Florida Federal Court Dismisses RESPA and FDCPA Claims Due to Borrower’s Failure to Provide Servicer Notice and an Opportunity to Cure Banner Image

Florida Federal Court Dismisses RESPA and FDCPA Claims Due to Borrower’s Failure to Provide Servicer Notice and an Opportunity to Cure

Florida Federal Court Dismisses RESPA and FDCPA Claims Due to Borrower’s Failure to Provide Servicer Notice and an Opportunity to Cure

The United States District Court for the Southern District of Florida dismissed a borrower’s claims under the Real Estate Settlement Procedures Act (“RESPA”) and the Fair Debt Collection Practices Act (the “FDCPA”) because the borrower failed to give the loan servicer an opportunity to cure its alleged violations as required under the mortgage.  See Kurzban v. Specialized Loan Servicing, LLC, No. 17-CV-20713, 2018 WL 1570370(S.D. Fla. Mar. 30, 2018).  The borrower obtained a loan in 2005 and executed a note and mortgage to the lender.  Among other things, the mortgage stated:

Neither Borrower nor Lender may commence, join, or be joined to any judicial action (as either an individual litigant or the member of a class) that arises from the other party’s actions pursuant to this Security Instrument or that alleges that the other party has breached any provision of, or any duty owed by reason of, this Security Instrument, until such Borrower or Lender has notified the other party (with such notice given in compliance with the requirements of Section 15) of such alleged breach and afforded the other party hereto a reasonable period after the giving of such notice to take corrective action.

In 2016, the loan servicer sent the borrower a notice of intention to foreclose and commenced a foreclosure action.  The borrower responded by sending the servicer a loss mitigation application.  The borrower then brought this action in which he alleged that (i) the loan servicer had violated RESPA by failing to timely acknowledge receipt of the loss mitigation application; (ii) the servicer had violated the FDCPA by sending a letter attempting to collect time-barred debts; and (iii) the servicer had violated RESPA by failing to properly respond to a Qualified Written Request.  The servicer moved to dismiss, arguing the borrower had failed to comply with the notice and cure provision.

The Court agreed and dismissed the action.  First, it rejected the borrower’s claim that the mortgage provision did not apply because this was not an action “pursuant to” the mortgage, holding instead that “Count I arises out of Plaintiff’s attempts to modify the Mortgage to avoid foreclosure. Count II arises out of Defendant’s notice to Plaintiff that the Mortgage is in default and Count III arises out of alleged errors in the default amounts.”  Second, the Court denied the borrower’s claim that the mortgage provision was between the borrower and the lender and did not apply to a lawsuit against the servicer, finding that “[c]ourts in this district consistently hold that a notice-and-cure provision in a mortgage applies to actions against a servicer.”  As such, the Court dismissed the action.

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

Washington D.C. Appellate Court Holds Foreclosing Condominium Association Might Not Have Super-Priority if It Forecloses on More Than Six Months of Dues

The District of Columbia Court of Appeals recently reversed a lower court’s decision granting summary judgment to a condominium association and held that the association’s foreclosure of a “super-priority” condominium lien may not have extinguished an otherwise first-priority mortgage on the property.  See U.S. Bank Nat’l Ass’n v. Green Parks, LLC, No. 16-cv-842 (D.C. Mar. 13, 2018).  In the case, the borrower obtained a loan to purchase a condominium.  In 2013, the condominium association foreclosed on the property because of the borrower’s failure to pay the association fees, and the defendant third-party purchaser obtained the property.  In 2015, the plaintiff lender initiated this action to foreclose, and the third-party purchaser filed a counterclaim seeking to quiet title based on the Court’s August 2014 decision holding that super-priority condominium liens could extinguish mortgages.  See Chase Plaza Condo. Ass’n, Inc. v. JPMorgan Chase Bank, N.A., 98 A.3d 166 (D.C. 2014).  The lender moved to dismiss the counterclaim, but the trial court sua sponte converted the motion to one for summary judgment, denied the motion, dismissed the lender’s complaint, and entered summary judgment against the lender and in favor of the third-party purchaser, all without giving the parties prior notice of any of these actions

On appeal, the Court reversed the trial court’s order, holding that it was procedurally improper because, among other things, the trial court failed to view the evidence in the light most favorable to the lender.  Although the trial court correctly viewed the evidence in the light most favorable to the third-party purchaser when deciding the lender’s motion to dismiss, it should have shifted this perspective and viewed the evidence in the light most favorable to the lender when deciding whether to grant summary judgment in favor of the third-party purchaser.  Additionally, the court did not give proper notice to the parties before converting the lender’s motion to dismiss into a motion for summary judgment in favor of the third-party purchaser.  More importantly, however, in remanding the proceedings, the Court also gave instructions to the trial court for how to resolve the priority issue.  Specifically, the Court cited to its recent decision in Liu v. U.S. Bank Nat’l Ass’n, 2018 WL 1095503 (D.C. Mar. 1, 2018) and held that if the foreclosing association only foreclosed on the most recent six months of unpaid dues, the association’s claim took priority over that of the lender and extinguished the lender’s mortgage.  However, “if the trial court finds that the association foreclosed on more than the most recent six months of dues, it will need to determine the legal effect of the foreclosure.”  Finally, the Court held that the trial court must also address the lender’s equitable defenses to the quiet title claims.

For analysis of the Liu v. U.S. Bank Nat’l Ass’n decision, please click here.

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

California Appellate Court Holds Mortgage Recorded Simultaneously with HELOC Had Priority and Was Not Entitled to Surplus Funds

The California Court of Appeals recently held that a mortgage (the “Mortgage”) recorded simultaneously with a home equity line of credit (the “HELOC”) had priority and was not entitled to any surplus proceedings from the foreclosure of the HELOC, despite the fact that the HELOC’s instrument number was prior to that of the Mortgage.  See MTC Fin., Inc. v. Nationstar Mortg., 19 Cal. App. 5th 811 (Ct. App. 2018).  There, the borrower obtained two loans from Countrywide, each of which was secured by a deed of trust on the borrower’s property:  the Mortgage, in the amount of $205,080, and the HELOC, in the amount of $15,000.  Both were recorded on the same date and at the same time; however, the recorder’s office indexed them sequentially and assigned the HELOC the first instrument number.  Eventually, the Mortgage was assigned to the defendant in this action, with the HELOC being assigned to the plaintiff.  After the borrower defaulted, plaintiff foreclosed on the HELOC and sold the property, resulting in a $75,000 surplus.  Defendant, among others, claimed entitlement to the surplus based on the fact that the Mortgage’s recorded instrument number came after the HELOC’s.  However, the trial court held that defendant was a senior lienholder whose lien remained on the property but who was not eligible for surplus funds.  It then distributed about $13,000 of the surplus to another lienholder and the remainder to the borrower.

On appeal, the Court affirmed.  First, it held that “[w]hen a junior lienholder forecloses on a second deed of trust at a nonjudicial trustee’s sale, the senior lienholder is not entitled to any proceeds from the sale because the property is purchased at the sale subject to the first deed of trust.”  Then, it held that if two deeds of trust are executed at the same time and recorded simultaneously, “the order in which they are indexed is not determinative of priority.”  Accordingly, the Court held that it should rely on the apparent intent of the parties to determine priority.  Because Countrywide was the lender on both loans, “the reasonable expectation is that it would secure the much larger mortgage loan in the primary position. . . . This understanding is further supported by reference to the usual understanding of the relationship between a mortgage and an equity line of credit.”  Finally, the Court held that defendant will not be injured by the ruling because there was no evidence that the purchaser of the property is a bona fide purchaser for value and, as such, the Mortgage remained on the property.  However, “[t]he purchaser is not a party to these proceedings so . . . the trial court could not and we do not make a ruling regarding the status of his title or any claims or defenses he may have vis-à-vis [defendant]. Had [defendant] feared inconsistent rulings, it could have joined the purchaser in these proceedings but it failed to do so.”

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

Arizona Appellate Court Affirms Judgment for Title Insurance Company and Escrow Agent in Lenders’ Fraud Action

The Arizona Court of Appeals recently affirmed a lower court’s order dismissing claims against a title insurance company and an escrow agent and held that they were not liable for the property purchasers’ purported fraud against the lenders.  See C & G Farms Inc v. First Am. Title Ins. Co., 2018 WL 1281847 (Ariz. Ct. App. Mar. 13, 2018).  In the case, the plaintiff lenders allegedly reached an agreement with the borrowers whereby the borrowers would purchase a 40-acre lot through a loan from the lenders, and the lenders later would make a second loan to pay off the first loan and subdivide the property.  Nonetheless, pursuant to the closing instructions from the real estate agent, the borrowers ended up purchasing five separate properties through five separate loans from the lenders.  The borrowers defaulted, and the lenders foreclosed on four of the five properties.  The lenders then brought an action against the title insurance company and the escrow agent in which they alleged, among other things, that defendants had breached their fiduciary duty by not detecting the fraud, that the title insurance company should have informed them that the borrowers’ purported plan to subdivide the property was illegal and never would have happened, and that the lenders’ loss here was covered by the title insurance policy.  After a bench trial, the trial court entered a ruling against the lenders on all counts.

On appeal, the Court affirmed the trial court’s decision.  First, it held that the trial court did not err in dismissing the breach of fiduciary duty claim.  Both the title insurance company and the escrow agent complied with the escrow instructions “which did not present facts that a reasonable escrow agent would perceive as evidence of fraud.”  Second, the Court affirmed that the title insurance company had no duty to apprise the lenders of Arizona subdivision laws, and that lenders had failed to show any reliance on any representation made by the title insurance company.  Finally, the Court held that the lenders’ “lost benefit of their bargain” was not covered under the title insurance policy because there was no evidence the lenders’ title was ever challenged or that any actual loss occurred.

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

New York Federal Court Holds Statement That “Settlement Offers May Have Tax Consequences” Did Not Violate FDCPA

The United States District Court for the Western District of New York recently held that defendant debt collector’s letter that offered various settlement options to plaintiff did not violate the Fair Debt Collection Practices Act (“FDCPA”) by stating that the “settlement offers may have tax consequences[.]”  See Church v. Fin. Recovery Servs., Inc., 2018 WL 1383231 (W.D.N.Y. Mar. 19, 2018).  In the case, defendant sent a collection letter to plaintiff in which it offered a number of settlement options to settle plaintiff’s outstanding debt.  The letter stated: “These settlement offers may have tax consequences. We recommend that you consult independent tax counsel of your own choosing if you desire advice about any tax consequences which may result from this settlement.”  Plaintiff then filed this action, alleging that this statement violated the FDCPA’s prohibition on “false, deception, or misleading” representations.  See 15 U.S.C. §1692e.  Specifically, plaintiff argued that the statement was misleading because “unaccepted settlement offers cannot possibly cause the consumer to incur any tax consequences.”  The parties then filed a number of motions, including a motion by defendant for summary judgment.

The Court granted defendant’s summary judgment motion.  First, it acknowledged that it was required to use the “least sophisticated consumer” standard to determine whether the statement was misleading.  Nonetheless, it held that the least sophisticated consumer “is still ‘rational, and [she] possesses a rudimentary amount of information about the world.’”  Second, the Court noted that a number of other courts recently have held that statements that “this settlement may have tax consequences” are not misleading and do not violate the FDCPA.  Finally, it held that plaintiff’s argument—that the representation here is distinguishable from those other cases because it says that a settlement offer may have tax consequences—is undermined by the very next sentence, which states, “[w]e recommend that you consult independent tax counsel of your own choosing if you desire advice about any tax consequences which may result from this settlement.” (Emphasis added).  Thus, the Court held that the letter, although “likely the product of sloppy drafting,” did not violate the FDCPA because “the least sophisticated consumer would read the entirety of the paragraph and understand that consequences attach only once the offer has been accepted.”

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

New Jersey Appellate Court Holds Lender Was Required to Serve a Notice of Intent to Foreclose for a Residential Reverse Mortgage

New Jersey’s Appellate Division recently reversed a lower court and held that a lender erred by not serving a notice of intent to foreclose (“NOI”) before commencing a foreclosure action on a residential reverse mortgage.  See Nationstar Mortg., LLC d/b/a Champion Mortg. Co. v. Armstrong, 2018 WL 1386247 (N.J. Super. Ct. App. Div. March 20, 2018).  In the case, defendant, as his mother’s attorney-in-fact, obtained a reverse mortgage on her home.  The mother died shortly thereafter and, pursuant to 24 C.F.R. § 206.125(a)(2), the plaintiff-lender sent defendant, as administrator of the estate, a notice advising him of his options for satisfying the loan balance.  One year later, with the balance still outstanding, plaintiff commenced a foreclosure action.  Among his other defenses, defendant argued that plaintiff failed to send a NOI under the Fair Foreclosure Act (the “FFA”), which requires a lender to notify a borrower of its intention to foreclosure at least 30 days before commencing a foreclosure action.  See N.J.S.A. 2A:50-56(a).  The trial court nonetheless granted plaintiff’s request for final judgment, holding that plaintiff was not required to serve a NOI because the mortgage was a reverse mortgage and the mortgagor’s death was an incurable event of default giving plaintiff an absolute right to obtain the property.

On appeal, the Appellate Division reversed.  First, it held that, under the plain language of the FFA, a lender is required to provide a NOI before instituting a residential foreclosure action.  The FFA does not include an exception for reverse mortgages, nor does it include an exception for incurable events of default, as plaintiff argues.  Moreover, the Court found that this default could have been cured if the estate simply paid off the outstanding mortgage balance.  Second, the Court did not accept plaintiff’s argument that its satisfaction of the federal notice obligation under 24 C.F.R. § 206.125(a)(2) replaced its state obligation.  Instead, the FFA expressly states that the obligation to serve the NOI “is independent of any other duty to give notice under the common law, principles of equity, State or federal statute, or rule of court and of any other right or remedy the debtor may have as a result of the failure to give such notice.” N.J.S.A. 2A:50-56(e).  Finally, the Court held that the appropriate remedy would be to stay the foreclosure action for 30 days to give defendant another chance to pay off the mortgage, noting that the defendant had already greatly delayed the action and been sanctioned by the trial court for his repetitive motions.

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

Nevada Supreme Court Holds Federal Preemption Bars HOA Lien From Extinguishing Fannie Mae Mortgage

The Nevada Supreme Court recently affirmed a lower court’s decision that a foreclosure under a Nevada statute giving “super priority” to homeowners’ association liens was preempted by the Housing and Economic Recovery Act of 2008 (“HERA”) in a foreclosure in which the Federal National Mortgage Association (“Fannie Mae”) held a mortgage.  See Satico Bay LLC Series 9641 Christine View v. Fed. Nat’l Mortg. Assoc., 2018 WL 1448731 (Nev. Mar. 21, 2018).  In 2004, the borrowers purchased a property with a home loan that was secured by a deed of trust on the property.  In 2012, the deed of trust was assigned to Fannie Mae, which had been placed into conservatorship by the Federal Housing Finance Agency (the “FHFA”) four years earlier pursuant to HERA.  In 2013, the homeowners’ association sold the property at a foreclosure sale due to unpaid association fees, which had “super-priority” status under N.R.S. 116.3116.  The purchaser at the sale then brought an action against Fannie Mae to quiet title, and the parties cross-moved for summary judgment.  The district court granted Fannie Mae’s motion, finding that 12 U.S.C. § 4617(j)(3) (the “Foreclosure Bar”), which holds that “[n]o property of the [FHFA] shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the [FHFA], nor shall any involuntary lien attach to the property of the [FHFA]” controls and preempts the state statute.

On appeal, the Court affirmed.  First, the Court held that Fannie Mae has standing to assert this claim under the Foreclosure Bar even though the Foreclosure Bar only mentions the FHFA.  Because Fannie Mae’s interest in the property became the FHFA’s interest during the conservatorship, the Foreclosure Bar also protects Fannie Mae.  Second, the Court agreed that the Foreclosure Bar preempts N.R.S. 116.3116.  Although the Foreclosure Bar does not expressly preempt the state statute, the state statute “is in direct conflict with Congress’s clear and manifest goal to protect Fannie Mae’s property interest while under the FHFA’s conservatorship from threats arising from state foreclosure law.”  Finally, the Court held that the FHFA did not consent to the foreclosure and, as such, the deed of trust could not be extinguished under the Foreclosure Bar.

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

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