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Eleventh Circuit Affirms Dismissal of RESPA Claims, Holds Servicer Not Required to Cancel Foreclosure Sale Once Borrower Entered Modification Plan Banner Image

Eleventh Circuit Affirms Dismissal of RESPA Claims, Holds Servicer Not Required to Cancel Foreclosure Sale Once Borrower Entered Modification Plan

Month: July 2019

Eleventh Circuit Affirms Dismissal of RESPA Claims, Holds Servicer Not Required to Cancel Foreclosure Sale Once Borrower Entered Modification Plan

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The United States Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a Real Estate Settlement Procedures Act (“RESPA”) claim against a servicer, finding that the servicer did not violate RESPA by rescheduling, rather than canceling, a foreclosure sale after the borrower entered into a loan modification plan.  See Landau v. RoundPoint Mortg. Servicing Corp., 925 F.3d 1365 (11th Cir. 2019).  In the case, the borrower defaulted on her mortgage and her home was scheduled to be sold in a foreclosure sale.  The borrower later was approved for a six-month trial loan modification plan, and the servicer filed a motion to reschedule the sale that was scheduled to take place just days after the modification plan was to begin.  The borrower then brought this action, alleging that the motion to reschedule the sale was a violation of 12 CFR § 1024.41(g).  This provision states that a servicer “shall not move for foreclosure judgment or order of sale” if a borrower submits a complete loss mitigation more than 37 days before a scheduled foreclosure sale, absent some circumstances not present here.  The District Court dismissed the action.

On appeal, the Court affirmed.  It found that a motion to reschedule a previously-scheduled sale was not a motion “for foreclosure judgment or order of sale” prohibited by RESPA.  “A motion for order of sale is a substantive and dispositive motion that seeks authorization from a court to conduct a foreclosure sale at all, while a motion to reschedule a foreclosure sale under an already-existing order of sale is a non-substantive, housekeeping-type motion that does no more than seek permission to change the date of sale that the court has previously ordered.”  Further, the Court found that the borrower’s argument would undercut RESPA’s consumer-protection purposes.  If servicers were forced to cancel sales rather than simply reschedule them, “servicers would be heavily disincentivized against offering loss-mitigation options to delinquent borrowers and helping them complete loss-mitigation applications.”  Accordingly, the Court affirmed the dismissal.

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

New York Court Grants Property Purchaser Summary Judgment Based on Laches Defense Despite Forged Deed

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The New York Supreme Court, Queens County recently granted a property purchaser summary judgment on his claim to the property despite the fact that his grantor held title through a forged deed.  See Olowofela, et al. v. Olowofela, et al., Index No. 2363-2015 (June 27, 2019).  The purchaser bought the property at issue in September 2015.  A title report issued before the closing confirmed that the seller was the only owner of the property, via a 2009 deed from plaintiff and the seller to seller alone.  However, apparently unbeknownst to the purchaser, plaintiff had brought an action in February 2015 claiming the 2009 deed was forged, along with other deeds for other properties.  Although plaintiff filed notices of pendency against other properties at issue in this action, he failed to file a notice against this property until after the closing.  The purchaser moved for summary judgment arguing, among other things, that laches bars plaintiff’s action because plaintiff was or should have been aware of the forged deed well before he brought this action.

The Court granted the purchaser’s motion with regard to laches.  It found that plaintiff—who was the seller’s son—was aware that the seller retained all mortgage proceeds and rental income from the properties for himself and refused to put the property in the name of a LLC.  The Court further found that there were “indications” plaintiff knew of the forged deeds years earlier.  In opposition, plaintiff submitted only self-serving statements that he did not know of the seller’s actions until later 2013, and had relied on their father-son relationship to assume his father was acting properly.  The Court rejected this argument and found that the parties’ relationship “does not permit [plaintiff] to be like [an] ostrich[] and ignore years of behavior . . .”  Accordingly, it granted the purchaser’s motion for summary judgment.

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

New Jersey Federal Court Denies Motion to Dismiss RESPA Claim

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The United States District Court for the District of New Jersey recently denied a loan servicer’s motion to dismiss a borrower’s claim that the servicer violated the Real Estate Settlement Procedures Act (“RESPA”) by failing to properly respond to the borrower’s loss mitigation applications and Notice of Error.  See Grembowiec v. Select Portfolio Servicing, Inc., 2019 WL 3183588 (D.N.J. July 16, 2019).  In May 2018, the plaintiff borrower submitted a loss mitigation application to the defendant servicer.  Defendant responded and informed plaintiff that the submitted documents were insufficient.  Although plaintiff sent additional documents, defendant later sent another letter saying the application had been terminated because there had been no activity on the file.  Plaintiff then submitted a Notice of Error stating defendant had failed to properly address the application.  Defendant responded claiming no error occurred.  In September 2018, plaintiff submitted a second mitigation application, and defendant again requested more documents.  Plaintiff again submitted the requested documents but defendant did not respond.  Plaintiff then brought this action alleging violations of RESPA, and defendant filed a motion to dismiss.

The Court denied the motion.  First, it found that plaintiff had alleged a violation of 12 CFR § 1024.41(b)(2)(i)(B), which states that a servicer must exercise reasonable diligence in obtaining documents for a loss mitigation application, and “[i]f a loss mitigation application is incomplete, the notice [from the servicer] shall state the additional documents and information the borrower must submit to make the loss mitigation application complete[.]”  Here, the servicer twice responded to plaintiff’s mitigation applications by stating that additional documents were needed but not specifying which ones, and instead stating, “[p]lease contact us . . . so we can provide clarification on what is needed.”  The Court also found that plaintiff sufficiently alleged that defendant failed to acknowledge that the loss mitigation applications were complete once plaintiff submitted the additional documentation, in violations of 12 CFR § 1024.41(c)(3).

Second, the Court found that plaintiff had alleged a violation of 12 CFR § 1024.35 by failing to properly respond to plaintiff’s Notice of Error.  Servicers are required to respond to a Notice by either correcting any errors or “[c]onducting a reasonable investigation” and informing the borrower that no error occurred.  Here, defendant’s response to the Notice of Error was that no error occurred because it requested two bank statements and plaintiff only submitted one.  However, plaintiff’s Complaint attached defendant’s actual response to the Notice, which clearly requested only one bank statement.  Thus, the Court found that “Defendant’s contradictory assertions as to how many bank statements it required plausibly indicates that Defendant failed to conduct a reasonable investigation into the First Notice.”

Finally, the Court confirmed that plaintiff adequately pleaded actual damages, including the attorneys’ fees incurred in responding to defendant’s correspondence.  Nonetheless, the Court found that plaintiff could not seek damages based on her allegation that interest rates increased during the period when defendant delayed, because even if defendant had responded to plaintiff’s applications appropriately, nothing obligated defendant to provide plaintiff with any loss mitigation option.

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

Deceptive Environmental Marketing? Recent Challenges to Advertisements for “Recyclable” and “Compostable” Coffee Pods

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Companies often market products and services as having an environmental benefit, such as being compostable, recyclable, or made with renewable energy or materials.  Businesses that make these types of claims in marketing materials need to ensure that the claims are accurate and not deceptive or misleading.  While claims involving environmental benefits are subject to both state and federal law, the touchstone in this area is the Federal Trade Commission Act and the “Green Guides” established by the Federal Trade Commission (“FTC”) pursuant to its authority under the Act.  The Green Guides contain standards and examples to help companies understand what constitutes deceptive or misleading environmental advertising.  Two manufacturers of coffee pods have faced challenges recently for labeling their products as “recyclable” and “compostable,” and for making other environmental claims in their marketing materials.  These two examples highlight the difficulty manufacturers face with making accurate claims regarding the environmental benefits, especially given that composting and recycling are local practices that are constantly evolving.

In the most recent case, Keurig Green Mountain, Inc. (now Keurig Dr. Pepper) faces a class action alleging that it mislabeled single-serve plastic coffee pods as “recyclable.”  Smith v. Keurig Green Mountain, Inc., Docket No 18-cv-06690-HSG (N.D. Cal. June 28, 2019).  According to the Green Guides, “[a] product or package should not be marketed as recyclable unless it can be collected, separated, or otherwise recovered from the waste stream through an established recycling program for reuse or use in manufacturing or assembling another item.” 16 C.F.R. § 260.12(a). The Green Guides further state that “[i]f any component significantly limits the ability to recycle the item, any recyclable claim would be deceptive” and that when recycling facilities are available to less than 60% of consumers where the item is sold, all recyclability claims should be properly qualified. 16 C.F.R. § 260.12(d), (b)(1). Keurig filed a motion to dismiss the class action based, among other reasons, on the grounds that its advertising claims were consistent with these standards, in part because it advised consumers to “check locally” regarding recyclability.  However, the complaint alleges that Keurig’s coffee pods are not recyclable at all because most municipal recycling facilities aren’t capable of capturing such small, light materials from the recycling stream.  The court therefore refused to dismiss the action at this early stage, but Keurig will have additional chances to establish that its marketing claims are accurate as the case develops.

The other recent decision involves Kauai Coffee Company, LLC, which makes a variety of environmental claims in connection with its single-serve coffee pods.  In re Kauai Coffee Company, LLC, Case No. 6078 (NAD May 5, 2017).  For instance, Kauai’s print and online marketing materials claimed:

  • “Don’t trash the Earth with your coffee. Brew & Renew.”
  • Kauai Coffee comes in “new certified 100% compostable pods that work in all K-Cup brewers.”
  • “Compostable in industrial facilities. Check locally, as these do not exist in many communities. Not certified for backyard composting.”
  • “Now you can enjoy the great taste and convenience of single-serve coffee without worrying about the environmental impact. Our certified 100% compostable pod is compatible with all K-cup brewers and is designed to go back to the land – not the landfill.”

These claims were reviewed by the National Advertising Division of the Better Business Bureau, a private entity that provides guidance to the advertising industry.  The Green Guides deem a claim of compostability accurate if it is compostable in a home compost pile or if the claim is accompanied by qualifying language explaining that the product cannot be composted at home and that the appropriate composting facilities are not available in most places where the item is sold.  16 C.F.R. § 260.7.  Kauai coffee included the appropriate qualifying language on its product, as shown above, but failed to do so on other online and print advertisements.  The National Advertising Division found that the failure to include the qualify language next to the claim of compostability in these advertisements was misleading and therefore recommended that Kauai discontinue or modify the claims.  The National Advertising Division also recommended that Kauai discontinue general claims such as: “Don’t trash the Earth with your coffee. BREW & RENEW.”  General environmental claims are difficult to support and are more likely to be deemed deceptive.  Kauai agreed to comply with all of these recommendations.

At bottom, marketing materials that make claims regarding environmental benefits must be carefully crafted and based on sufficient evidence, whether they relate to compostability, recyclability, or other environmental benefits of a product or service.  Given that consumers are growing ever more interested in the environmental benefits of products and services, companies will continue to include environmental benefits in advertising, but this must be done appropriately and in compliance with the Green Guides as well as any applicable state laws.

For more information, please contact any attorney in our Environmental Practice Group.

New Jersey Appellate Court Finds Later-Executed but First-Recorded Mortgage Not Entitled to Priority When Lender Could Not Produce Origination File

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The New Jersey Appellate Division recently found that a subsequent lender’s inability to produce its origination file resulted in a negative inference that the lender had knowledge of a previously-executed mortgage, despite the fact that the subsequent lender’s mortgage was recorded first.  See Wilmington Savings Fund Society, FSB, d/b/a Christiana Trust, not in its individual capacity, but solely as Trustee for BCAT 2015-14BTT, v. 61 Holdings, LLC, 2019 WL 3063740 (N.J. Super. Ct. App. Div. July 12, 2019).  In April 2004, the borrower gave a mortgage on his property to World Savings Bank to secure a $220,000 loan.  The mortgage was not recorded until January 2005 and was assigned to Wells Fargo.  In July 2004, the borrower gave another mortgage on his property to Fleet to secure a $25,000 line of credit, and this mortgage was recorded in August 2004.  This line of credit mortgage was assigned to plaintiff.  Wells Fargo later initiated a foreclosure action, but did not name plaintiff.  It purchased the property at a sheriff’s sale in 2016 and sold the property to defendant.  Although the title search defendant commissioned before purchasing the property indicated that plaintiff’s line of credit mortgage was an open lien on the property, the title company later issued an amended commitment that removed the mortgage as an exception based on a 2015 indemnification letter.  Plaintiff then brought a foreclosure action, claiming that it had the first lien on the property senior to defendant’s interest because plaintiff’s mortgage was recorded first.  During discovery, however, plaintiff was unable to produce the loan’s origination file.  Because plaintiff could not produce the origination file, the trial court found that defendant was entitled to a favorable inference that plaintiff had actual knowledge of the prior loan at the time of origination and that plaintiff therefore was not entitled to priority.  It further found that Wells Fargo was entitled to be equitably subrogated to the first lien on the property, that defendant stepped into Wells Fargo’s shoes, and that defendant could extinguish plaintiff’s interest via a strict foreclosure.  Based on these findings, the trial court denied plaintiff’s motion for summary judgment and granted defendant’s cross-motion, dismissing the complaint with prejudice.

On appeal, the Court affirmed.  First, it agreed that plaintiff’s inability to produce the origination file resulted in the inference that plaintiff’s predecessor had knowledge of the April 2004 loan and mortgage.  Second, the Court found that World Savings Bank/Wells Fargo was entitled to equitable subrogation because its loan was used to pay off a prior mortgage on the property.  As the trial court held, “[a]s the World Savings Bank loan was utilized to pay off the satisfied mortgage, it was reasonable for World Savings Bank to rely upon traditional, equitable principles of priority and expect that its interest would be in ‘first place.’ Unjust enrichment would thus result if the interest held by [plaintiff] were to be vaulted past the interest held by [defendant] solely by virtue of it being first to record. Such a result would contradict the very purpose behind the doctrine of equitable subrogation.”  Finally, the Court found that defendant was entitled to step into Wells Fargo’s shoes for the purposes of equitable subrogation.  In addition to finding that defendant justifiably relied on the title company’s assessment that plaintiff did not have an open lien on the property, the Court found that defendant’s “entitlement to subrogation is wholly derivative of Wells Fargo’s entitlement to subrogation. That is so because the issue whether equitable subrogation is appropriate must be evaluated from the standpoint of the entities that made the loans at the time they made the loans.”  Thus, even if defendant was aware of an open lien, “that awareness does not serve to eradicate Wells Fargo’s entitlement to its priority position.”

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

Nevada Federal Court Grants Title Insurer Summary Judgment on Claim Regarding Homeowners’ Association Lien

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The United States District Court for the District of Nevada recently granted a title insurance company’s motion for summary judgment regarding a homeowners’ association lien that purportedly extinguished the insured lender’s deed of trust.  See Wells Fargo Bank, N.A. v. Commonwealth Land Title Ins. Co., 2019 WL 2062947 (D. Nev. May 9, 2019).  In 2006, the homeowners executed a deed of trust on their home in exchange for a loan of about $300,000.  The defendant title insurance company issued a title insurance policy to the lender, and the lender later assigned its interest in the loan to the plaintiff-insured.  In 2009, the homeowners’ association (the “HOA”) for the property recorded a notice of default and election to sell based on the homeowners’ failure to pay HOA fees.  In 2011, the HOA recorded a notice of trustee’s sale.  The property was then sold to a third party, who claimed that its interest in the property was senior to the insured’s, and that the HOA sale extinguished the insured’s deed of trust on the property.  The insured brought an action against the third party regarding whether the deed of trust was extinguished.  The insured then filed a claim with the title insurance company, who denied the claim.  The insured then brought this action, seeking indemnification for its legal fees in the action against the third-party purchaser of the loan, as well as claims of breach of fiduciary duty and the implied covenant of good faith and fair dealing.  The insurer filed a motion to dismiss for lack of jurisdiction, and the parties also cross-moved for summary judgment.

The Court first denied the motion to dismiss, finding that diversity jurisdiction existed.  Although the insured was seeking its attorneys’ fees for its state-court action, which were only $19,792.50 as of the time of the complaint, the Court found that the complaint sought the insured’s ongoing losses in the state-court action, which continued to accrue.  The insurer “has therefore not shown that it is a legal certainty that [the insured] cannot reach the jurisdictional minimum [of over $75,000] to establish diversity jurisdiction.”  Nonetheless, the Court granted the insurer’s motion for summary judgment.  The policy at issue included an exception for losses that arise by reason of certain covenants, conditions and restrictions (the “CC&Rs”), and “the claim arose as a result of an HOA lien provided for in the CC&Rs.”  The exception further stated that “[s]aid covenants, conditions and restrictions provide that a violation thereof shall not defeat the lien of any . . . Deed of Trust.”  The insured argued that this latter sentence was incorrect because the HOA lien arising from the CC&Rs ultimately did extinguish the insured’s lien, and one of the policy endorsements provides coverage for “[a]ny incorrectness in the assurance which the Company hereby gives: . . . [t]hat there are no covenants, conditions, or restrictions under which the lien of the mortgage referred to in Schedule A can be cut off, subordinated, or otherwise impaired.”  The Court rejected the insured’s argument, finding that “[w]hile that statement in the CC&Rs may have been incorrect as a matter of law, the HOA’s lien extinguished the deed of trust as a function of Nevada law and not of the CC&Rs themselves. [The insurer] gave no assurance that the statement in the CC&Rs was correct, it merely gave notice of what the CC&Rs said.”  Likewise, because the Court found that the insurer correctly denied coverage, it dismissed the remaining claims.

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

D.C. Circuit Holds Discovery Rule May Have Applied to Toll Limitations Period for Title Insurer’s Claim Against Surveyors

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The United States Court of Appeals for the D.C. Circuit recently reversed a lower court and held that a title insurance company’s negligence claims against property surveyors may have been tolled until the insurer or its insured discovered the encroachment at issue.  See Commonwealth Land Title Ins. Co. v. KCI Techs., Inc., 922 F.3d 459 (D.C. Cir. 2019).  In 2006, one of the defendants conducted a survey of the insured property.  In 2007 and in reliance on this survey, the non-party insured purchased the property and the title insurance company issued a policy.  The second defendant conducted two more surveys of the property in 2012 and 2013 in which it discovered a neighboring wall encroached onto the insured property by four inches.  In 2014, however, the insured discovered that the wall encroached onto the insured property by twelve inches and that it would need to be razed for construction to continue.  The insured submitted a claim to the title insurance company for the costs of demolition and the delay penalties it had to pay to its tenant for the resulting construction delays.  The title insurance company accepted coverage and made the payment and, in 2017, brought this action against the two surveyors for negligence.  The surveyors moved to dismiss the complaint as untimely.  The District Court held that a three-year statute of limitations period applied, and that the title insurer’s claims accrued when the insured received the defective surveys.  The court declined to apply a discovery rule and dismissed the 2017 complaint with prejudice as untimely.

On appeal, the Court reversed.  First, the Court acknowledged that the D.C. Court of Appeals “has never explicitly held that the discovery rule is available to a plaintiff in a commercial construction dispute,” but inferred that it would be available “where a plaintiff in a construction dispute clearly lacks the requisite sophistication to identify defects that are latent in nature.”  (emphasis in original).  Second, the Court rejected the defendants’ claim that the title insurance company and the insured were sophisticated parties for whom the discovery rule was not available.  It held that they  “may be . . . sophisticated,” but they are “not sophisticated in the field of land surveying,” which is why they retained defendants.  Accordingly, the Court found that the complaint should not be dismissed at the motion to dismiss stage.

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 Grants Debtor Summary Judgment in FDCPA Action When Debt Collector Failed to Notify Debtor That Interest Would Accrue

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The United States District Court for the Eastern District of New York recently found that a debt collector violated the Fair Debt Collection Practices Act (“FDCPA”) by sending a letter that offered settlement amounts if plaintiff paid by a certain date, but did not state that the debt would continue accruing interest and/or fees if plaintiff did not pay those amounts by the specified dates.  See Cortez v. Foster & Garbus, LLP, 2019 WL 2443182 (E.D.N.Y. June 12, 2019).  In the case, the defendant debt collector sent a letter to plaintiff that made three settlement offers to satisfy plaintiff’s debt if plaintiff made certain payments by certain dates.  The letter did not inform the plaintiff that, if plaintiff did not make these payments by these dates, interest would continue to accrue.  Defendant filed a motion for summary judgment.

The Court denied defendant’s motion for summary judgment.  In Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016), the Second Circuit held that a debt collector violates the FDCPA if it fails to inform the debtor of accruing interest.  Here, the Court found that “the notice here fails to warn consumers that they may fail to pay their debt in full, even if they pay the amount provided in the notice, if they do not make the payment by the specified date.”  Based on this precedent, the Court denied the defendant’s motion for summary judgment and sua sponte granted summary judgment to plaintiff on the issue of liability.

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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