Saturday, December 31, 2011

FYI: 6th Cir Confirms Assignee Has Standing to Seek Relief from Automatic Stay, Need Not Be Named on Certificate of Title

The Bankruptcy Appellate Panel of the Sixth Circuit recently held that in a Chapter 7 bankruptcy: (1) an assignee of a previously perfected security interest in a motor vehicle has standing to seek relief from the automatic stay; and  (2) failure to change the name of the lienholder on the certificate of title does not change the perfected status of the assigned security interest.
 
A copy of the opinion can be found at: 
 
Debtor purchased a car with proceeds from a dealer-financed loan and gave the dealer a security interest in the car.  The dealer then transferred the note and security interest to an auto finance company ("AF").  AF noted its lien on the vehicle's certificate of title.   AF later assigned the note and its security interest to a bank (Bank) pursuant to an agreement under which the Bank held and serviced the promissory note.  The Bank neither recorded the assignment of the note and security interest nor noted on the certificate of title that it had acquired the security interest.
 
Debtor later defaulted on the car loan and the Bank repossessed the vehicle.  Shortly after the repossession, Debtor filed for Chapter 7 bankruptcy protection, and the Bank moved for relief from the automatic stay.  In support of its motion, the Bank submitted copies of the retail installment sale contract between Debtor and the car dealer, the vehicle's certificate of title, the agreement between AF and the Bank, and a notarized affidavit stating that AF assigned the contract to the Bank and that the Bank was entitled to seek relief from the automatic stay.  
 
The bankruptcy court denied the Bank's motion, ruling that the Bank lacked standing to seek relief from the automatic stay due to a lack of "unity of entity," as evidenced by the fact that the Bank held the note while AF was still listed as the lienholder on the certificate of title.  The Bank appealed and the Bankruptcy Appellate Panel of the Sixth Circuit ("Panel") reversed.
 
The Panel began its analysis by addressing the term "party in interest" to determine which parties may seek relief from the automatic stay.  See 11 U.S.C. §362(d).  Noting that the term is not statutorily defined, and relying on a variety of court opinions that addressed the meaning of the term, the Panel concluded that "party in interest" broadly refers to those parties legally entitled to enforce an obligation, and that an assignment of claims must be valid in order for an assignee to be considered such a "party in interest."  Accordingly, the Panel ruled that an assignee of a secured interest has standing to pursue relief from the stay as long as the assignment is valid and the other elements of section 362(d) are satisfied. 
 
Next, taking issue with the bankruptcy court's conclusion that the reasoning in Rhiel v. Wells Fargo Fin. Acceptance (In re Fields), 351 B.R. 887 (Bankr. S.D. Ohio 2006) (Fields), was inapplicable to the present case, the Panel stressed that, although the underlying dispute in Fields differed from that in the present case, its holding was nevertheless controlling.  The Panel observed that, as stated in Fields, under Ohio law enforceability of a security interest in a motor vehicle requires that such interest be perfected, and that such a security interest may be perfected by noting the lien on the vehicle's certificate of title, which was done in this case.   
 
Moreover, again relying on Fields, the Panel ruled that under Ohio law the assignment of a perfected security interest in a motor vehicle does not require "re-perfection" of that interest in order for the assignee to maintain the status of the perfected security interest.  The Panel noted that the original act of perfecting the security interest would put interested third parties on notice that another creditor claimed an interest in the debtor's property and that the presence of the assignor's name on a certificate of title, rather than the assignee's, would not mislead creditors. See Fields, 351 B.R. 887 at 891-93; Ohio Rev. code §§1309.310(C), 1309.311(A)(2). 
 
Thus, as the assignee of a previously perfected security interest, the Bank was not required to have its assignment noted on the certificate of title in order to maintain its secured status.  Accordingly, the Panel concluded that, as a creditor with a properly perfected security interest in the vehicle, the Bank was a "party in interest" with standing to seek relief from the automatic stay.  
 

 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

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Wednesday, December 28, 2011

FYI: Mich Ct of Appeals Limits Doctrine of Equitable Subrogation

The Michigan Court of Appeals recently limited the doctrine of equitable subrogation, to circumstances in which the original mortgage lien and the refinanced mortgage lien were held by the same lender or its bona fide successor in interest.  A copy of the opinion is attached.
 
The borrowers purchased property on September 6, 2000, with a mortgage granted to original lender.  On May 4, 2001, the borrowers refinanced their loan and discharged the original mortgage in favor of a new mortgage that was also granted to the original lender (the "2001 Loan").  The borrowers later obtained a home equity loan from another subsequent lender, granting the subsequent lender a second mortgage on the property (the "Second Lien"). 
 
On November 25, 2002, the borrowers refinanced their 2001 Loan, releasing the mortgage securing the 2001 Loan in favor of another mortgage lien also granted to the original lender (hereinafter, the "Refinanced Mortgage Lien").  Although the Second Lien was recorded, the original lender was unaware of it at the time it took the Refinanced Mortgage Lien.  On August 22, 2005, the borrowers filed for bankruptcy, and the property was sold at a foreclosure sale.  The purchaser of the foreclosed property, along with the original lender's successor in interest, sued to quiet title. 
 
The issue was whether the Second Lien or the Refinanced Mortgage Lien was superior.  Generally, the Second Lien would have been the junior lien, but for the subsequent refinancing.  On cross-motions for summary disposition, the trial court held that the Refinanced Mortgage Lien could not be first in priority over the Second Lien, under the doctrine of equitable subrogation, and the appeal followed. 
 
Looking to the Restatement of Property (Mortgages), 3d, § 7.3 (hereinafter, "Restatement"), as limited to the situations in Comment b to the Restatement, the Court of Appeals concluded that it was consistent with precedential Michigan law.  The Court, therefore, adopted the Restatement. 
 
As relevant to this case, section 7.3(a) of the Restatement provides that if a senior mortgage is released of record and within the same transaction is replaced with a new mortgage, then the later mortgage retains the same priority as its predecessor.  Exceptions to that general rule are where any changes to the terms of the mortgage or the obligation secured thereby are materially prejudicial to the holder of the junior interest in the real estate; or where the one who is protected by the recording act acquires an interest in the real estate when a senior mortgage is not of record. 
 
Comment b to the Restatement states: "[u]nder 7.3(a) a senior mortgagee that discharges its mortgage of record and records a replacement mortgage does not lose its priority against the holder of an intervening interest unless that holder suffers material prejudice."  Additionally, the associated Reporter's Note explains that "courts routinely adhere to the principle that a senior mortgagee who discharges its mortgage of record and takes and records a replacement mortgage, retains the predecessor's seniority as against intervening lienors unless the mortgagee intended a subordination of its mortgage or 'paramount equities' exist."
 
In adopting the Restatement, the Court warned that the lending mortgagee that seeks subrogation and priority over an intervening interest relative to its newly recorded mortgage must be the same lender as the one that held the original mortgage before the intervening interest arose.  Thus, the Court could not adopt the Restatement in its entirety, due to its broader scope. 
 
The Court of Appeals concluded, however, that at the time that the lien is sought to be enforced, any bona fide successor in interest may stand in the shoes of the original lending mortgagee, for the purposes of equitable subrogation.  Further, any application of equitable subrogation will be subjected to a careful examination of the equities of all parties and potential prejudice to an intervening lienholder.
 
Finally, the Court addressed the "mere volunteer" rule.  That rule provides that equitable subrogation cannot be extended to a party that is a mere volunteer.  Under the doctrine of equitable subrogation, a new mortgagee is not permitted to take the priority of the older mortgagee simply because the proceeds of the new mortgage were used to pay off an indebtedness secured by the old mortgage.  The Court held that the "mere volunteer" rule has no bearing in the context of a case where the new mortgagee was also the original mortgagee. 
 
The Court concluded that equitable subrogation is available to place a new mortgage lien in the same priority as a discharged mortgage lien, if the new mortgagee was the original mortgagee.  However, in order for the general rule to apply, the holders of any junior liens must not be prejudiced. 
 
The Court further concluded that the Restatement, as adopted in the limited form expounded by the Court, sets forth a reasonable and proper framework for determining whether junior lienholders have been prejudiced and whether the equities ultimately favor equitable subrogation. 
 
Accordingly, the Court of Appeals reversed and remanded the case to the trial court for further determinations of fact consistent with its ruling

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email:
RWutscher@mtwllp.com
 

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Tuesday, December 27, 2011

FYI: Cal App Ct Holds 1-yr Statute of Limitations for Forged Checks Does Not Apply to HELOCs

The California Court of Appeals, Second Appellate District, recently held that the statute of limitations applicable to actions "by a depositor against a bank for the payment of a forged or raised check" does not apply to allegations brought by a borrower with respect to her home equity line of credit. 
 
A copy of the opinion is available at:
 
A borrower sued her HELOC lender, alleging various causes of action in connection with a retailer's cashing of allegedly forged checks.  These checks were drawn on the borrower's home equity line of credit ("HELOC") account. 
 
The lender demurred on the grounds that the action was time barred.  The lower court agreed with the lender, finding that the one-year statute of limitations provided for by California Code of Civ. Proc. Sec. 340(c) applied.  The borrower appealed. 
 
As you may recall, California Code of Civ. Proc. Sec. 340(c) ("Sec. 340") governs "actions by a depositor against a bank for the payment of a forged or raised check."  It applies a one-year statute of limitations to such actions. 
 
On appeal, the borrower argued that the one-year time limit did not apply to her, because she was a loan customer with a HELOC account, and not a depositor.  The appellate court agreed.  It observed that the account at issue here is "not a deposit account"; rather, the lender is a creditor to the borrower.  Because the legislature used the word "depositor" in Sec. 340 rather than, for example, "customer," the Court reasoned that there is "no valid basis" to assume that the legislature intended the statute of limitations to apply to non-depositors. 
 
The lender argued that Sec. 340 ought to be "harmonized" with California Uniform Commercial Code Sec. 4406, as both statutes concern similar subject matter.  The UCC code section uses the word "customer" in lieu of "depositor."  The Court disagreed, noting that the UCC sections cited were not part of the same statutory scheme as Sec. 340. Specifically, the Court observed that California Commercial Code Sec. 4406 is not a statute of limitation, but an "issue-preclusion statute." 
 
Therefore, the Court held that the 1-year statute of limitations in Sec. 340 "is not applicable to this action," and consequently reversed the decision of the lower court to grant the lender's demurrer.  
 


Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

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FYI: Mich Court of Appeals Rules in Favor of Creditor in Challenge to Affidavit and Standing

The Michigan Court of Appeals recently held that the lower court properly
considered documentary evidence to support summary disposition in a
creditor's collection action, where such evidence was "plausibly
admissible," and where the debtor failed to present evidence establishing
a question of fact on any element of the creditor's claim. A copy of the
opinion is attached.

Defendant debtor failed to make the required payments on her credit card
account, and plaintiff bank eventually sued the debtor for breach of the
credit card agreement. Appearing pro se, the debtor denied the existence
of a credit agreement with the bank, and denied that she owed the bank any
money. The debtor also filed a counterclaim, asserting that the bank had
committed fraud by presenting a "false document" (i.e., the complaint) to
the court.

The bank moved for summary disposition and, in support of its motion,
submitted into evidence copies of the credit card agreement, the debtor's
monthly credit card statements, checks the debtor had sent as payment on
the account, as well as an affidavit. The bank also asserted that the
debtor's fraud claim should be dismissed for failure to plead it with
sufficient particularity.

In response, the debtor argued in part that because the documents the bank
submitted to the trial court as evidence were unsigned, they could not be
used to support its motion. The debtor further argued that the bank
lacked standing because it was not registered to do business in Michigan,
had unclean hands, and violated federal law by seeking to collect the
debt. The debtor also asserted that the bank's supporting affidavit was
invalid.

The trial court granted the bank's motion for summary disposition. The
debtor appealed, arguing that the evidence that the bank had submitted to
support its motion was inadmissible. The appellate court affirmed.

The Court of Appeals first noted that a motion for summary disposition
requires the submission of supporting documentation such as affidavits,
depositions, admissions or other documentary evidence, and that the trial
court may only consider such submissions to the extent that they "would be
admissible as evidence." See MCR 2.116(G)(3),(6). The Court also
observed that the documentation submitted to support a motion for summary
disposition need not be in admissible form, but need only be admissible in
substance, and that if a "plausible basis" exists for the admission of the
supporting material, the trial court may properly consider the
documentation.

While pointing out that the affidavit submitted by the bank may not have
established a proper foundation for admitting the documentation into
evidence, the appellate court noted that the documents submitted were
"nevertheless plausibly admissible as records of regularly conducted
activity." The Court then determined that the documentation demonstrated
that the debtor had among other things opened a credit card account with
the bank, used the account to make purchases and balance transfers, and,
after making a number of payments on the account, breached the agreement
by failing to make additional required payments.

The Court determined that the documentary evidence was sufficient to
establish the existence of a lending agreement between the parties, the
breach of that agreement, and the amount of the bank's damages.
Accordingly, the Court ruled that the bank had properly supported its
motion, and that the debtor therefore had to respond with evidence that
raised a question of fact as to at least one of the element's of the
bank's breach of contract claim, but failed to do so.

The Court also rejected the debtor's arguments that the bank lacked
standing to sue, failed to prove it was assigned the note, and that its
collection efforts violated federal law, because the debtor had failed to
provide "meaningful citation to the law or record evidence," and because,
in the Court's view, such allegations were meritless in any event.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


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Monday, December 26, 2011

FYI: 10th Cir Holds Verification of Employment Faxed to Consumer's Employer Did Not Violate FDCPA, Prevailing Defs Entitled to Costs Without Bad Faith Finding Under FDCPA

The U.S. Court of Appeals for the Tenth Circuit recently held that: (1) a
facsimile sent by a debt collector to a borrower's workplace for the
purpose of verifying the borrower's employment did not constitute a
"communication" under the Fair Debt Collection Practices Act ("FDCPA"),
absent evidence that the employer knew the facsimile was sent in
connection with a debt, and (2) a prevailing defendant in a FDCPA action
may be awarded costs without a finding that the plaintiff brought the suit
in bad faith and for the purpose of harassment. A copy of the opinion is
attached.

Defendant General Revenue Corporation ("GRC") was hired to collect on
plaintiff-borrower's delinquent student loan. GRC sent a facsimile the
borrower's employer, seeking to verify the borrower's employment. The
facsimile did not make any reference to debt collection. However, it did
include GRC's corporate logo, and GRC's account number for the borrower.

The borrower sued GRC, alleging among other things that the facsimile sent
by GRC violated the FDCPA's prohibition of debt collector communications
with third parties. The lower court found no violation of the FDCPA, and
awarded costs to GRC. The borrower appealed.

As you may recall, the FDCPA provides that "a debt collector may not
communicate, in connection with the collection of any debt, with any
person other than the consumer." 15 U.S.C. Sec. 1692(e). A
"communication" is defined as "the conveying of information regarding a
debt directly or indirectly to any person through any medium." Id. at
Sec. 1692(a)(2).

The Tenth Circuit held that because the facsimile sent by GRC did not
"indicate to the recipient that the message relates to the collection of a
debt," it did not constitute a "communication" as that term is defined in
the FDCPA.

In so holding, the Court was influenced by the fact that the borrower did
not allege that her employer was aware that the communication related to
the collection of a debt. Had there been any evidence to that effect, the
Court suggested that "the case would be different." Nevertheless, the
Court noted that the borrower had the burden of proving that the facsimile
conveyed information regarding a debt. Because the borrower failed to
meet that burden, the Tenth Circuit affirmed the lower court's ruling.

Next, the Tenth Circuit examined the lower court's award of costs to GRC.
It began by scrutinizing the relevant statutes. Rule 54(d) of the Federal
Rules of Civil Procedure provides that "[u]nless a federal statute, these
rules, or a court order provides otherwise, costs - other than attorney's
fees - should be allowed to the prevailing party." Fed. R. Civ. P.
54(d)(1). The FDCPA provides that if an action is brought "in bad faith
and for the purposes of harassment, the court may award to the defendant
attorney's fees reasonable in relation to the work expended and costs."
15 U.S.C. Sec. 1692k(a)(3).

Here, there was no finding that the borrower brought the suit in bad faith
and for the purpose of harassment. Therefore, the case turned on whether
Sec. 1692k supersedes Rule 54(d).

The Tenth Circuit held that it does not. It noted that statutes enacted
subsequent to the Federal Rules of Civil Procedure should be read to
harmonize with those Rules, where possible. See U.S. v. Gustin-Bacon
Div., Certainteed Prods. Corp., 426 F.2d 539, 542 (10th Cir. 1970).
Moreover, because the presumption that the prevailing party is awarded
costs is "a venerable one," the Tenth Circuit required "[a] clear showing
of legislative intent...before we find that Rule 54(d) is displaced by
statute."

The Court did not find any such "clear showing" in its examination of the
Rule 1692k itself, or in the relevant legislative history. Because
"nothing in the language of Sec. 1692(k)" prevents Rule 54(d)'s normal
operation, the Tenth Circuit affirmed the lower court's award of costs in
favor of the defendant debt collector.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


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FYI: Cal App Holds Post-Petition Recording of Mechanics Lien Did Not Violate Automatic Stay, and BK Tolled Statute of Limitations

The California Court of Appeal, Second District, recently held that
California's limitations period for filing a complaint to foreclose on a
mechanic's lien was tolled during the pendency of bankruptcy proceedings,
and that the post-petition recording of a mechanic's lien did not violate
the automatic stay.

A copy of the opinion can be found at:
http://www.courtinfo.ca.gov/opinions/documents/B225685.PDF.

Debtor hired Plaintiff to perform construction services on property that
Debtor owned, but failed to pay for the construction work. Plaintiff
recorded a mechanic's lien against the property for the amount due, and,
almost two months later, Debtor filed for Chapter 11 bankruptcy
protection. Seven months after the bankruptcy filing, Plaintiff recorded
a second mechanic's lien against the property and filed a notice of
perfection of its security interest in the bankruptcy proceedings.

Various of the Defendants obtained relief from the automatic stay and sold
Debtor's property at a trustee's sale. Within three months after the
trustee's sale, Plaintiff filed a foreclosure complaint stating two causes
of action, one for each lien.

Defendants demurred based on the alleged invalidity of the liens, arguing
that: (1) Plaintiff's complaint had not been filed within 90 days of the
recording of the first lien as required by California Civil Code Section
3144; and (2) the recording of the second lien violated the automatic
stay. Plaintiff asserted that its notice of perfection preserved the
second lien until after such time as the property was no longer part of
the bankruptcy estate. Plaintiff also argued that its complaint had been
timely filed because the pendency of the bankruptcy proceedings tolled the
90-day period for filing the complaint. Concluding that the liens
violated the automatic stay and that the complaint was not timely filed,
the trial court entered judgment for the defendants. Plaintiff appealed.


Addressing only the second lien on appeal, the Court of Appeal reversed,
concluding that Plaintiff's complaint had been timely filed, and that the
recording of the second lien did not violate the automatic stay.

In so ruling, the appellate court noted that: (1) the mere recording of a
mechanic's lien post-petition does not violate the automatic stay in
bankruptcy; (2) a notice of lien must be filed in a bankruptcy proceeding
in order to provide the debtor and creditors notice of the lienor's intent
to enforce the lien; and (3) the bankruptcy trustee may not avoid a
properly perfected lien. See 11 U.S.C. §§362(b)(3), 546(b).

The Court focused on the tension between California's requirement that an
action to foreclose a mechanic's lien must be brought within 90 days of
the lien's recording and the Bankruptcy Code's prohibition on
post-petition lien foreclosure actions as a violation of the automatic
stay. See 11 U.S.C. §362(b); Cal. Civ. Code § 3144.

As you may recall, Bankruptcy Code Section 108, Subdivision (c) tolls
certain filing deadlines in civil actions against a debtor. Section 108,
subdivision (c) provides in pertinent part, "if applicable nonbankruptcy
law . . . fixes a period for commencing . . . a civil action . . . on a
claim against the debtor . . . and such period has not expired before the
date of the filing of the petition, then such period does not expire until
the later of . . . the end of such period, including any suspension of
such period occurring on or after the commencement of the case . . . or .
. . 30 days after notice of termination or expiration of the [automatic]
stay . . . ."

The Appellate Court thus determined that the period during which the
automatic stay was in effect did not count toward the limitations period
for purposes of enforcement of Plaintiff's lien. Accordingly, the Court
held that California's 90-day period for filing Plaintiff's complaint
began running from the time of the trustee's sale of the property when the
automatic stay terminated (the later of the two time periods contemplated
by Section 108, Subdivision (c)), and that Plaintiff's complaint, filed 79
days after the trustee's sale, was timely.

The Court rejected Defendants' argument that the doctrine of invited error
precluded Plaintiff from arguing on appeal the validity and enforceability
of the lien, because Plaintiff had stated at trial that the second lien
was null and void but nevertheless asserted that it could file a notice of
perfection and retain rights under the lien. The Court noted that for
the invited error doctrine to apply, a party must demonstrate by
affirmative conduct a deliberate tactical choice and that, in this case,
Plaintiff's counsel had merely applied one rule of law when another rule
should have been applied.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


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CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

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Saturday, December 24, 2011

FYI: Cal App Ct Holds Defaults Judgments In Quiet Title Actions Prohibited Under Calif Law, Evidentiary Hearing Required

The California Court of Appeal, Fourth District, recently held that
California law prohibits the entry of default judgments in quiet title
actions, and requires an evidentiary hearing in which both plaintiffs and
defendants can participate.

A copy of the opinion is available at:
http://www.courtinfo.ca.gov/opinions/documents/G044357A.PDF

A loan servicer purchased an individual condominium unit in its name at a
foreclosure sale. Plaintiff Harbour Vista, LLC purportedly was the lessee
of the land on which the entire condominium complex had been built. The
prior owner of the condominium unit had entered into a sublease with
Harbour Vista to rent the land occupied by the condominium unit, but was
eventually evicted by Harbour Vista for failure to pay the rent pursuant
to the sublease agreement. Harbour Vista filed a quiet title action
against HSBC and others, alleging a right to the condominium unit itself.


The servicer initially did not answer or otherwise respond to the
complaint, and Harbour Vista took a default. The servicer appeared at the
case management conference, notified the trial court of its intent to file
a motion to set aside the default, and asked to have that motion heard
before the court ruled on the default judgment. Nevertheless, without
holding an evidentiary hearing, the trial court entered a default judgment
for quiet title in favor of Harbour Vista.

The servicer filed a motion to set aside the default and vacate the
default judgment. The trial court denied the motion, as well as a
subsequent motion for reconsideration. The servicer appealed.

The Court of Appeal reversed and remanded, concluding that the lower court
erred by entering a default judgment in a quiet title action and had
improperly failed to conduct an evidentiary hearing.

As you may recall, California Code of Civil Procedure Sections 760.010, et
seq. govern the California quiet title process. Section 764.010 of that
statutory scheme provides in pertinent part, "The court shall not enter
judgment by default but shall in all cases require evidence of plaintiff's
title and hear such evidence as may be offered respecting the claims of
any of the defendants. . . . The court shall render judgment in
accordance with the evidence and the law."

Relying on what it referred to as the "unequivocal" statutory language,
the Court of Appeal concluded that Section 746.010 is an absolute
prohibition on the entry of default judgments in all quiet title actions
and that the statute additionally requires a court to hear evidence of the
parties' respective claims in every quiet title case.

In so holding, the court declined to follow Yeung v. Soos, 119 Cal. App.
4th 576 (2004), which held that Section 764.010 does not preclude the
entry of default judgments in quiet title actions, but only requires a
plaintiff to satisfy a higher standard of evidence than the prima facie
evidence ordinarily required following a defendant's default. In this
case, the appellate court determined instead that under Section 764.010,
the defendant retains the right, even after default, to participate in the
case and to present evidence before a judgment may be entered.

In addition, in light of the adversarial nature of quiet title actions,
the Court of Appeal noted that unless defendants are allowed to present
their own evidence, a court would be hampered in discharging its duty to
"render judgment in accordance with the evidence and the law," as required
by Section 764.010. The court stressed, however, that while allowing a
defaulting defendant the opportunity to participate in a quiet title
judgment hearing is unusual, the plaintiff may still take a defendant's
default, thereby putting the defendant at a distinct disadvantage.

Further, in addressing the type of hearing required by Section 764.010,
the Court of Appeal followed the determining factors set forth in TJX
Companies, Inc. v. Superior Court, 87 Cal. App. 4th 747 (2001)(plain
meaning of words used in the statute, context, statutory scheme, role of
judge, procedural remedies, validity of pending motions), and ruled that a
quiet title judgment requires a hearing in open court and that Section
764.010 implicitly permits evidentiary objections.


Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
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CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.

FYI: Ill App Ct Confirms Legality of 365/360 Interest Calculation Method, Despite Alleged Ambiguities in Note

The Illinois Appellate Court, First District, recently held that a
lender's use of the 365/360 method to calculate interest did not violate
Illinois statutory law, despite allegations by the borrower of purported
ambiguities in the Note.

A copy of the opinion is available at:
http://www.state.il.us/court/Opinions/AppellateCourt/2011/1stDistrict/Dece
mber/1102690.pdf
.

The lender extended a line of credit to Hubbard Street Lofts, LLC
("Hubbard Street") in the amount of $6,400,000. Hubbard Street claimed
that the lender orally agreed to draft a loan document reflecting an
interest rate of 8% per year. The Note drafted by the lender reflected an
8% interest rate to be "computed on a 365/360 basis."

Hubbard Street filed a 7-count class action against the lender, alleging
usury in supposed violation of the Illinois Interest Act, as well as
several other statutory and common law violations. The allegations hinged
on the lender's use of the 365/360 method to calculate interest, as well
as the lender's alleged oral representation regarding the interest rate.
The lender moved to dismiss the complaint, arguing that the Illinois
Interest Act did not apply, and that the Credit Agreements Act barred
Hubbard Street's allegations regarding an alleged oral representation.

The lower court agreed, and dismissed all counts of Hubbard Street's
complaint with prejudice. Hubbard Street appealed.

As you may recall, the Illinois Interest Act provides that where a
contract does not specify a period of time for calculating interest,
"interest shall be calculated...as if 'per annum' or 'by the year' had
been added to the rate." 815 ILCS 205/9 (West 2010).

Although the Note provided for the 365/360 method to be used for interest
rate calculations, other portions of the Note did not reference a specific
period of time for those calculations. Therefore, Hubbard Street argued
that the Illinois Interest Act should apply to those portions of the Note,
thus purportedly contradicting the provisions regarding the 365/360 method
and rendering the Note ambiguous.

The Court noted it had recently considered a case with substantially
similar facts and allegations. In that case, the Court held that section 9
of the Illinois Interest Act "did not require a time period to be inserted
with each and every mention of an interest rate." Asset Exchange II, LLC
v. First Choice Bank, 2011 IL. App. (1st) 103718 ("Asset Exchange").
Consequently, the Asset Exchange Court found the Note in question to be
unambiguous.

Because "Illinois courts have held that section 9 of the [Illinois]
Interest Act...only applies when no time period for calculation of
interest appears anywhere in the instrument in question," the Court held
that Hubbard Street's counts related to the Illinois Interest Act were
properly dismissed.

Next, the Court held that Illinois Credit Agreement Act operated to bar
all actions based on oral credit agreements. See First National Bank in
Stanton v. McBridge Chevrolet, Inc., 267 Ill. App. 3d 367, 372, 643 N.E.
2d 138 (1994). Therefore, because the alleged agreement for an 8% annual
interest rate was not in writing, the Court held that Hubbard Street's
allegations related to the alleged oral agreement were barred by the
Credit Agreement Act.

Accordingly, the Court affirmed the judgment of the lower court dismissing
all count's of the plaintiff's complaint with prejudice.


Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.


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CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.

FYI: Conn Sup Ct Rules Note Holder Has Standing to Foreclose

The Connecticut Supreme Court recently confirmed that the holder of a
promissory note that is endorsed in blank has standing to mortgage
foreclosure proceedings under Connecticut law.

A copy of the opinion is available at:
http://www.jud.ct.gov/external/supapp/Cases/AROcr/CR303/303CR8.pdf.

When the defendant-borrower defaulted on her mortgage payments, plaintiff
RMS Residential Properties, LLC ("RMS") instituted foreclosure
proceedings. The borrower filed an answer, special defenses and a
counterclaim, contending among other things that RMS lacked standing to
institute a foreclosure action, because it was purportedly not the
rightful owner of the note at the time of the foreclosure action.

RMS filed an affidavit with the court, wherein its attorney-in-fact stated
that RMS, through its attorney, was the holder of the promissory note.
Both parties moved for summary judgment, and the lower court granted RMS'
motion. The borrower appealed.

On appeal, the borrower argued that RMS lacked standing to foreclose, and
contended that RMS' affidavit constituted an admission that it was not the
rightful owner of the debt. RMS responded that the holder of a note is
presumed to be the owner of the debt and may foreclose absent the
defendant rebutting that presumption.

The Court began its analysis by examining the relevant statutory law. It
noted that in Connecticut, a "person entitled to receive the money
secured" by a mortgage may foreclose on that mortgage, even absent
assignment of that mortgage. Conn. General Statutes Sec. 49-17. Further,
as the promissory note in question was endorsed in blank, the Court
observed that such an instrument "becomes payable to bearer and may be
negotiated by transfer of possession alone..." Id. at Sec.
42a-1-201(b)(21)(A).

The Court also examined the relevant case law in Connecticut, which
provides that the holder of a note endorsed in blank is entitled to a
presumption of ownership of the same.

With that framework in place, the Court found that as the holder of the
promissory note, RMS was entitled to a presumption that it was the owner
of the debt. Because the borrower did not rebut this presumption, the
Court held that "RMS was authorized by statute to commence this
foreclosure action." Therefore, it affirmed the lower court's judgment.


Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com
CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.

Sunday, December 18, 2011

FYI: Fourth Cir Says Using Model Form H-8 in Refinancings by the Same Creditor Did Not Violate TILA

The U.S. Court of Appeals for the Fourth Circuit recently held that using
the incorrect model Notice of Right to Cancel form (i.e., using Model Form
H-8 in a refinancing by the same creditor) did not violate TILA.

A copy of the opinion is available at:
http://pacer.ca4.uscourts.gov/opinion.pdf/101915.P.pdf.

The borrowers refinanced their loan with the same lender that had
originally extended the loan. The lender provided the borrowers with
written notice of their right to cancel, using a form that was
substantially similar to Form H-8, the general rescission model form found
in Regulation Z, C.F.R. pt. 226. However, although the model form used by
the lender contained all of the information required by the Truth in
Lending Act ("TILA") and Regulation Z, it did not include some information
found in Form H-9, the model form designed specifically for refinance
transactions by the same creditor.

When borrowers defaulted, the lender scheduled a foreclosure sale. The
borrowers then notified the lender that they were rescinding the
transaction, arguing that the lender's use of Form H-8 was a material
violation of TILA disclosure requirements. The lender did not agree to
rescind the transaction, and the borrowers sued. The lower court granted
the lender's motion to dismiss, on the grounds that the disclosures
provided fully satisfied TILA and Regulation Z. The borrowers appealed.

Although TILA includes a provision requiring the creation of model
disclosure forms to facilitate compliance with its disclosure
requirements, it also provides that "[n]othing in this subchapter may be
construed to require a creditor to use any such model form or clause..."
15 U.S. Sec. 1604(b).

The Fourth Circuit began by scrutinizing the form provided to the
borrowers by the lender, and concluded that it contained "all of the
information required" by TILA and Regulation Z.

The Court then examined the arguments of the parties on appeal. The
borrowers noted that they were not provided with notice that rescinding
their refinance transaction would affect only the new amount financed, and
not the original mortgage loan. Had the lender used Form H-9, the
borrowers would have received such notice. The borrowers contended that
the lender's failure to provide that notice was a material violation of
TILA's disclosure requirements. The lender argued that neither TILA nor
Regulation Z contained any requirement to provide borrowers with such
notice.

The Court agreed with the lender. It noted that neither TILA nor
Regulation Z distinguish between initial and refinancing transactions.
Further, the Court noted that TILA provides that lenders comply with
TILA's requirements even if they modify the sample forms provided by
"deleting any information which is not required by this subchapter." 15
U.S.C. Sec. 1604(b).

Therefore, because the lender's "notice to the [borrowers] fulfilled each
requirement imposed by TILA and by Regulation Z...it is an unsustainable
argument to maintain that its notice in violation of TILA." Accordingly,
the Fourth Circuit affirmed the judgment of the lower court.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com
CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.

Friday, December 16, 2011

FYI: Cook County Enacts Vacant Property Ordinance Similar to Chicago Ordinance

The Cook County Board of Commissioners passed a vacant building ordinance
similar to the one adopted by the City of Chicago. See our updates below.
The new Cook County Ordinance will become effective on January 13, 2012.

The text of the Cook County Ordinance is available at:
http://cookcountygov.com/ll_lib_pub_cook/cook_ordinance.aspx?WindowArgs=15
40

Among other things, the Cook County Ordinance requires the mortgagee to:

1. Within the later of 30 days after residential or commercial collateral
becomes vacant and unregistered, or 60 days after a default, file a
registration statement with the Department of Building and Zoning;

2. Pay a registration fee of $500.00, which shall be doubled if the
applicable initial registration occurs as the result of an enforcing
authority's identification of a violation;

3. Secure and maintain the building;

4. Post a sign the vacant building registration number and the name,
address and telephone number of the mortgagee, and the mortgagee's
authorized agent for the purpose of service of process; and

5. Beginning 45 days after a default, a mortgagee shall determine, on a
monthly basis, if the building on the real estate subject to its mortgage
is vacant.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com

-----Original Message-----
From: Ralph Wutscher [mailto:rwutscher@mtwllp.com]
Sent: Friday, December 16, 2011 3:22 PM
To: Ralph Wutscher (rwutscher@kw-llp.com)
Cc: 'socaloffice@mtwllp.com'; 'dcoffice@mtwllp.com'; 'Chicago Office'
Subject: FYI: FHFA Files Challenge to Chicago Housing Ordinance

As widely reported in the public media, the Federal Housing Finance Agency
(FHFA) filed a lawsuit on its on behalf and on behalf of Fannie and
Freddie in federal court in Chicago, Illinois, challenging the City of
Chicago's recent amendments to its Municipal Code. A copy of the
complaint is attached.

As you may recall, the Chicago City Council recently amended the Chicago
Municipal Code to make lenders and servicers responsible for maintenance
on vacant homes when they are the mortgagee, or an agent or assignee of
the mortgagee (the "Ordinance"). See our prior update below.

The Ordinance was formally published on November 9, 2011, and became
effective November 19, 2011.

The FHFA's lawsuit points out that the Housing and Economic Recovery Act
of 2008 ("HERA") provides that, while acting as Conservator, the FHFA is
not subject to the supervision or direction of any other agency. 12 U.S.C.
§ 4617(a)(7). HERA also provides that the FHFA is to be the exclusive
regulator of the GSEs and grants the Director of FHFA "general regulatory
authority." 12 U.S.C. § 4511.

The FHFA also points out that HERA provides that the Conservator
"including its franchise, its capital, reserves, and surplus, and its
income, shall be exempt from all taxation imposed by any State, county,
municipality, or local taxing authority …." 12 U.S.C. § 4617(j)(1), (2).

In addition, the GSEs are immune from state and local taxation. See 12
U.S.C. § 1723a(c) (Fannie Mae immunity); § 1452(e) (Freddie Mac immunity).
Upon placing the GSEs into conservatorships, the FHFA succeeded to all the
GSEs' rights with respect to their assets. 12 U.S.C. § 4617(a).

The FHFA therefore argues that the Ordinance:

1. Impermissibly subjects the Conservator to the supervision and
direction of the City of Chicago Department of Buildings, in violation of
federal law;

2. The provisions of the Ordinance that require the GSEs to register with
the City of Chicago and then comply with specific ongoing obligations are
a regulatory scheme that impermissibly subjects the GSEs to the governance
and supervision of the City of Chicago and its Department of Buildings, in
violation of federal law;

3. The provisions of the Ordinance which require a base registration fee
constitute an impermissible tax in violation of each entity's statutory
immunity from taxation; and

4. The Ordinance incorporates a taxing feature that would unlawfully be
applied to servicers of loans on behalf of the GSEs.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com


________________________________

from Ralph Wutscher rwutscher@mtwllp.com
to Ralph Wutscher <rwutscher@kw-llp.com>
cc socaloffice@mtwllp.com, dcoffice@mtwllp.com, Chicago Office
date July 29, 2011


The Chicago City Council recently amended the Chicago Municipal Code to
make lenders and servicers responsible for maintenance on vacant homes
when they are the mortgagee, or an agent or assignee of the mortgagee. A
copy of the amendment is attached.

In relevant part, the amended ordinance modifies the definition of an
"owner" to now include "any person who alone, jointly or severally with
others is a mortgagee who holds a mortgage on the property, or is an
assignee or agent of the mortgagee."

Under the ordinance, a building lacking three consecutive months of
authorized habitual human presence may generally be deemed "vacant."

Existing owner responsibilities under the Municipal Code already include a
vacant building registration and fee process, various lot maintenance
standards, such as requirements to abate grass and weeds and keep walkways
shoveled clear of snow, as well as various internal and external
maintenance standards, such as requirements to keep all entrances and
windows to the building secure, maintain plumbing and electrical systems,
and finally, a requirement to also provide continuous exterior lighting
from dusk until dawn.

The obligation to keep the building secure is also notable in that if the
building is deemed "violated" by the Commissioner of Buildings, then
additional responsibilities may accrue, such as an additional obligation
to install and maintain a burglar alarm or post a watchman.

As is the case for REO properties, fines and penalties under this section
could be as high as $500 and $1,000 per offense, per day, with the City
typically taking the position that each separate issue with the property
is a separate offense.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com
CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.

FYI: FHFA Files Challenge to Chicago Housing Ordinance

As widely reported in the public media, the Federal Housing Finance Agency
(FHFA) filed a lawsuit on its on behalf and on behalf of Fannie and
Freddie in federal court in Chicago, Illinois, challenging the City of
Chicago's recent amendments to its Municipal Code. A copy of the
complaint is attached.

As you may recall, the Chicago City Council recently amended the Chicago
Municipal Code to make lenders and servicers responsible for maintenance
on vacant homes when they are the mortgagee, or an agent or assignee of
the mortgagee (the "Ordinance"). See our prior update below.

The Ordinance was formally published on November 9, 2011, and became
effective November 19, 2011.

The FHFA's lawsuit points out that the Housing and Economic Recovery Act
of 2008 ("HERA") provides that, while acting as Conservator, the FHFA is
not subject to the supervision or direction of any other agency. 12 U.S.C.
§ 4617(a)(7). HERA also provides that the FHFA is to be the exclusive
regulator of the GSEs and grants the Director of FHFA "general regulatory
authority." 12 U.S.C. § 4511.

The FHFA also points out that HERA provides that the Conservator
"including its franchise, its capital, reserves, and surplus, and its
income, shall be exempt from all taxation imposed by any State, county,
municipality, or local taxing authority …." 12 U.S.C. § 4617(j)(1), (2).

In addition, the GSEs are immune from state and local taxation. See 12
U.S.C. § 1723a(c) (Fannie Mae immunity); § 1452(e) (Freddie Mac immunity).
Upon placing the GSEs into conservatorships, the FHFA succeeded to all the
GSEs' rights with respect to their assets. 12 U.S.C. § 4617(a).

The FHFA therefore argues that the Ordinance:

1. Impermissibly subjects the Conservator to the supervision and
direction of the City of Chicago Department of Buildings, in violation of
federal law;

2. The provisions of the Ordinance that require the GSEs to register with
the City of Chicago and then comply with specific ongoing obligations are
a regulatory scheme that impermissibly subjects the GSEs to the governance
and supervision of the City of Chicago and its Department of Buildings, in
violation of federal law;

3. The provisions of the Ordinance which require a base registration fee
constitute an impermissible tax in violation of each entity's statutory
immunity from taxation; and

4. The Ordinance incorporates a taxing feature that would unlawfully be
applied to servicers of loans on behalf of the GSEs.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com


________________________________

from Ralph Wutscher rwutscher@mtwllp.com
to Ralph Wutscher <rwutscher@kw-llp.com>
cc socaloffice@mtwllp.com, dcoffice@mtwllp.com, Chicago Office
date July 29, 2011


The Chicago City Council recently amended the Chicago Municipal Code to
make lenders and servicers responsible for maintenance on vacant homes
when they are the mortgagee, or an agent or assignee of the mortgagee. A
copy of the amendment is attached.

In relevant part, the amended ordinance modifies the definition of an
"owner" to now include "any person who alone, jointly or severally with
others is a mortgagee who holds a mortgage on the property, or is an
assignee or agent of the mortgagee."

Under the ordinance, a building lacking three consecutive months of
authorized habitual human presence may generally be deemed "vacant."

Existing owner responsibilities under the Municipal Code already include a
vacant building registration and fee process, various lot maintenance
standards, such as requirements to abate grass and weeds and keep walkways
shoveled clear of snow, as well as various internal and external
maintenance standards, such as requirements to keep all entrances and
windows to the building secure, maintain plumbing and electrical systems,
and finally, a requirement to also provide continuous exterior lighting
from dusk until dawn.

The obligation to keep the building secure is also notable in that if the
building is deemed "violated" by the Commissioner of Buildings, then
additional responsibilities may accrue, such as an additional obligation
to install and maintain a burglar alarm or post a watchman.

As is the case for REO properties, fines and penalties under this section
could be as high as $500 and $1,000 per offense, per day, with the City
typically taking the position that each separate issue with the property
is a separate offense.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com

CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.

Thursday, December 15, 2011

FYI: 8th Cir Holds FDCPA "Consumer" Includes Non-Debtor Subjected to Collection, But Debt Collector Sufficiently Verified the Debt

The U.S. Court of Appeals for the Eighth Circuit recently held that: (1)
a "consumer" under the FDCPA includes a non-debtor targeted by
debt-collection efforts; and (2) the debt collector did not violate the
FDCPA where it sufficiently verified the payment obligation that the
consumer allegedly owed. A copy of the opinion is attached.

The plaintiff (Plaintiff) received a form notification letter from a debt
buyer (Defendant) requesting payment of a debt. The plaintiff sent a
letter to Defendant disputing the liability, and demanding validation of
the payment obligation.

Defendant then sent a form validation letter ("D4 letter"), which provided
the Plaintiff additional information related to the payment obligation,
including the debtor's name, address, last four digits of the debtor's
social security number, date of the payment obligation, date Defendant
purchased the obligation, and current outstanding balance. The D4 letter
also attached an affidavit from one of its employees.

Upon receiving the D4 letter, the Plaintiff recognized that while the
debtor's name was the same as his, the last four digits of the social
security number did not match his own. The Plaintiff therefore knew
Defendant had erroneously contacted him, and he never responded to the
letter.

Instead, nearly a year later he commenced a putative class action lawsuit
alleging Defendant's D4 letter violated §1692g of the FDCPA "because it
failed to include information that Defendant verified with the original
creditor." The parties filed cross-motions for summary judgment.

The district court ruled in favor of Defendant, concluding that the
Plaintiff was not a "consumer" under §1692g. As you will recall, the
FDCPA defines "consumer" as "any natural person obligated or allegedly
obligated to pay any debt." The district court found that the Plaintiff
was not a consumer because he was not obligated to pay the debt owed by
another individual. The court also denied the Plaintiff's motion for
class certification, ruling that he was "not a proper representative of
the class where he himself lacks standing to pursue the claim." The
matter was then appealed.

The first issue on appeal was whether the Plaintiff was a "consumer" under
the FDCPA. The Eighth Circuit noted that "resolution of whether the plain
language of §1692a(3)'s 'consumer' definition encompasses [the Plaintiff],
someone mistakenly contacted by a debt collector, turns on the proper
reading of the phrase 'allegedly obligated to pay.'"

The Eighth Circuit noted that the district court read the FDCPA in such a
way that it would "not provide a remedy to non-debtors mistakenly targeted
by debt-collection efforts." The Eighth Circuit held that a reading of
"consumer" that did not include a person contacted by mistake, "would read
the phrase 'allegedly obligated' to only apply to those who actually owe
or owed the specific debt at issue, despite whether a debt collector
asserted a person owes the specific debt." The court held that "a
mistaken allegation is an allegation nonetheless," and therefore it read
"§1692a(3) to include individuals who are mistakenly dunned by debt
collectors."

Despite ruling that the Plaintiff was a "consumer," the Eighth Circuit
nonetheless affirmed the lower court's judgment "because we find that
[Defendant' sufficiently verified [its] debt." The court noted that
"verification is only intended to eliminate the . . . problem of debt
collectors dunning the wrong person or attempting to collect debts which
the consumer has already paid." The court held that Defendant's D4 letter
sufficiently notified the Plaintiff he was not the same individual who
owed the debt.

The Plaintiff argued that Defendant was further required to "obtain
verification, . . . meaning that it must acquire additional information
about the debtor from the original creditor and send that additional
information to [the Plaintiff]." The Eighth Circuit disagreed. It held
that under different facts "perhaps the debt collector must do more than
what [Defendant] did here," but that in this instance "[Defendant] sent
[the Plaintiff] enough information to put him on notice that [Defendant]
dunned the wrong person."

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


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Monday, December 12, 2011

FYI: Maine Sup Ct Upholds Limited Sanctions in Alleged "Robo-Signing" Case

The Maine Supreme Judicial Court recently held that the limited sanctions
imposed by a lower court against Fannie Mae, in connection with the
alleged submission of a foreclosure affidavit in bad faith, were within
the lower court's discretion, and therefore rejected a borrower's
contention that more severe contempt sanctions should be imposed. A copy
of the opinion is attached.

Fannie Mae instituted foreclosure proceedings against a borrower, naming
the loan servicer as a party in interest. Fannie Mae moved for summary
judgment, relying in part on an affidavit prepared by an employee of the
servicer. The borrower deposed that employee, who testified that he "does
not read the affidavits he signs, reviews only the computations of amounts
owed, does not review the exhibits to affidavits, and does not execute the
affidavits before a notary."

Fannie Mae filed a motion for a protective order to prevent the testimony
from becoming public. The borrower filed a motion alleging that the
affidavit was presented in bad faith under Maine's equivalent of Fed. R.
Civ. P. 56(h), sought attorney fees and costs, and asked the court to hold
both Fannie Mae and the servicer in contempt for submitting the affidavit.


The lower court denied Fannie Mae's motion for a protective order, found
that the affidavit was submitted in bad faith, and awarded $23,779.36 in
attorney fees and costs to the borrower. The attorney fees and costs
awarded covered the costs incurred in demonstrating that the affidavit was
submitted in bad faith, but not the costs incurred in opposing Fannie
Mae's motion for a protective order. Finally, the lower court determined
that the award of costs was a sufficient sanction for Fannie Mae, and
declined to hold either Fannie Mae or the servicer in contempt. The
borrower appealed.

Like Fed. R. Civ. P. 56(h), Maine Rule of Civil Procedure 56(g) provides
that where a summary judgment affidavit was submitted in bad faith, "the
court shall forthwith order the party employing [the affidavit] to pay the
other party the amount of the reasonable expenses which the filing of the
affidavits caused the other party to incur...and any offending party or
attorney may be adjudged guilty of contempt."

Although the Court noted that the affidavit at issue here is "a disturbing
example of a reprehensible practice," it nevertheless affirmed the
judgment of the lower court. The Court did so because "the decision of
whether or not [to hold a party in contempt] rests in the considerable
discretion of the trial court." Therefore, the Court held that
"[a]lthough the [lower] court would have acted well within its discretion
in granting a much more burdensome sanction at a much greater cost to
Fannie Mae and/or [the servicer], we conclude that the sanction it did
impose was also within its discretion."

In so holding, the Court was influenced by its observation that "no court
in the nation - state or federal - has ever issued a finding of contempt
and additional resulting sanctions pursuant to the state or federal
version of Rule 56(g)."

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


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error, or if you wish to be removed from our update distribution list,
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Our updates are available on the internet, in searchable format, at:
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Tuesday, December 6, 2011

FYI: 7th Cir Vacates Class Cert in TCPA Case, Based on Misconduct of Class Counsel

The U.S. Court of Appeals for the Seventh Circuit recently held that the
lower court erred in granting class certification in a TCPA unsolicited
fax case, where misconduct by class counsel raised doubts about counsel's
trustworthiness to act as a conscientious fiduciary on behalf of class
members.

A copy of the opinion is available at:
http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=11-8020_0
01.pdf
.

The defendant, a small home furnishings wholesaler, allegedly distributed
unsolicited faxed advertisements to a large number of recipients in
violation of the Telephone Consumer Protection Act, 45 U.S.C. § 227
("TCPA"), through a business that faxes advertisements on behalf of
advertisers.

In order to obtain information on unsolicited faxes, the plaintiff's
counsel, consisting of a group of lawyers specializing in class actions
under the TCPA, requested fax transmission reports from the owner of the
fax distribution business, and promised her that the information would be
kept confidential. Based on this assurance of confidentiality, the
plaintiff's counsel obtained transmission reports allegedly showing that
over 22,000 advertisements were faxed from the defendant to the
approximately 14,000 individuals constituting the class.

In addition, despite the promise of confidentiality, the plaintiff's
counsel sent a letter to the plaintiff implying that there already was a
certified class of which the plaintiff was a member. In response to
counsel's letter, the plaintiff contacted the lawyers and eventually
became the named plaintiff and class representative.

In ruling on class certification, the district court noted that the
plaintiff's counsel had improperly obtained the contact information for
the fax recipients and improperly implied the existence of a certified
class in its letter to the plaintiff. Nevertheless, the lower court
certified the class, because in its view the misconduct on the part of the
plaintiff's counsel did not constitute "egregious conduct" that would
require denial of class certification.

The defendant then petitioned the Seventh Circuit, seeking an
interlocutory appeal of the class certification. The Seventh Circuit
vacated the class certification and instructed the lower court to
re-evaluate the gravity of the misconduct in light of the requirement that
class counsel, as fiduciaries, adequately and fairly represent the
interests of the class.

Referring to the Supreme Court's opinion in Wal-Mart Stores v. Dukes, 131
S. Ct. 2541, 2551 (2011), the court noted that a "class action may be
certified only if 'the trial court is satisfied, after a rigorous
analysis, that the prerequisites [for class certification] have been
satisfied.'" The Court further noted that no such analysis occurred in
this case. Specifically, the Court took issue, first, with the district
court's suggestion that "only the most egregious misconduct" should
require denial of class certification on grounds of lack of adequate
representation and, second, with the lower court's ruling that only such
extreme misconduct "could ever arguably justify denial of class status."

The Seventh Circuit referred to the standard set forth in Culver v. City
of Milwaukee, 277 F.3d 908 (7th Cir. 2002), which held that as
fiduciaries, class counsel must prosecute class actions in the interest of
the class and that when class members are consumers, the fiduciary
obligation to them is one of "particular significance."

The Court also noted the growing concern that class actions can create
perverse incentives for class counsel, and that Fed. R. Civ. P. 23(g), in
response to that concern, requires class counsel to "fairly and
adequately" represent the entire class.

Concluding that the demonstrated lack of integrity on the part of the
plaintiff's counsel raised doubt as to their trustworthiness as
representatives of the class, the appellate court specifically instructed
the district court to apply the standard articulated in Culver and to
abandon the "egregious conduct" standard the lower court previously used.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:
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CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.

Sunday, December 4, 2011

FYI: 7th Cir Breaks From Other Circuits, Holds Full Settlement Offer Prior to Motion for Class Cert Moots Putative Class Action

The U.S. Court of Appeal for the Seventh Circuit recently confirmed that a
complete offer of settlement made prior to a plaintiff's filing for class
certification moots that plaintiff's claim. A copy of the opinion is
attached.

Plaintiff-consumer brought a putative class-action claim against Clearwire
Corporation ("Clearwire"), alleging that Clearwire sent unsolicited text
messages to cellphone users in violation of the Telephone Consumer
Protection Act. Before the plaintiff moved for class certification,
Clearwire offered him the full relief he requested, removed the case to
federal court, and moved to dismiss on the grounds that the case was moot.
The lower court granted Clearwire's motion, and plaintiff appealed.

As you may recall, in the Seventh Circuit, "[o]nce the defendant offers to
satisfy the plaintiff's entire demand, there is no dispute over which to
litigate." Rand v. Monsanto Co., 926 F.2d 596, 598 (7th Cir. 1991).
However, if a plaintiff moves for class certification prior to receiving
such an offer, the action may continue.

The plaintiff noted that both the Supreme Court and the Seventh Circuit
have emphasized the importance of preventing individual "buy-offs" from
mooting class actions. Therefore, he argued that the Seventh Circuit
should create an exception to mootness where an offer is made prior to the
plaintiff moving for class certification.

The Seventh Circuit acknowledged that the approach urged by the plaintiff
has been adopted by four other circuits. The four other circuits have
fashioned a new rule that, "absent undue delay, a plaintiff may move to
certify a class and avoid mootness even after being offered complete
relief."

However, the Seventh Circuit declined to join them. The Court explained
that concerns regarding "buy-offs" mooting class actions could be
addressed by class action plaintiffs moving "to certify the class at the
same time that they file their complaint."

The plaintiff argued that the Seventh Circuit's approach could cause
plaintiffs to file for class certification prematurely, without having
developed the facts necessary to obtain certification. The Seventh
Circuit did not find this argument convincing, noting that in such a
circumstance plaintiffs could simply ask a court to "delay its ruling to
provide time for additional discovery or investigation."

Therefore, the Seventh Circuit affirmed the decision of the lower court.


Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com

CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.

Thursday, December 1, 2011

FYI: 1st Cir Holds Recorder's Office Delay in Recording Does Not Cause Mortgages to Be Voidable

The U.S. Court of Appeals for the First Circuit recently held in a
bankruptcy action that a lender has an unavoidable pre-petition "interest
in property" where mortgage deeds, still waiting to be recorded, had been
presented for recording three years prior to the bankruptcy filing. The
Court also held that the debtors could not avoid the mortgages as
preferential transfers because the mortgages had been presented for
recording prior to the preference period.

A copy of the opinion is available at:
http://www.ca1.uscourts.gov/cgi-bin/getopn.pl?OPINION=10-2270P.01A.

The bankruptcy debtors here executed three mortgages to secure two loans
from a lender (the "Bank"). The Bank timely presented the mortgage
documents for recording to Puerto Rico's recording office, but, due to an
administrative backlog, the mortgage documents remained unrecorded as of
the date of the debtors' Chapter 11 bankruptcy filing three years later.
Even though the mortgages had not yet been recorded as of the date of the
bankruptcy filing, the Bank filed a secured proof of claim with respect to
loans.

The debtors then filed an adversary proceeding seeking to avoid the
mortgages under various provisions of the Bankruptcy Code governing the
automatic stay and a trustee's "strong-arm powers." The debtors asserted
that they were bona fide purchasers of the property not subject to the
Bank's claim in the property, because the Bank did not hold a pre-petition
"interest in the property." The debtors also sought to avoid the
mortgages as prohibited preferential transfers. See 11 U.S.C. §§
362(a)(5), 544(a), 547(b), 547(e)(1)(A).

Rejecting the debtors' argument that the Bank merely held an unsecured
claim because the mortgages remained unrecorded as of the petition date,
the bankruptcy court granted the Bank's motion for summary judgment. The
bankruptcy court also rejected the debtors' assertion that the mortgages
could be avoided as preferential transfers. The District Court affirmed.


On appeal to the First Circuit, the debtors challenged the application of
exceptions to the automatic stay and strong-arm powers, arguing that the
Bank never held a pre-petition "interest in the property" and could not
take post-petition steps to perfect the mortgages. The debtors again
asserted that the mortgages could be avoided as preferential pre-petition
transfers. The First Circuit affirmed the rulings in favor of the Bank in
the lower courts.

The debtors' challenge to the enforceability of the mortgages hinged on
whether the Bank, as the holder of the unrecorded mortgages, held a
pre-petition "interest in property" sufficient to provide an exception to
the automatic stay and Debtors' powers to avoid statutory liens. 11
U.S.C. §§ 362(b)(3), 546(b). As you may recall, the automatic stay in
bankruptcy bars "any act to create, perfect, or enforce any lien against
property of the estate," except where, among other things, an "interest in
property" has been perfected pre-petition. See 11 U.S.C. §§ 362(a)(4),
362(b)(3). In addition, in acquiring the status of bona fide purchasers of
real property or of judicial lien holders, debtors may ordinarily avoid
any transfer of property or obligation to the extent allowed by state law,
unless applicable law "permits perfection of an interest in property to be
effective" against one acquiring subsequent rights in the property before
the interest is perfected. See 11 U.S.C. §§ 544(a)(3), 546(b(1)(A).

Noting that in bankruptcy, the term "interest in property" is a federal
statutory term "informed" by state law, the First Circuit followed its
analysis in In re 229 Main St. Ltd. P'ship, 262 F.3d 1 (1st Cir. 2001).
There, the Court determined that the term "interest in property" is
broader than the term "lien" and that "the filing of a bankruptcy petition
does not prevent the holder of an interest in property from perfecting its
interest if, absent the bankruptcy filing, the interest holder could have
perfected its interest against an entity acquiring rights in the property
before the date of perfection."

The Court also noted that Puerto Rico's "relation back" doctrine provides
that the time at which a mortgage deed is presented for recording is the
point at which priority is established among competing property
registrations, because the act of presentment places third parties on
notice as to the existence of the mortgage. See P.R. Laws Ann. Tit. 30, §
2256. The Court pointed out that the Bank affirmatively took all steps to
effectuate the recording of the mortgage deeds and that nothing suggested
that the mortgage documents submitted for recording were in any way
defective and would not be recorded under Puerto Rico's mortgage recording
statutes. Thus, the Court concluded that the acts of presentment
"sufficiently vested" the Bank with a pre-petition interest in Debtors'
real property not subject to the automatic stay or strong arm powers.

The First Circuit also ruled that the debtors could not avoid the
mortgages as preferential transfers made during the 90-day period prior to
the commencement of the bankruptcy proceeding. In so ruling, the court
noted that the timing of a transfer depends on when and whether the
transfer was perfected, which, under Puerto Rico's relation-back doctrine,
occurred at the time of the presentment of the mortgage deeds for
recording -- almost three years before the debtors filed for bankruptcy
protection.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com


NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:
http://updates.kw-llp.com
CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.