Saturday, June 18, 2016

FYI: Fla App Ct (4th DCA) Holds Borrower's "Forced-Place Insurance" Foreclosure Counterclaims Time-Barred

The District Court of Appeal of the State of Florida, Fourth District, recently affirmed the dismissal of a borrower's mortgage foreclosure counterclaims based on alleged violations of the Florida Unfair Insurance Trade Practices Act ("FUITPA") relating to supposed improper "force-placed" insurance, holding that the four-year statute of limitation barred the borrower's counterclaims as a matter of law.

 

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

 

A mortgagee sued to foreclose its mortgage against a corporate borrower and its principal. The borrowers answered and counterclaimed for breach of contract and defamation.

 

In 2014, the borrowers filed an amended answer that included nine statutory and common law counterclaims based upon an alleged "phantom default" created when the plaintiff mortgagee's predecessor supposedly improperly purchased "force-placed" insurance on the property securing the loan and then allegedly misapplied the borrowers' payments.

 

The mortgagee moved to dismiss all of the counterclaims, which the trial court granted after a hearing. The borrowers appealed the dismissal of their counterclaims.

 

On appeal, the Fourth District first addressed whether it had jurisdiction, explaining that it has jurisdiction to review only final orders under Florida Rule of Appellate Procedure 9.030(b)(1)(A). It then found that the order dismissing the borrowers' counterclaims was not a "final order" because it did not dispose of the entire case on the merits. Instead, the mortgagee's foreclosure claim remained pending before the trial court.

 

The Appellate Court went on the explain that an "appellate court may exercise jurisdiction where the trial court's dismissal of a counterclaim 'adjudicates a distinct and severable cause of action.'" This, in turn, requires the court to determine whether the dismissed counterclaim was compulsory or permissive. If it finds "that a counterclaim is permissive, then the partial final judgment adjudicating the counterclaim is immediately appealable. On the other hand, if this court finds that a dismissed counterclaim is compulsory, then the order dismissing the counterclaim is 'not appealable until a final disposition of the original cause has [been] obtained on the merits.'"

 

The Fourth District found that seven of the borrowers' nine counterclaims were compulsory and dismissed "the appeal as to those counterclaims without prejudice for lack of jurisdiction."

 

The Appellate Court found that the remaining two claims based on violations of the FUITPA were permissive because they did not arise out of the "same aggregate of operative facts" as facts giving rise to the foreclosure claim. It then concluded that the order dismissing these permissive counterclaims "was a final order adjudicating distinct and severable causes of action. As such, this court has jurisdiction to reach the merits of the dismissal of these permissive counterclaims."

 

Turning to the merits of the appeal, the Fourth District held that "the trial court properly dismissed the Borrower's FUITPA counterclaims because they were not timely filed, reasoning that under subsection 95.11(3)(f), Florida Statutes, an action under the FUITPA must be brought within four years."

 

Because the operative facts giving rise to the FUITPA allegations supposedly took place from 2005 to 2008, and the borrowers did not file their FUITPA counterclaims until 2014, the claims were barred as a matter of law.

 

The Court affirmed trial court's dismissal of the FUITPA counterclaims.

 

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Friday, June 17, 2016

FYI: 9th Cir Holds Discovery Rule Applies in All Types of FDCPA Cases

The U.S. Court of Appeals for the Ninth Circuit recently held that the discovery rule applies equally regardless of the nature of the federal Fair Debt Collection Practices Act ("FDCPA") violation alleged by a plaintiff. Therefore, according to the Ninth Circuit, the FDCPA statute of limitations begins to run in all cases when the plaintiff knows or has reason to know of the injury which is the basis of the action.

 

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

 

The plaintiff consumer filed a lawsuit against the defendant debt collector alleging it violated the FDCPA when it filed a lawsuit against her to collect a debt in Monterey County, California, even though she did not enter into a contract with the lender in Monterey County and even though she resided in San Diego County, California.

 

The debt collector moved to dismiss the complaint on the grounds that it was not filed within one year from the date on which the original collection action was filed. The plaintiff consumer argued that her complaint was timely because she did not know or have reason to know about the collection case against her until she was served with process, which was a date less than one year prior to the date she filed her FDCPA action.

 

The trial court dismissed the case as time-barred, holding that an FDCPA violation occurred when the debt collection action is filed.

 

As you may recall, a claim under the FDCPA must be brought within one year from the date on which the violation occurs. 15 U.S.C. §1692k(d).

 

The Ninth Circuit began its analysis by revisiting its holding in Mangum v. Action Collection Service Inc., 575 F.3d 935 (9th Cir. 2009), in which the plaintiff alleged that debt collection agencies violated the FDCPA by wrongfully disclosing her debt information to an outside party.  The Ninth Circuit recognized that "in general, the discovery rule applies to statutes of limitations in federal litigation, that is, federal law determines when the limitations period begins to run, and the general federal rule is that a limitations period begins to run when the plaintiff knows or has reason to know of the injury which is the basis of the action." The Ninth Circuit there held that the discovery rule was properly applied in an FDCPA case.

 

The Ninth Circuit also previously applied the discovery rule in a case where an alleged FDCPA violation involved debt collection letters.  Here, the plaintiff alleged that the debt collector violated the FDCPA by filing a collection lawsuit in the wrong county.

 

The Court held that the fact that the alleged violation here was the wrongful filing of a collection lawsuit, rather than wrongful third party disclosure as in Magnum or a violation involving the language of debt collection letters, makes no difference to the analysis. Thus, the Ninth Circuit held that the discovery rule applies equally regardless of the nature of the FDCPA violation alleged.

 

Here, the plaintiff argued that she did not learn of the collection action until she received service of process, and that she had no reason to suspect that she had been sued in Monterey County. The debt collector did not contend otherwise, and thus applying the discovery rule, the Ninth Circuit found the plaintiff's complaint to be timely filed.

 

The Ninth Circuit then looked to the opinion relied upon by the trial court for the assertion that the statute of limitations begins to run on the date the underlying debt collection action was filed. See Naas v. Stolman, 130 F.3d 892 (9th Cir. 1997). The Ninth Circuit found that discovery of the debt collection suit was entirely absent from its analysis in the Naas case, and therefore that the Naas case answered a different question than posed by the parties in the instant case.

 

The Court held that Naas stands for the proposition that, under the FDCPA, the injury which forms the basis of the action is filing the underlying collection lawsuit, its ruling in Mangum does not mean that the statute of limitations also begins to run on the filing date.

 

Accordingly, the Ninth Circuit reversed the ruling of the trial court.

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Tuesday, June 14, 2016

FYI: ED NY Holds Debtor May Not Force Mortgagee to Take Title in Collateral

The U.S. District Court for the Eastern District of New York recently held that a confirmable Chapter 13 plan cannot both "vest" title to real property and "surrender" that property to a secured lender, and that the secured lender may refuse to accept the vesting in satisfaction of its claim.

 

Thus, the Court held that a debtor may not force the transfer of title in collateral to a secured creditor in satisfaction of the secured creditor's claim, without the consent of the secured creditor.

 

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

 

Two mortgagors filed for chapter 13 bankruptcy protection. The bankruptcy plan identified a vacant residence encumbered by two mortgages. The creditor was the first-lien mortgagee.

 

The creditor first-lien mortgagee properly filed a poof of claim representing the principal unpaid balance on the mortgage, plus interest, fees, and pre-petition arrearages.

 

The debtors then filed a second amended Chapter 13 plan, which is the plan at issue. The plan provided, in relevant part: (1) the debtors would surrender the vacant property to the creditor in full satisfaction of the secured portion of the mortgage loan; (2) to the extent that the outstanding balance on the creditor's loan exceeded the value of the vacant residence, the creditor would have thirty days to file an unsecured deficiency claim; and (3) upon confirmation of the plan, the title to the vacant residence would vest in the creditor. 

 

The mortgagee objected to the plan, arguing that although the residence could and should be surrendered under 11 U.S.C. §1325(a)(5)(C), it would be improper to transfer title to the vacant residence to the mortgagee without its consent.

 

The Bankruptcy Court disagreed, holding that while surrender and vesting are different, they are not mutually exclusive, and both options may be deployed by the debtor in a Chapter 13 plan. The mortgagee appealed to the District Court.

 

As you may recall, 11 U.S.C. § 1325(a)(5) provides that, as to each secured creditor, a Chapter 13 plan may only be confirmed:  (1) when the secured creditor accepts the plan;  (2) when the debtor surrenders the secured property; or (3) in an option known as a "cramdown," when the debtor, over the creditor's objection, retains the secured property, yet pays only the present value of the collateral to the creditor over the life of the plan, with the remaining balance of the debt becoming a general unsecured claim.

 

In addition, 11 U.S.C. § 1322(b)(9) provides that the Chapter 13 plan may provide for the vesting of property of the [bankruptcy] estate, on confirmation of the plan or at a later time, in the debtor or in any other entity."

 

The District Court noted that the Bankruptcy Code does not define vesting or surrender, but the law is well settled that vesting is a more consequential event than surrender -- surrender means making the property available to be taken, and vesting means transferring title.

 

The mortgagee argued that to the extent the plan non-consensually vests title to the vacant residence in the mortgagee, it cannot also provide that the residence be surrendered.  Accordingly, the mortgagee argued, because surrendering the property under the Bankruptcy Code is mandatory and the plan did not satisfy any other requirements for plan confirmation, the debtor's second amended Chapter 13 plan was not confirmable.

The District Court noted that mortgagees often seek to avoid the vesting option because the mortgagee would be stuck with the collateral and be responsible for maintenance, taxes, and other obligations that come with owning the property, but with surrendering the property, the title to the property remains vested with the debtor until the property is sold at a foreclosure sale.

 

The debtors and trustee argued that the mortgagee's interpretation ran counter to the Bankruptcy Code's goal of providing a fresh start to debtors.  They argued that allowing a debtor to incur expenses associated with the property in a plan, until the creditor completes a foreclosure, goes against the fresh start policy.

 

The District Court referenced numerous cases that were decided after the Bankruptcy Court entered its ruling in this case. See In Re Williams, 542 B.R. 514 (Bankr. D. Kan. Dec. 2, 2015)( holding that "§1325(a)(5) does not permit confirmation of a plan vesting title to collateral in the secured creditor over that creditor's objection"); see also In re Weller, 2016 U.S. Bankr. LEXIS 108 (Bankr. D. Mass. Jan. 13, 2016) (holding "a plan which vests property in a secured creditor does not fulfill the requirements of §1325(a)(5)(C) and may not be confirmed over that secured creditor's objection"); In Re Tosi, 2016 Bankr. LEXIS 690 (Bankr. D. Mass. Mar. 4, 2016)(holding "that the proposed plan was not confirmable because, thought it had used the nomenclature of surrender, in fact it merely vested the property in the mortgage, an act that substantially modifies the mortgagee's rights as to its collateral, and was thus inconsistent with surrender, and therefore effected no true surrender at all, merely a vesting…and vesting precludes surrender.")

 

The District Court held that the mortgagee has the right to control its own remedies as to the vacant residence and cannot be subordinated to the debtors' interest in achieving a fresh start.  The Court noted that, as first-priority lienholder, the mortgagee is entitled to a full array of property rights, including its right to foreclosure its security interest, or refrain from doing so.

 

The District Court held that there can be no dispute that exercising the option of vesting under § 1322(b)(9) as a method of forcing the mortgagee's hand to take some action with respect to the collateral that it would not otherwise take, is a material limitation of these rights. Thus, the Court held, although the statutory language at issue does not expressly bar the possibility that real property may, under appropriate circumstances, be surrendered to and vested in the same secured creditor, the incompatibility of these concepts in situations where the creditor withholds its consent is obvious.

 

The District Court found its result to be particularly warranted in this case as the vacant residence was destroyed and rendered uninhabitable by a hurricane almost three years prior.

 

The Court also rejected the debtors' argument that surrender is a natural first step in the transferring property out of the bankruptcy estate. The Court held that this approach ignores the irreconcilable implication of rights that arise when both surrender and vesting are included in the plan without a secured creditor's consent.

 

Lastly, the District Court held there was no principled basis for exalting the policy in favor of fresh starts for debtors over the Bankruptcy Code's obvious goal of preserving the well-settled property rights of secured lenders.

 

In sum, the District Court held that a secured creditor's rights under bankruptcy code §1325(a)(5) providing for surrender in a Chapter 13 bankruptcy case are impermissibly compromised by a plan that provides for non-consensual vesting under Bankruptcy Code §1322(b)(9) and thus the plan cannot be confirmed.  Accordingly, the District Court reversed the ruling of the Bankruptcy Court.

 

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Monday, June 13, 2016

FYI: New York App Ct Reverses Dismissal of Foreclosure Action Involving Electronic Note

The Appellate Division of the Supreme Court of New York recently reversed the dismissal of a foreclosure action involving an electronic note, holding that the mortgagee's evidence of the eNote transaction history and the eNote itself was sufficient to establish the mortgagee's standing to foreclose.

 

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

 

On November 7, 2008, the borrower executed a mortgage in favor of a lender bank to secure a promissory note executed the same day for $544,000. The note was signed by electronic signature.

 

The lender bank was subsequently closed, and a receiver was appointed. The receiver and the plaintiff mortgagee entered into a purchase and assumption agreement pursuant to which the receiver sold the plaintiff mortgagee "all qualified contracts to which [the lender] was a party."

 

The plaintiff mortgagee filed an action to foreclose the mortgage loan. The borrower moved to dismiss the foreclosure action, asserting that the plaintiff mortgagee lacked standing. In opposition to the borrower's motion, the plaintiff mortgagee submitted, among other things, the underlying eNote, the "eNote Transfer History," and an affidavit of a knowledgeable person at the plaintiff mortgagee.  

 

Nevertheless,, the trial court granted the borrower's motion to dismiss, and this appeal ensued.

 

As you may recall, under New York law, a plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that, when the action was commenced, it was either the holder or assignee of the underlying note.  Where the evidence shows the plaintiff had physical possession of the note prior to commencement of the foreclosure action, standing is established.

 

The Appellate Court confirmed that an eNote is a "transferable record" as defined by 15 U.S.C. §7021(a)(1), and that "[e]xcept as otherwise agreed, a person having control of a transferable record is the holder" under 5 USC § 7021(d).  New York's version of the UCC defines the holder as "the person in control of a negotiable electronic document of title."

 

In turn, the Court noted that "[a] person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred."  15 U.S.C. § 7021(b).  In addition, "[d]elivery, possession, and endorsement are not required to obtain or exercise any of the rights" of a holder of a transferable record such as an eNote.  15 USC § 7021(d).  

 

Under 15 USC § 7021(f), "reasonable proof" that a person seeking to enforce a transferable record has control of such record "may include access to the authoritative copy of the transferable record and related business records sufficient to review the terms of the transferable record and to establish the identity of the person having control of the transferable record. "

 

Here, the Appellate Court found that the eNote transfer history supplied by the plaintiff mortgagee established that the eNote was transferred from the receiver to the plaintiff mortgagee on March 23, 2010, more than two years before the foreclosure action was filed.  The sworn eNote transfer history established that on March 23, 2010, the plaintiff mortgagee obtained control and became the owner of the eNote.

 

Thus, the Appellate Court held, the sworn eNote transfer history together with the note itself were sufficient to show the identity of the person who had control over the transferable record, and therefore were sufficient to establish the plaintiff mortgagee's standing to foreclose as the holder of the eNote.

 

Accordingly, the Appellate Court held that the trial court erred in granting the borrower's motion to dismiss the foreclosure action for lack of standing, and reversed the trial court's ruling.

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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 and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

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and

 

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and

 

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