, 2016).  In the case, the insured purchased two lots under the assumption that it had a legal right to access the more remote lot via a roadway across a third party’s property.  When the insured prepared to sell the property, however, it learned that it did not have a legal right to use the roadway to access the property and filed a claim with the title insurer.  The title insurer instituted a quiet title action against the third-party owner to obtain an easement, and the insurer and third-party owner settled the case with the third-party owner granting a 30-year revocable right-of-way to the insured.  After the insured claimed that it was entitled to permanent access under the policy, the title insurer filed a declaratory judgment action and moved for summary judgment.  The district court granted the insurer’s motion, and the insured appealed, arguing that it was entitled to permanent access to the property and that the lack thereof rendered title unmarketable.  On appeal, the Tenth Circuit affirmed the decision.  First, it held that the policy only insures a “right of access to and from the land” but does not require that this access is permanent.  Second, it held that there was no issue with the marketability of title because of the lack of permanent access.  Although the court acknowledged that the access issue might lessen the economic marketability of the property, it does not affect the property’s title.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com. 

California Appellate Court Affirms Dismissal of Claim Against Title Insurer

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The California Court of Appeals recently affirmed a trial court’s order dismissing breach of contract and negligence claims against a title insurance company and holding that the issuance of a preliminary title report does not require the insurance company to issue a policy.  See Abikasis v. Provident Title Co., 2016 WL 3611016 (Cal. Ct. App. June 28, 2016).  In the case, the title insurance company issued a preliminary title report to an escrow company stating that it was prepared to issue a title policy subject to certain exceptions, including a lis pendens filed against the property arising from a separate litigation.  The party who filed the lis pendens, a co-owner of the property with the plaintiffs, then sent the escrow company a notarized withdrawal of lis pendens and instructions to not record it until (i) the escrow company received confirmation that the separate litigation had settled; and (ii) the escrow company disbursed $525,000 to the co-owner as part of the settlement.  Before it received this confirmation, however, the escrow company received a seizure warrant from the DEA on the funds.  The title company then demanded that the co-owner send new instructions unconditionally authorizing the recording of the withdrawal of lis pendens, at which point it would record the withdrawal and issue the policy.  The new instructions were not sent, the title company never issued a policy, and the sale of the property failed.  Plaintiffs sued the title company for breach of contract and negligence, arguing that it breached its contractual duty to issue the policy and was negligent in not recording the withdrawal of lis pendens.  The trial court dismissed the complaint, and the appellate court affirmed.  First, it affirmed the dismissal of the breach of contract claim, finding that the first page of the preliminary report expressly “disclaim[ed] an intent to be contractually bound” and that other California decisions likewise had found that a preliminary report is not a contract.  Second, it affirmed the dismissal of the negligence claim, holding that the preliminary report simply advised plaintiffs of the proposed terms of the title insurance policy, and that “plaintiffs’ unwillingness to accept those terms cannot be a basis for liability” against the title insurer.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

North Carolina Federal Court Holds Insured’s Actions Excluded Coverage Under Title Insurance Policy

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The United States District Court for the Western District of North Carolina recently granted a title insurer’s motion for summary judgment, holding that the insured’s own actions created the title defect at issue in violation of Exclusion 3(a) of the title policy.  See LJW Land, LLC v. Old Republc Nat. Title Ins. Co., 3:15-cv-190 (W.D.N.C. Aug. 12, 2016).  In the case, an entity used a loan from the insured lender to purchase a property in order to build residential properties.  The insured lender received the first mortgage on the property insured by the title company, and the seller received the second mortgage.  The property owner later defaulted and the insured lender filed a foreclosure action.  The seller then filed a lawsuit against the owner and the insured lender, among others, alleging that both the owner and the lender were alter egos controlled by the same individual and that the default and foreclosure were just a sham to eliminate the seller’s second mortgage.  Among the causes of action alleged was a quiet title claim seeking the extinguishment of the insured lender’s first mortgage and that the seller’s mortgage be given priority.  The insured lender filed a title claim asking the title insured to defend it in the action.  The insurer denied coverage and the insured filed this action.  The insurer filed a motion for summary judgment, arguing that the claim was barred Exclusion 3(a) of the title policy, which excludes coverage for defects “created, suffered, assumed or agreed to” by the insured.  The court granted the motion.  Although it acknowledged that there was no controlling authority in North Carolina addressing Exclusion 3(a), it used decisions from other jurisdictions to find that the insured’s alleged actions, which included unfair trade practices and a conspiracy to eliminate the seller’s interest in the property, was “inequitable conduct” that “created or suffered the defect” under 3(a).  Taking the allegations of the complaint as fact, the insurer properly denied coverage.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.

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