FYI: 6th Cir Holds "Settlement Offer" Could Be Misleading Under FDCPA, If Debt Collector Could Not or Would Not Sue on Debt

The U.S. Court of Appeals for the Sixth Circuit recently reversed a district court’s dismissal of a federal Fair Debt Collection Practices Act (“FDCPA”) lawsuit, holding that the use of the word “settlement” when making a discounted offer to pay off a debt that could not or would not be sued upon may violate the FDCPA.

 

The Sixth Circuit held that making a “settlement offer” without in this case advising the debtor that the statute of limitations had expired could lead a “reasonably unsophisticated” debtor to wrongly believe that the debt collector could or would sue in court to enforce the debt.

 

A copy of the opinion is available at: http://www.ca6.uscourts.gov/opinions.pdf/15a0006p-06.pdf

 

In this FDCPA action, a debt buyer allegedly purchased the debt at a steep discount due to its being time-barred and deemed “uncollectable.”  The debt buyer then assigned the debt to the defendant debt collector to collect the debt in late 2011.

 

Once it had been assigned the debt, the debt collector sent correspondence to the debtor which read in pertinent part as follows:

 

 

Your past due account balance: $4,768.43

Your settlement offer: $1,668.96

 

Dear [Debtor],

 

[Investor], the current creditor of your account, has assigned the above referenced account to [Debt Collector] for collection. As of the date of this letter, you owe $4,768.43. Because of interest that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or [telephone number].

 

The current creditor is willing to reduce your balance by offering you a settlement. We are not obligated to renew this offer. Upon receipt and clearance of $1,668.96, your account will be satisfied and closed and a settlement letter will be issued. This offer does not affect your rights set forth below. [Investor] has purchased the above referenced account from the above referenced Previous Creditor. [Investor] has placed your account with this agency for collection.

 

Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days after receiving this notice that you dispute the validity of this debt or any portion of it, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification. If you request of this office in writing within 30 days after receiving this notice this office will provide you with the name and address of the original creditor if different from the current creditor.

 

 

Upon receipt of this letter, the debtor filed the subject lawsuit, alleging that the letter had “falsely implied that [debt collector] held a legally enforceable obligation.”

 

The district court rejected the debtor’s allegations that the debt collector’s letter could violate the FDCPA, and granted the debt collector’s motion to dismiss. Thereafter, the subject appeal ensued.

 

As you may recall, “the [FDCPA] bans all false, deceptive or misleading debt collection practices.” 15 U.S.C. § 1692e.  Specifically, “the statute prohibits a false representation of the character, amount, or legal status of any debt.” 15 U.S.C. § 1692e(2)(A).

 

On Appeal, the Sixth Circuit agreed with the debt collector that “a debt remains a debt even after the statute of limitations has run on enforcing it in court”  See De Vries v. Alger, 44 N.W.2d 872, 876 (Mich. 1950). 

 

The Court also agreed with the debt collector that a “‘settlement offer’ with respect to a time-barred debt by itself [does not] amount to a threat of litigation,” and that “[e]ven an unsophisticated consumer could not reasonably draw such an inference.”  See Huertas v. Galaxy Asset Mgmt., 641 F.3d 28, 33 (3d Cir. 2011).

 

However, the Sixth Circuit did not believe that its inquiry had to end there. The Court held that the question of “whether a letter is misleading is a question of fact,” and the debtor indicated that she had evidence to support her allegations that the letter was misleading. 

 

The Court accepted the debtor’s theory that the defendant debt collector’s letter “could plausibly mislead a ‘reasonably unsophisticated consumer’ into thinking [the debtor’s] debt was legally enforceable in court.”  Therefore, the Court held that the debtor cleared the “hurdle to proceed from pleading to discovery” in that she had pled a “plausible theory of relief.”

 

The Sixth Circuit relied on a number of online and printed dictionaries and examined their definitions of the word “settlement,” given the letter had made a “settlement offer.”  Believing that the referenced dictionary definitions of “settlement” all referred to “concluding a lawsuit,” and also pointing to the letter’s lack of language advising of the consequences of making a partial payment on debt (i.e., that such a payment restarts the statute of limitations), the Court held that the letter could be found misleading in violation of the FDCPA by a jury at trial.

 

Notably, the Court also considered later revised letters from the same debt collector that now included language advising debtors in collection that “[t]he law limits how long you can be sued on a debt. Because of the age of your debt, [the debt collector] will not sue you for it, and [the debt collector] will not report it to any credit agency.”

 

Accordingly, the Sixth Circuit reversed the order dismissing the debtor’s complaint and remanded the action for further proceedings consistent with its opinion.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

 

 

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FYI: US Sup Ct Rules TILA Only Requires Written Notice of Rescission w/in 3 Yrs of Consummation, No Lawsuit Required to Exercise Right of Rescission

The U.S. Supreme Court recently held that a borrower exercising his right to rescind under the federal Truth in Lending Act only needs to provide written notice to the lender within the 3-year period under 15 U.S.C. 1635(f), and does not need to file a lawsuit within that period in order to exercise the right to rescind.

 

A copy of the opinion is available at: http://www.supremecourt.gov/opinions/14pdf/13-684_ba7d.pdf

 

On February 23, 2007, the borrowers refinanced the mortgage on their home.  Exactly 3 years later, on February 23, 2010, the borrowers mailed a letter attempting to rescind the loan.

 

The lender responded to the rescission letter on March 12, 2010, refusing to accept the rescission as valid. The borrowers filed suit in U.S. District Court on February 24, 2011, four years and one day after the loan closed, seeking a declaratory judgment of rescission and damages under the federal Truth in Lending Act.

 

The District Court entered judgment on the pleadings for the lender, ruling that a borrower must file suit within 3 years of the date the loan was consummated in order to exercise his right to rescind the loan under TILA, 15 U.S.C. 1635(a) and (f).  The Eighth Circuit Court of Appeals affirmed, and the borrowers appealed to the U.S. Supreme Court.

 

The U.S. Supreme Court ruled that the Eighth Circuit’s reliance on Kieran v. Home Capital, 720 F. 3d 721, 727-728 (2013), which held that unless a borrower has filed suit for rescission within 3 years of the transaction’s consummation, section 1635 (f) extinguishes the right to rescind and bars relief, was error.

 

The Court then turned to 15 U.S.C. 1635(a), which explains how the right to rescind needs to be exercised.  Relying on the statutory text that a borrower has the right to rescind “by notifying the creditor, in accordance with regulations of the Board, of his intention to do so”, the Court held that as long as the borrower gives written notice within 3 years after the transaction was consummated, rescission under TILA is timely and the statute does not also require the borrower to sue within 3 years.

 

Turning to TILA section 1635(f), the Court clarified that it governs when the right to rescind must be exercised, but says nothing about how the right is exercised.

 

Reversing the Eighth Circuit’s judgment and remanding the case for further proceedings, the U.S. Supreme Court concluded that because the borrowers mailed their written notice of intent to rescind within 3 years after their loan was consummated, that is all they needed to do to exercise the right under TILA and the trial court erred in dismissing the complaint.

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

 

 

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FYI: Fla App Ct (3rd DCA) Holds New Foreclosure Action Time-Barred, But Mortgage Lien Not Extinguished

The Third District Court of Appeal, State of Florida, recently affirmed a trial court’s ruling that a foreclosure complaint was time barred because the statute of limitations started to run when the loan was accelerated in connection with a prior foreclosure that was involuntarily dismissed without prejudice. 

 

However, the Court reversed the trial court’s determination that a mortgage lien becomes null and void once the statute of limitations expires.

 

In affirming the trial court’s judgment as to the time-bar issue, the Court held that the statute of limitations begins to run once a lender accelerates a debt owed to it pursuant to a mortgage and note, and unless there is a contractual reinstatement, a modification by the parties, or the foreclosure action is adjudicated on it merits, the accelerated debt is not “decelerated” by an involuntary dismissal without prejudice.  Until a loan’s installment nature is reinstated, the accelerated payment of the debt continues to be due and the statute of limitations continues to run as no “new” payments are due meaning there cannot be a “new” default date giving rise to a new cause of action.  

 

The Court further held that a mortgage lien is not null and void once the statute of limitations expires, because the enforceability of a mortgage lien is governed by a separate statute of repose which establishes the ultimate date when a mortgage lien terminates and is no longer enforceable.

 

A copy of the opinion is available at:  http://www.3dca.flcourts.org/Opinions/3D14-0575.pdf

 

In February of 2006, the borrower (“Borrower”) executed a note and mortgage in the principal amount of $1,440,000 (the “Subject Loan”) extended by a lender (“Original Lender”) and secured by a condominium (the “Subject Property”).  In September of 2006, Borrower defaulted on the Subject Loan.

 

On January 23, 2007, Original Lender filed a complaint to foreclose (the “Initial Action”).  Specifically, the complaint in the Initial Action stated that Borrower failed to make the payment due on September 1, 2006 and that Original Lender elected to accelerate the payment of the Subject Loan’s remaining balance.

 

On December 6, 2010, the trial court dismissed the Initial Action without prejudice because Original Lender failed to appear at a case management conference.  Original Lender did not appeal the dismissal nor did it take any further action concerning the acceleration of the Subject Loan.   

 

Subsequently, the Subject Property’s Condominium’s Association (the “Association”) filed an action to foreclose on its lien levied against the Subject Property based upon Borrower’s failure to pay the Association’s assessments (the “Condominium Action”).  In 2011, the Association obtained title to the Subject Property subject to the Original Lender’s mortgage.

 

Thereafter, on December 18, 2012, the current owner of the Subject Loan (“Trustee”) filed an action to foreclose on the Subject Property concerning Borrower’s October 2006 default on the Subject Loan, which was one month later than the default date alleged in the Initial Action’s complaint (the “Current Action”).  The Association was named as a defendant in this action. 

 

Similar to the Initial Action’s complaint, the Current Action’s complaint declared that Trustee was exercising its right to accelerate all payments and that the full amount of the Subject Loan was immediately due. The Association filed an answer asserting a statute of limitations affirmative defense.

 

As you may recall, section 95.11(2)(c) of the Florida Statues states that an action to foreclose on a mortgage must be commenced within five years.  Moreover, “when a mortgage contains an optional acceleration clause, the statute of limitations commences when the lender exercises this option and invokes the acceleration clause.”  See Greene v. Bursey, 733 So. 2d 1111, 1115 (Fla. 4th DCA (1999).

 

The Association proceeded to move for summary judgment arguing the Current Action was barred by the statute of limitations. 

 

Specifically, the Association argued that:

 

(1)  during the Initial Action, Trustee exercised its contractual right to accelerate the Subject Loan’s payments, which in turn triggered the 5 year statute of limitations; (2) the trial court dismissed the Initial Action without prejudice, meaning the acceleration of the Subject Loan’s payments was not negated nor was the installment nature of the payments reinstated;  (3) Trustee took no action to withdraw its acceleration of the Subject Loan; (4) the Current Action (filed December 18, 2012) was filed more than five years after the statute of limitations commenced with Trustee’s acceleration of the Subject Loan’s payments by instituting the Initial Action (filed January 23, 2007); and (5)  thus, the Association argued, the Current Action is barred by the statute of limitations.

 

Trustee opposed the Association’s motion for summary judgment by arguing that:

 

(1)  the Initial Action was based on a different default date than the Current Action; (2) the trial court’s dismissal of the Initial Action “decelerated” the Subject Loan’s payments, which negated the acceleration exercised by Trustee in the Initial Action and reinstated the installment nature of the Subject Loan’s repayment structure; and (3)  in accordance with Singleton v. Greymar Assocs., 882 So. 2d 1004 (Fla. 2004), the statute of limitations does not bar the Current Action, because the failure to make a subsequent payment following dismissal of the Initial Action constitutes a new default, which creates a new and distinct cause of action, and commences a new statute of limitations period.

 

The trial court granted the Association’s motion for summary judgment and specifically held that: (1) the Current Action was barred by the statute of limitations because it was filed on December 18, 2012, more than five years after the filing of the complaint in the Initial Action in January 2007; and (2) the expiration of the statute of limitations rendered the mortgage null and void.

 

In its order, the trial court also quieted title to the Subject Property in favor of the Association and against Trustee.  Trustee’s request for a rehearing was denied and this appeal followed.

 

On appeal, Trustee argued that the Initial Action’s involuntary dismissal without prejudice “decelerated” the Subject Loan, and thus Trustee and Borrower were returned to their respective positions prior to the filing of the Initial Action meaning the installment nature of the Subject Loan was restored.  Therefore, Borrower’s failure to make a payment on October 1, 2006 constituted a “new” default and created a new cause of action with a new limitations period that permitted Trustee to file the Current Action.

 

The Association argued that the five-year statute of limitations period began to run when Trustee exercised its contractual right to accelerate the Subject Loan during the Initial Action, and neither Borrower nor Trustee took any action to reinstate the installment nature of the Subject Loan. 

 

The Association further argued that the trial court’s dismissal of the Initial Action without prejudice could not “decelerate” the Subject Loan nor did it otherwise reinstate the installment nature of the payments “because such a conclusion would in effect permit the trial court to rewrite the terms of the contract between the lender and the borrower.”  Therefore, the Association claimed the statute of limitations continued to run on the accelerated debt and expired prior to Trustee filing the Current Action in December of 2012.

 

The Court began its analysis by examining the note and mortgage.  The Court stated that “neither the note nor the mortgage provided that dismissal without prejudice of the foreclosure action would negate the acceleration of the debt or otherwise reinstate the installment nature of the loan.”  The Court noted that the mortgage contained a provision regarding a borrower’s right to reinstatement after acceleration, but the provision was inapplicable as Borrower failed to meet the conditions for reinstatement. 

 

The Court then proceeded to examine whether the Initial Action’s involuntary dismissal without prejudice reinstated the installment terms of the mortgage and note, and whether Borrower’s subsequent failure to make a payment was a “new” default which created a new cause of action. 

 

In support of its position that an involuntary dismissal without prejudice creates a new action and a new statute of limitations period, Trustee relied heavily on the holding of Singleton v. Greymar Assocs., 882 So. 2d 1004 (Fla. 2004) (“Singleton”). 

 

In Singleton, a lender instituted a foreclosure action after borrowers failed to make any payments from September 1, 1999 to February 1, 2000 (the “first action”).  Id. at 1005.  This first action was dismissed with prejudice when the lender failed to appear at a case management conference. Id. Thereafter, in Singleton, a second foreclosure action was filed, alleging borrowers failed to make any payments beginning in April of 2000 (the “second action”).  Id. The trial court entered final judgment in favor of the lender despite borrowers’ contention that res judicata barred the second action because it was identical to the first action. Id.

 

On appeal, the Court affirmed the trial court’s judgment in favor of lender, holding that “even though an earlier foreclosure action filed by lender was dismissed with prejudice, the application of res judicata does not bar this lawsuit.  The second action involved a new and different breach.” Id. 

 

The Florida Supreme Court subsequently accepted review and held that:

 

the doctrine of res judicata does not necessarily bar successive foreclosure suits, regardless of whether or not the mortgagee sought to accelerate payments on the note in the first suit.  In this case the subsequent and separate alleged default created a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action. 

 

Id. at 1008.

 

The Appellate Court determined Singleton’s holding was inapplicable because Singleton involved an involuntary dismissal with prejudice, whereas the Initial Action’s involuntary dismissal was without prejudice.  The Court explained that this distinction was crucial because a dismissal without prejudice is not an adjudication on the merits, but a dismissal with prejudice is.  See Fla. R. Civ. P. 1.420(b).

 

The Court further stated that Singleton’s dismissal with prejudice disposed of every issue actually adjudicated as well as every justiciable issue.  Thus, Singleton’s order of dismissal with prejudice “served to adjudicate, in favor of the borrower, the merits of the lender’s claim and the borrower’s defenses, thus determining there was no valid default.”

 

As the dismissal of the Initial Action was without prejudice, the Court held that Borrower did not “prevail in the foreclosure action by demonstrating that she was not in default” nor was there “an adjudication denying acceleration and foreclosure” such that the parties “are simply placed back in the same contractual relationship with the same continuing obligations.”  Singleton, 882 So. 2d at 1007. 

 

The Appellate Court explained that, when there has been no adjudication on the merits nor a determination that the acceleration was invalid or ineffectual, the lender’s exercise of its option to accelerate the debt survives a dismissal without prejudice.  Thus, according to the Appellate Court, the statute of limitations on the accelerated debt continues to run because the “accelerated nature of the debt is unaffected by the order of dismissal without prejudice, and the parties never reinstate the installment terms of the repayment of the debt.”

 

As a result, the Appellate Court held, the only cause action available to Trustee was an action on the accelerated debt.  Trustee cannot sue based upon the “new default” it alleged in the Current Action’s complaint because “without reinstating the installment terms of the repayment of the debt, there were no ‘new’ payments due, only the single accelerated payment that became due when the Initial Action was filed, which continued to remain due after the dismissal without prejudice.”

 

Therefore, the Court held that the Current Action was barred by the statute of limitations because the Current Action was based upon the same accelerated debt as the Initial Action and the statute of limitations on that accelerated debt expired on January 23, 2012 and before the Current Action was filed.

 

The Court next examined whether the holding of U.S. Bank Nat. Ass’n. v. Bartram, 140 So. 3d 1007 (Fla. 5th DCA 2014) (“Bartram”), was inconsistent with the conclusions reached by the Court.  Bartram held that Singleton’s res judicata analysis applied to a statute of limitations analysis because given the Singleton Court’s “conclusion that each new default creates a new cause of action, the statute of limitations would only begin to run when the new cause of action accrued.”  Id. at 1012.

 

The Court determined Bartram was not inconsistent with its ruling because Bartram’s initial foreclosure action was dismissed with prejudice, meaning there was adjudication on the merits.  In contrast, the Initial Action was dismissed without prejudice meaning there was not an adjudication on the merits, and thus no determination was reached concerning Trustee’s acceleration of the debt in the Initial Action.

 

The Court noted that several court rulings have applied Singleton’s rationale to “hold that a subsequent foreclosure action was not barred by the statute of limitations following a dismissal without prejudice of the first foreclosure action.” The Court declined to follow these rulings because they did not address the distinction between dismissals with and without prejudice. 

 

Accordingly, the Court held that the statute of limitations expired before Trustee filed the Current Action, as the Initial Action was not adjudicated on the merits, meaning the statute of limitations began to run when the Subject Loan was accelerated in the Initial Action.

 

The final issue the Court examined was whether its holding concerning the statute of limitations voided and canceled the lien of mortgage.  Trustee and the Association agreed that section 95.281(1)(a) governed whether a lien of mortgage is null and void. 

 

Section 95.281(1)(a) states:

 

            (1) The lien of a mortgage … shall terminate after the expiration of the following periods of time:

                   (a) If the final maturity of an obligation secured by a mortgage is ascertainable from the record of it, 5 years after the date of maturity.

                   (b) If the final maturity of an obligation secured by a mortgage is not ascertainable from the record of it, 20 years after the date of the mortgage…

 

Section 95.281(1)(a) “establishes an ultimate date when the lien of the mortgage terminates and is no longer enforceable.”  Houck Corp. v. New River, Ltd., 900 So. 2d 601, 603 (Fla. 2d DCA 2005).  Section 95.281(1)(a) is a statute of repose meaning it serves to establish a “definitive time limitation on a valid cause of action”, Houck, 900 So. 2d at 603, which “not only bars enforcement of an accrued cause of action but may also prevent the accrual of a cause of action where the final element necessary for its creation occurs beyond the time period established by the statute.”  Am. Bankers Life Assur.  Co. of Florida v. 2275 West Corp., 905 So. 2d 191 (Fla. 3d DCA 2005).

 

The Association argued that Trustee’s acceleration of the note also accelerated its maturity date.  Specifically, the Association argued that the note’s maturity date was January 23, 2007 (the date the Initial Action was filed and the note was accelerated) meaning the lien of mortgage terminated on January 23, 2012, 5 years after January 23, 2007.

 

The Appellate Court rejected this argument because the Association’s proposed maturity date could not be determined from the face of the recorded mortgage, as required by the statute.  Instead, the mortgage clearly had a stated maturity date of March 1, 2036, and pursuant to section 95.281(1)(a), the mortgage lien was to expire on March 1, 2041.

 

Accordingly, the Court affirmed the trial court’s order that the Current Action was barred by the statute of limitations, but reversed the trial court’s holding that that the lien of mortgage was null and void.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

 

 

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FYI: Cal App Ct Reverses Dismissal of "Mass Joinder" Action Involving 965 Mortgage Borrowers

The California Court of Appeals, Fourth District, recently reversed the dismissal of a complaint filed by 965 plaintiffs, holding that the borrowers’ separate loan and loan modification transactions presented sufficient common questions of law and fact for a “mass joinder” action under Cal. Code Civ. P. § 378.

 

A copy of the opinion is available at:  Link to Opinion

 

This appeal involved six entities that were owned or controlled by a parent company, which was later absorbed by and merged into the mortgage lender (collectively referred to as “Defendants”).  The plaintiff borrowers (collectively referred to as “Plaintiffs”) alleged that Defendants orchestrated an elaborate scheme to inflate property values through its own appraisal company, and induced Plaintiffs into risky loans by misrepresenting the loan terms.

 

Specifically, Plaintiffs alleged that Defendants’ loan officers and sales representatives made broad assurances that the loans would be affordable, and failed to disclose interest rate adjustments.  Plaintiffs’ Complaint asserted four causes of action:  intentional misrepresentation, negligent misrepresentation, unfair competition, and wrongful foreclosure. 

 

Defendants demurred to the complaint on the ground of misjoinder of plaintiffs in violation of section 378 of California Code of Civil Procedure (“CCP”).  The trial court sustained the demurrer without leave to amend and dismissed all the plaintiffs “without prejudice to the rights of the other plaintiffs to file their own complaints,” except for the first-named plaintiff.

 

On appeal, the issue before the Appellate Court was whether the permissible joinder of such a large number plaintiffs in this “mass action” is proper under CCP § 378.

 

As you may recall, California’s permissive joinder statute provides:

 

(a) All persons may join in one action as plaintiffs if:

 

          (1) They assert any right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action; or

 

          (2) They have a claim, right, or interest adverse to the defendant in the property or controversy which is the subject of the action.

 

(b) It is not necessary that each plaintiff be interested as to every cause of action or as to all relief prayed for. Judgment may be given for one or more of the plaintiffs according to their respective right to relief.

 

See CCP § 378(a), (b).

 

The Appellate Court began its analysis by reviewing opinions construing section 378.  In Anaya v. Superior Court (1984) 160 Cal.App.3d 228, joinder of 200 plaintiffs was upheld in a case involving widespread exposure to hazardous chemicals on the basis that exposure to a harmful chemicals involved “the same series of transactions” even though the plaintiffs were exposed at different times and different ways.  Although the individual damages sustained by the plaintiffs differed, the court in Anaya pointed out that the key question was the existence of “common questions of law and fact,” and not whether there were differences in the evidence to be presented and in the legal theories to be used by the various plaintiffs.”

 

Similarly, in State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, multiple joinder was allowed for 165 claimants in the Northridge earthquake litigation, based on allegedly fraudulent “systematic” practice of deceiving policyholders.  The plaintiffs in State Farm alleged that they suffered “some 15 different types of improper claims handling processes” which were “systematically, methodically and generally” implemented by the insurer.  Notwithstanding the diversity of those claims, the court in State Farm held that joinder was permissible even though the claims entailed individualized facts for each claimant.

 

In Moe v. Anderson (2012) 207 Cal.App.4th 826, two patients alleged they were victims of separate sexual assaults committed by a physician.  Joinder was not appropriate as to the physician since the assaults involved “separate and distinct” events “during separate and distinct time periods.”  However, the court in Moe determined that joinder was appropriate for the medical group for which the physician worked because the same basic issue of negligent supervision and hiring was common to both plaintiffs, and would involve the same evidence against a single defendant.

 

In addition, the court in Adams v. Albany (1954) 124 Cal.App.2d 639 held that joinder of 40 sets of homebuyers was proper notwithstanding the defendant’s argument that its alleged fraudulent scheme involved torts that took place at different times and places.  The Adams court invoked the “series of transactions” language from section 378 and determined that it was enough that the defendant was alleged to have engaged in a conspiracy to defraud.

 

Relying on State Farm, Anaya, Moe and Adams, the Appellate Court determined that it would be a “major departure from California case law construing section 378” to uphold the trial court’s demurrer for misjoinder in this case. 

 

As the Appellate Court explained, the two core aspects of the common plan alleged in Plaintiffs’ Complaint will entail common evidence: (1) whether Defendants deliberately encouraged dishonest appraisals and (2) whether Defendants encouraged its loan officers to conceal loan terms.  Although these two aspects devolve into several questions of law or fact bearing on liability, the Appellate Court reemphasized that joinder is based on commonality regarding liability, not damages, and this case involved essentially one lender operating with its captive appraisal agents. 

 

In addition, the Appellate Court noted that separate lawsuits by these plaintiffs would clog up the courts if joinder was not allowed.  Mass joinder here would likely decrease trial court case management time and conserve judicial resources.

 

Finally, the Appellate Court turned to the administrative task of managing such a “mass joinder” action.  Acknowledging Defendants’ argument that the sheer heft of this 965 plaintiff action can be unduly burdensome, the Appellate Court noted that on remand the trial court will have the power to require Plaintiffs’ counsel to revise the desultory and scattered allegations into “a tightly-structured set of manageable subclaims and subclasses.” 

 

Accordingly, the Appellate Court reversed the dismissal of Plaintiffs’ complaint, and remanded with instructions to conduct further proceedings consistent with its opinion. 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

 

 

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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FYI: Ill App Ct Rejects Borrower's Challenges to Foreclosure, Including Claims of Payment and Absence of Default

The Illinois Appellate Court, First District recently affirmed a foreclosure judgment, rejecting the borrower’s arguments that:  (a) the borrower had made payments on the mortgage loan, and was not in default;  (b) the foreclosure complaint failed to comply with the requirements set forth in 735 ILCS 5/15-1501, et seq. (“Illinois Mortgage Foreclosure Law”);  (c) the mortgagee’s affidavits were not based upon the personal knowledge of the affiants, and failed to include the documents on which the affiants relied in making their statements.

 

A copy of the opinion is available at:  http://www.illinoiscourts.gov/Opinions/AppellateCourt/2014/1stDistrict/1130976.pdf

 

Mortgagee filed a complaint to foreclose mortgage alleging that the mortgagor had not met any of her monthly mortgage payment obligations that year and was thus in default of her mortgage.  Mortgagor neither admitted nor denied that she had failed to fulfill her mortgage obligations and had defaulted on her mortgage.

 

Subsequently, Mortgagee filed a motion for summary judgment, arguing that none of mortgagor's filings created any genuine issue of material fact as to the default on her mortgage and that it was thus entitled to judgment as a matter of law. Mortgagee's motion was supported by affidavits completed by two of its employees: Affiant #1 and Affiant #2.

 

Affiant #1 averred that she was the authorized servicing agent with respect to the mortgage and was familiar with the business records that Mortgagee made in the regular course of its business. Based on those documents, Affiant #1 affirmed that Mortgagee had not received all of the payments that it was due pursuant to the mortgage.

 

Affiant #2 executed an "affidavit of amount due," in which he identified $511,744.04 as the total amount "due and owing" to Mortgagee. He explained that the calculation was based on his "review of books and records with respect to Defendant's loan." He further explained that "[i]n the ordinary and regular course of its business, Mortgagee utilizes the Lender Processing Service, Inc., to process and store its customer information and to calculate the amount due and owing on any note at any given time.

 

Additionally, he affirmed that Mortgagee utilizes the Program in the ordinary and regular course of its business to track and maintain the amounts due and owing from the Borrower on the mortgage loan at issue in this case. Affiant #2 further averred that it was Mortgagee’s regular practice to make the records at the time the events occurred by people with firsthand knowledge of the events or from practices that are standard in the mortgage servicing industry.

 

Mortgagee also submitted a copy of the demand letter that it sent to Mortgagor as well as business records reflecting payments that had been made and applied to the mortgage balance as well as the amounts due and owing.

 

In response, Mortgagor challenged Mortgagee’s affidavit, arguing that Mortgagee had not submitted any admissible evidence.  She also submitted her own affidavit, in which she averred she made mortgage payments on specific dates.  However, Mortgagor submitted no exhibits supporting her affidavit.

 

The trial court granted summary judgment in Mortgagee’s favor and also entered a judgment of foreclosure and sale. At the judicial sale that followed, a subsequent motion was filed for an "Order Approving Report of Sale and Distribution and for Possession" of the premises, which the circuit court granted.

 

On appeal, Mortgagor disputed the propriety of the trial court's order granting Mortgagee's motion for summary judgment and its subsequent order granting possession of the property following the judicially approved sale of the property.

 

First, Mortgagor argued that Mortgagee was not entitled to a judgment of any kind because its complaint failed to comply with the requirements set forth in section 15-504 of the Illinois Mortgage Foreclosure Law.

 

Mortgagee argued that it "substantially complied with the suggested form complaint," set forth in subsection 15-1504(a) of the Illinois Mortgage Foreclosure Law and maintained that the minor variances between the complaint and the form complaint contained in the Illinois Mortgage Foreclosure Law exist only because its complaint against Mortgagor was specifically tailored to the facts and circumstances pertaining to her mortgage and the default thereof.

 

As you may recall, Illinois foreclosure proceedings are governed by 735 ILCS 5/15-1501 et seq.  Section 15-1504 of the Illinois Mortgage Foreclosure Law sets forth the pleading and service requirements to initiate mortgage foreclosure actions. 735 ILCS 5/15-1504. Subsection (a) provides that a "foreclosure complaint may be in substantially the following form" and identifies various types of relevant information that may be included in the complaint, if appropriate, including: a copy of the mortgage and the mortgage note, "[i]nformation concerning [the] mortgage," such as the date of the mortgage, the names of the mortgagor and mortgagee, the amount of indebtedness, and a statement as to defaults, and also requests for relief.  735 ILCS 5/15-1504(a).

 

The Appellate Court found that Mortgagee’s complaint contained all pertinent information concerning the mortgage at issue, including the date of the mortgage, the identification of the parties to the mortgage, a legal description of the mortgaged premises, and statements as to Mortgagor’s default. Moreover, Mortgagee identified itself as the current legal holder of the mortgage and requested a judgment of foreclosure and sale of the property.  Additionally, Mortgagee attached copies of the note and mortgage to the complaint.

 

The Appellate Court noted that, to satisfy the pleadings required by the Illinois Mortgage Foreclosure Law, a complaint "need contain only such statements and requests * * * as may be appropriate for the relief sought." 735 ILCS 5/15-1504(b). The appellate court found that Mortgagee's complaint was tailored to the specific facts and circumstances of the mortgage and default and the specific relief it sought, and accordingly, the appellate court found that it satisfied the pleading requirements of the Foreclosure Law. See, e.g., US Bank, National Ass'n v. Avdic, 2014 IL App (1st) 121759, ¶¶ 35-37.

 

Next, the Appellate Court considered Mortgagor’s argument that based on the pleadings before the trial court, genuine issues of material facts exist and thus, the trial court erred in granting 's motion for summary judgment. 

 

Specifically, Mortgagor argued that she neither admitted nor denied that she failed to meet her mortgage obligations and that the affidavits in support of Mortgagee’s motion for summary judgment did not comply with statutory requirements.  Mortgagor also argued that Mortgagee failed to establish a proper foundation for the business records that it also submitted in support of its motion for summary judgment and that those records should not have been considered by the trial court.

 

Mortgagee responded that the affidavits and documentary evidence that it submitted in support of its motion for summary judgment met the requirements of Illinois Supreme Court rules and conclusively established that Mortgagor had not satisfied her mortgage payment obligations. Moreover, it argued that Mortgagor failed to contradict the information contained in its filings with any competent evidence.

 

The Appellate Court noted a mortgagee establishes a prima facie case for foreclosure with the introduction of the mortgage and note, after which the burden of proof shifts to the mortgagee to prove any applicable affirmative defense.  Farm Credit Bank of St. Louis v. Biethman, 262 Ill. App. 3d 614, 622 (1994).

 

In this case, Mortgagee sought foreclosure of the mortgaged property based on Mortgagor's default on her mortgage obligations. To substantiate its claim of default and its entitlement to judgment, Mortgagee submitted copies of the mortgage and note at issue to the trial court. It also submitted affidavits completed by several of its employees who provided specific details regarding the default.

 

As you may recall, affidavits submitted in connection with summary judgment proceedings are governed by Illinois Supreme Court Rule 191. Avdic, 2014 IL App (1st) 121759, ¶ 21. Rule 191(a) provides in pertinent part:

 

"[a]ffidavits in support of and in opposition to a motion for summary judgment under section 2-1005 of the Code of Civil Procedure *** shall be made on the personal knowledge of the affiants; shall set forth with particularity the facts upon which the claim, counterclaim, or defense is based; shall have attached thereto sworn or certified copies of all documents upon which the affiant relies; shall not consist of conclusions but of facts admissible in evidence; and shall affirmatively show that the affiant, if sworn as a witness, can testify competently thereto."

 

Ill. S. Ct. R. 191(a).

 

The Appellate Court found that the affidavits at issue provided details pertaining to the mortgage default. Both affiants indicated that they were familiar with the terms of the mortgage and the records Mortgagee completed with respect to that mortgage.

 

The Mortgagee’s affiants both confirmed that Mortgagor had not complied with her mortgage obligations and further identified $511,744.04 as the amount "due and owing.” The affidavits establish that the statements were based on the personal knowledge of Mortgagee’s business procedures as well as their review of records relevant to Mortgagor's mortgage.

 

One affidavit confirmed that those records were maintained in the ordinary course of business and satisfied the foundational requirements for the admission of those business records. See Ill. S. Ct. R. 236(a). The specific business records on which the affiants relied upon were also submitted by Mortgagee in support of its motion for summary judgment. Accordingly, the Appellate Court concluded that the Mortgagee’s affidavits satisfied the requirements set forth in Rule 191(a) as the statements contained in the affidavits were based upon the personal knowledge of the affiants and the affidavits were accompanied by the documents on which the affiants relied in making their statements. See, e.g., Avdic, 2014 IL App (1st) 121759, ¶¶ 26-27.

 

On the other hand, the Appellate Court noted that Mortgagor’s affidavit was not supported by relevant documentation that her mortgage payments were timely made.  See Ill. S. Ct. R. 191(a). Moreover, based the purported payments that Mortgagor listed in her affidavit, she made no mortgage payment in December 2008, and thus there was no genuine issue of material fact that she defaulted on her mortgage obligations.

 

The Appellate Court also found that Mortgagor’s answer to the foreclosure complaint was insufficient to preclude the entry summary judgment. In her answer, Mortgagor claimed to have no knowledge as to whether she failed to make certain payments and defaulted on her mortgage obligations; however, it is well-established that "[i]n order to prevent the entry of a summary judgment, the nonmoving party must present a bona fide factual defense and not hide behind equivocations and general denials." Koukoulomatis v. Disco Wheels, Inc., 127 Ill. App. 3d 95, 101 (1984).

 

The Appellate Court held that Mortgagee presented sufficient evidence to establish a prima facie case that Mortgagor defaulted on her mortgage obligations and that foreclosure was warranted, and that there was no issue of material fact precluding summary judgment in Mortgagee’s favor.

 

Finally, the Appellate Court found that the judgment of foreclosure and sale of the property and an order of possession, were also proper.  Section 15-1508(b) of the Foreclosure Law provides that a circuit court "shall" enter a judicial order approving the judicial sale of foreclosed property unless it finds that: (i) proper notice of the sale was not provided; (ii) "the terms of sale were unconscionable"; "the sale was conducted fraudulently"; or "justice was otherwise not done." 735 ILCS 5/15-1508(b) (West 2010).

 

Mortgagor did not dispute the propriety of the sale and review of the record confirmed there were no grounds to reverse the trial court's order.   Accordingly, the Appellate Court held that the trial court did not err in entering an order of possession against Mortgagor.

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
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Chicago, Illinois 60602
Direct: (312) 551-9320
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Email: rwutscher@mwbllp.com

 

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