Search Icon
Florida Appellate Court Limits Mortgagee Could Not Recover More Than the Limit of the Parties’ Profit Sharing Agreement Banner Image

Florida Appellate Court Limits Mortgagee Could Not Recover More Than the Limit of the Parties’ Profit Sharing Agreement

Month: November 2016

Florida Appellate Court Limits Mortgagee Could Not Recover More Than the Limit of the Parties’ Profit Sharing Agreement

Posted on by rd_admin

A Florida appellate court recently held that a profit sharing agreement between a mortgagor and a mortgagee that limited the mortgagee’s advances prevailed over a mortgage that secured future advances, and effectively limited the mortgagor’s liability under the mortgage regardless of the amount loaned.  See Cleveland v. Crown Fin., LLC, 183 So. 3d 1206 (Fla. Dist. Ct. App. 2016).  In the case, the parties entered into a profit sharing agreement that stated “[t]he aggregate amount outstanding at any one time shall never exceed the sum of $300,000.00”  To secure this obligation, the borrower executed a mortgage that secured “not only the existing indebtedness evidence by the note but also such future advances as may be made by Mortgagee to Mortgagor within 20 years from the date hereof[.]”  After the mortgagee made two advances that the mortgagor paid back, the mortgagee advanced $500,000.  The mortgagor eventually defaulted, and the trial court found that the mortgagor was responsible for the entire amount loaned pursuant to the mortgage’s “future advances” provision.  The mortgagor appealed, arguing that the terms of the profit-sharing agreement controlled and limited its liability under the mortgage to $300,000.  On appeal, the appellate court reversed, stating that it was “guided by the principle that a promissory note must prevail over a mortgage in the face of a conflict” and that the trial court’s decision “would render meaningless the ‘never exceed the sum of $300,000’ language included within the Agreement”.

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

New Jersey Court Grants Lender Equitable Subrogation Despite Alleged Negligence

Posted on by rd_admin

A New Jersey Chancery Division court recently granted a defendant-lender summary judgment on the doctrine of equitable subrogation despite the defendant’s representative authorizing another lender to reopen a line of credit that was secured by a prior-recorded mortgage on the property.  See Wells Fargo Bank v. Nationstar Mortgage, LLC, F-20138-14 (Ch. Div. June 9, 2016).  In the case, the defendant issued a loan to the borrowers and paid off three prior mortgages.  The second mortgage on the property had been an open-ended mortgage.  After the mortgages were paid off and the open-ended mortgage account was closed, the defendant’s representative sent a letter to the plaintiff, which held the open-ended mortgage, and stated that the open-ended mortgage account was erroneously closed and should be reopened.  The plaintiff reopened the account and the borrowers subsequently increased the balance to over $70,000.  The plaintiff commenced a foreclosure action and the parties both moved for summary judgment on the priority of their respective mortgages.  The defendant argued that it had paid off the first mortgage on the property and should be equitably subrogated to that position.  The plaintiff argued that the defendant’s representative had authorized the reopening of the account and, therefore, the defendant had unclean hands and could not seek relief under the doctrine of equitable subrogation.  The court granted the defendant’s motion.  It found that the defendant’s authorization that the account be reopened was, at most, negligent, and that it did not rise to the level of gross negligence or fraud that could bar the application of equitable subrogation. 

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

New Jersey Appellate Division Holds That Bank’s Preferential Senior Checking Accounts Did Not Violate LAD

Posted on by rd_admin

The New Jersey Appellate Division recently held that a bank did not violate New Jersey’s Law Against Discrimination (“LAD”) by offering “senior checking accounts” to individuals age sixty years or older with more favorable terms than those available to individuals under the age of sixty.  See Resua v. BCB Bancorp, Inc., 2016 WL 3189655 (N.J. Super. Ct. App. Div. June 9, 2016).  In the case, the plaintiffs filed a putative class action against the defendant banks, arguing that these preferential checking accounts discriminated against younger people in violation of LAD.  Under LAD, it is an unlawful employment practice “[f]or any person to refuse to buy from, sell to, lease from or to, license, contract with, or trade with, provide goods, services or information to, or otherwise do business with any other person on the basis of . . . age”.  N.J.S.A. § 10:5-2(l).  The trial court granted defendants’ motion to dismiss the complaint.  On appeal, the Appellate Division affirmed the dismissal.  It held that, although section (l) of LAD prohibits discrimination based on age, section (i) of the statute, which controls banking institutions involved in the making or purchasing of any loan or extension of credit, omitted age from its list of protected classes.  Therefore, because “the only section in the LAD that deals directly with banking services does not prohibit a consideration of age in determining whether to provide certain favorable considerations to consumers like plaintiffs. . . . we discern no legal impediment to financial institution offering checking accounts with favorable interest rates and no minimum balance requirements to consumers sixty years old and older.”

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

New York Supreme Court Holds That Borrower’s Failure to Properly Serve Appeal on Loan Service Negated RESPA Protections

Posted on by rd_admin

The Supreme Court of New York, Suffolk County, recently held that a mortgagor who did not properly file a notice of appeal of a loan servicer’s rejection of a loss mitigation plan due to a typo in the email address was foreclosed from staying the foreclosure sale pursuant to the Real Estate Settlement Procedures Act (“RESPA”).  See Emigrant Sav. Bank-Long Island v. Berkowitz, 25 N.Y.S.3d 862 (N.Y. Sup. Ct. 2016).  Pursuant to Regulation X of RESPA, if a servicer receives a loss mitigation application from a mortgagor more than 37 days before a foreclosure sale, it must evaluate all loss mitigation options and inform the borrower in writing of its determination regarding the same.  12 CFR 1024.41(c).  If the application is denied, a borrower may appeal the determination within 14 days.  12 CFR 1024.41(h).  A servicer may not conduct a foreclosure sale while either a properly-filed application or a properly-filed appeal is pending.  In this case, after the servicer obtained a final judgment of foreclosure, a borrower submitted a loss mitigation application.  The servicer rejected the application and informed the borrower of the procedure to appeal.   The borrower then filed a motion to stay the sale, in which it claimed that it had appealed the servicer’s determination and had not received a response yet.  The servicer opposed the motion, arguing that it had not received an appeal within 14 days and wanted to proceed with the sale.  The Court denied the motion, finding that the information submitted in support of the mortgagor’s claim did not demonstrate that the mortgagor had properly appealed.  Specifically, it found that the mortgagor had a typo in the servicer’s email address to which it sent the notice and the mortgagor further did not proffer any physical address to which it mailed its notice.  Therefore, because Regulation X requires “strict compliance with its notification mandate in order for a party to claim protection under its rule,” the court denied the motion and allowed the sale to go forward. 

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

California Federal Court Denies Motion to Dismiss ECOA Complaint

Posted on by rd_admin

The United States District Court for the Northern District of California recently denied a loan servicer and a loan investor’s motion to dismiss a complaint alleging that their refusal to modify a loan violated the Equal Credit Opportunity Act (“ECOA”).  See Santos v. Fay Servicing, LLC, 2016 WL 1733825 (N.D. Cal. May 2, 2016).  In the case, two individuals of Filipino descent defaulted on a loan and began applying for loan modifications.  They alleged that they received a denial letter from one of the defendants without any explanation regarding why they were denied.  They also alleged they spoke with an employee of the servicer who informed them that they “would never be approved for a modification” without providing any additional information.  They sued the defendants, alleging that they were only denied a modification because of their race in violation of California’s Unfair Competition Law (“UCL”) and ECOA.  15 U.S.C. § 1691(a).  The defendants filed a motion to dismiss, arguing (i) that a loan modification is not a covered transaction under ECOA; (ii) that the plaintiffs submitted no evidence that their race had any bearing on the denial; and (iii) that the plaintiffs had failed to properly allege economic damages under UCL.  The court denied the motion in part and granted it in part.  First, it found that a loan modification constitutes a “credit application” under ECOA.  Second, it found that the servicer’s employee’s comment that the plaintiffs “would never be approved for a modification” could plausibly be construed as an indication that the modification denials were based on the plaintiffs’ race and not their financials.  The court further found that this fact combined with the fact that they had never been given a reason for the denials satisfied the ECOA pleading requirement, and denied the motion to dismiss the ECOA claim.  Finally, the court dismissed the plaintiffs’ allegation that the defendants violated UCL and held that the plaintiffs, who were already in default before they applied for modifications, could not properly allege that the denials caused economic damages because any alleged damages existed before they had even applied for a modification.

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

Seventh Circuit Holds Assignee of Debt Liable for Debt Collector’s Failure to Clearly Name Current Creditor

Posted on by rd_admin

The United States Court of Appeals for the Seventh Circuit recently held that the assignee of a debt, as well as the debt collector it enlisted, was liable for violating the Fair Debt Collection Practices Act (“FDCPA”) when the debt collector’s correspondence to the debtors did not clearly name the current creditor.  See Janetos v. Fulton Friedman & Gullace, LLP, 2016 WL 1382174 (7th Cir. Apr. 7, 2016).  In the case, the debt collector sent correspondence to a number of debtors in which the header stated, “Re: Asset Acceptance, LLC Assignee of [Original Creditor]”.  The text of the letter stated, “Please be advised that your above referenced account has been transferred from Asset Acceptance, LLC to [debt collector].”  The debtors then sued, arguing that the letter did not make it clear whether Asset or the debt collector was the current creditor, which is required under the FDCPA.  See 15 USC 1692g(a)(2).  The district court granted the defendants’ motion for summary judgment, finding that the debtors did not submit any extrinsic evidence of consumer confusion based on this omission.  On appeal, the Seventh Circuit reversed.  First, although it held that some categories of alleged violations of the FDCPA require extrinsic proof of confusion, omissions of section 1692g’s required disclosures is not one of them.  Second, it held that Asset could be held vicariously liable for the debt collector’s correspondence because, as a debt collector itself, Asset “is independently obliged to comply with the Act to monitor the actions of those it enlists to collect debts on its behalf” and “should not be able to avoid liability for unlawful debt collection practices simply by contracting with another company to do what the law does not allow it to do itself.”

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

New Jersey Appellate Division Holds That Mortgagor Lacked Standing to Challenge Assignment of Note and Mortgage to Foreclosing Mortgagee

Posted on by rd_admin

The New Jersey Appellate Division recently held that a mortgagor could not challenge the assignment of a note and mortgage even when the assignment allegedly occurred in violation of a pooling and servicing agreement.  See US Bank Nat. Ass’n v. Riley, 2016 WL 2888952 (N.J. Super. Ct. App. Div. May 18, 2016).  In the case, the defendant purchased a property and executed a note and mortgage in order to secure the loan to do so.  Pursuant to a pooling and servicing agreement (“PSA”), the original mortgagee assigned the mortgage to the plaintiff, as trustee of the mortgage trust.  Under the terms of the PSA, the plaintiff was required to take physical possession of the mortgage and note within ninety days of the trust’s closing date, however, the trustee was not assigned the note and mortgage until five years later.  After the defendant defaulted on the loan and one year after the assignment, the plaintiff initiated a foreclosure action against the defendant.  Although the defendant did not dispute that she had executed and defaulted under the loan documents, she instead argued that the assignment of the note and mortgage was void because it violated the terms of the PSA.  The plaintiff moved for summary judgment, which the trial court granted.  On appeal, the Appellate Division affirmed the decision.  Applying New York law, the court held that the defendant lacked the standing to challenge the assignment because she was neither a party to nor a beneficiary of the trust.

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

Fourth Circuit Holds That Assignee of Defaulted Auto Loans Was Not Debt Collector Under the FDCPA

Posted on by rd_admin

The United States Court of Appeals for the Fourth Circuit recently held that a company that purchased defaulted automobile loans was not a debt collector under the Fair Debt Collection Practices Act (“FDCPA”).  See Henson v. Santander Consumer USA, Inc., 817 F.3d 131 (4th Cir. 2016).  In the case, the four plaintiffs defaulted on automobile loans which were then sold to the defendant as part of a larger bundle of receivables.  The defendant attempted to collect on the loans, and the plaintiffs filed an action alleging that the defendant had violated the FDCPA.  The defendant filed a motion to dismiss, arguing that it was a creditor, not a debt collector, and was therefore not subject to the FDCPA.  The District Court granted the motion.  On appeal, the plaintiffs argued that because the FDCPA’s definition of a creditor excludes “any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another,” an assignee of a defaulted debt is not a creditor and therefore is subject to the FDCPA.  See 15 USC 1692a(4).  The Fourth Circuit disagreed and affirmed the dismissal, finding that the key distinction between a creditor and a debt collector is “whether a person’s regular collection activity is only for itself (a creditor) or whether it regularly collects for others (a debt collector)—not, as the plaintiffs urge, whether the debt was in default when the person acquired it.”  (emphasis in original).  This holding is contrary to that of other courts, including the Sixth Circuit.  See, e.g., Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 362 (6th Cir. 2012) (“Therefore, we hold that the definition of debt collector pursuant to § 1692a(6)(F)(iii) includes any non-originating debt holder that either acquired a debt in default or has treated the debt as if it were in default at the time of acquisition”).

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

West Virginia Federal Court Rejects Borrowers’ TILA Claims Based on Lender’s Declaratory Judgment Action

Posted on by rd_admin

The United States District Court for the Southern District of West Virginia recently dismissed a portion of debtors’ pleadings that alleged that a lender violated the Truth in Lending Act (“TILA”) by failing to rescind a security interest within twenty days of the debtors’ notice of rescission.  See In re Pinson, 548 B.R. 443 (Bankr. S.D.W. Va. 2016).  In the case, the debtors refinanced with the lender and, after defaulting on the mortgage less than three years later, delivered a notice of rescission to the lender.  The debtors claimed they had not received the proper TILA disclosures at the time of the closing, and therefore had three years to rescind instead of the normal three-day limitation period.  Pursuant to TILA, within twenty days of this notice, a lender must “return to the obligor any money or property given as earnest money, down payment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction.”  See 15 USC 1635(b).  On the twentieth day after receiving the notice, the lender instituted an action seeking a declaratory judgment that it had made the proper disclosures and that the debtors’ time to rescind therefore had lapsed.  The debtors then filed for bankruptcy and instituted an adversary proceeding against the lender in which they sought damages for the lender’s failure to rescind.  The lender counterclaimed for the same declaratory judgment as in its original action and then sought judgment on the pleadings. 

Though the debtors argued that the lender’s institution of a declaratory judgment action was insufficient to meet TILA’s requirement that it “take any action necessary or appropriate to reflect the termination of any security interest created under the transaction[,]” the Court disagreed.  Finding that the statute and the relevant provision of the Code of Federal Regulations were ambiguous on this point, the Court deferred to the Consumer Financial Protection Bureau’s official interpretations, which stated “[t]he 20–day period for the creditor’s action refers to the time within which the creditor must begin the process” and that “[w]here the consumer’s right to rescind is contested by the creditor, a court would normally determine whether the consumer has a right to rescind and determine the amounts owed before establishing the procedures for the parties to tender any money or property.”  12 C.F.R. Pt. 226, Supp. I, Paragraph 23(d)(2)(3)-(d)(4)(1) (emphasis added).  Therefore, the Court found that the institution of a declaratory judgment seeking a determination of the debtors’ right to rescind was sufficient under the statute.  

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

Eleventh Circuit Holds That Communication to Debtor’s Attorney Violated FDCPA

Posted on by rd_admin

The United States Court of Appeals for the Eleventh Circuit recently held that a debt collector’s letter to a debtor’s attorney in which the debt collector omitted the term “in writing” violated the Fair Debt Collection Practices Act (“FDCPA”).  See Bishop v. Ross Earle & Bonan, P.A., 2016 WL 1169064 (11th Cir. Mar. 25, 2016).  In the case, the debt collector sent a letter to a debtor’s attorney that stated, in part, that the debtor had thirty days to dispute the validity of the debt at issue.  The letter did not, however, state that this dispute must be in writing pursuant to the FDCPA.  See 15 USC 1692g (requiring “a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt”).  The debtor filed a putative class action against the debt collector, arguing, inter alia, a violation of 15 USC 1692g.  The debt collector filed a motion to dismiss, which the District Court granted.  On appeal, the Eleventh Circuit reversed.  First, it rejected the argument that a communication with the debtor’s attorney was not subject to the FDCPA, finding that a debtor who retains an attorney does not forfeit their protections under the law.  Second, it refused to accept the debt collector’s claim that the omission of the “in writing” requirement simply allowed the debtor an alternative method of disputing the debt, holding that the provisions of section 1692g are requirements that the debt collector may not waive, regardless of whether it makes the verification process easier on the debtor.  Finally, though it acknowledged that other circuit courts have held that communications with attorneys are held to a less rigorous standard than the usual “least sophisticated debtor” standard, it found that this standard would not apply in cases in which the debt collector made a misrepresentation of law or fact, as here.

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

Get Our Latest Insights

Subscribe