Friday, May 26, 2023

FYI: 8th Cir Holds Total Revenues from Disputed Practice Can Satisfy CAFA's $5MM Requirement

The U.S. Court of Appeals for the Eighth Circuit recently held that the total amount of money received from a challenged practice can be used to satisfy the federal Class Action Fairness Act's jurisdictional requirement of $5 million in controversy.

 

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

 

A consumer filed a class action lawsuit against a retail company in Missouri state court. The consumer alleged that the company engaged in misleading and deceptive marketing practices by selling cough suppressants with dextromethorphan hydrobromide and a "non-drowsy" label.

 

The company removed the case to federal court under the federal Class Action Fairness Act (CAFA), and the consumer moved to have the case remanded back to state court, arguing that the company did not meet CAFA's jurisdictional requirement of $5 million in controversy.

 

The company filed a brief in opposition to the remand motion and attached a declaration from one of its senior managers. The senior manager asserted in his affidavit that there was more than $5 million in controversy based on three possible remedies identified in the complaint: (1) the total amount of product sales during the relevant time period; (2) the sales lost if the court enjoined the company from selling the products; and/or (3) the attorneys' fees awarded to the consumer's counsel if the consumer were to prevail.

 

The federal trial court remanded, finding that the company did not show that the amount in controversy was greater than $5 million because the company did not provide enough detail to show that the amount in controversy exceeded $5 million. The court also concluded that injunctive costs were not part of the amount in controversy and the company did not specify the amount of the attorneys' fees with enough detail to be considered. The company timely appealed to the Eighth Circuit under 28 U.S.C. § 1453(c).

 

A party can remove a class action to federal court under CAFA if three conditions are met: 1) minimum diversity exists, 2) the proposed class has at least 100 members, and 3) there is more than $5 million in controversy. Leflar v. Target Corp., 57 F.4th 600, 603 (8th Cir. 2023) (citing 28 U.S.C. § 1332). Here, the parties agreed that the first two conditions were met, but disagreed on whether there was more than $5 million in controversy.

 

When a plaintiff contests the amount in controversy after removal, the party seeking to remove under CAFA must establish the amount in controversy by a preponderance of the evidence. Lizama v. Victoria's Secret Stores, LLC, 36 F.4th 762, 765 (8th Cir. 2022). However, the amount in controversy is not established by a preponderance of the evidence if a court must resort 'to conjecture, speculation, or star gazing.'" Waters v. Ferrara Candy Co., 873 F.3d 633, 636 (8th Cir. 2017).

 

The Eighth Circuit concluded that the senior manager's declaration was sufficient to support a finding that the amount in controversy exceeded $5 million. The Court reasoned that a removing party's burden of describing how the controversy exceeds $5 million is a pleading requirement, not an evidentiary requirement. Hartis v. Chicago Title Ins. Co., 694 F.3d 935, 944 (8th Cir. 2012). "[D]istrict courts must 'accept' the allegations in the notice if they are 'made in good faith.'" Leflar, 57 F.4th at 604.

 

Additionally, the Eighth Circuit held that the total amount of revenue generated from a challenged activity can be a measure of the amount in controversy. Raskas v. Johnson & Johnson, 719 F.3 884, 888 (8th Cir. 2013). Specifically, the Court determined that, when a lawsuit questions part of a transaction, an affidavit describing the total sales of the product at issue during the relevant time period meets the amount in controversy requirement. Id. at 87.

 

Because the Eighth Circuit found that total revenue received satisfies the amount in controversy requirement, it declined to discuss the inclusion of — or sufficiency of the evidence for — compliance costs or attorneys' fees.

 

Accordingly, the Eighth Circuit reversed the federal trial court's order remanding the case to state court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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, May 23, 2023

FYI: TX Sup Ct Rules Mortgagee Could Not Avoid Foreclosure SOL With Equitable Subrogation Claim

The Supreme Court of Texas recently held that a mortgagee's foreclosure action was time-barred and that the doctrine of equitable subrogation did not provide the lender with an alternative timely claim.

 

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

 

A mortgagee whose predecessor refinanced the borrowers' original mortgage loans accelerated the borrowers' notes after they stopped making mortgage payments. However, the mortgagee did not initiate foreclosure proceedings until after its claim to enforce its lien was time-barred under the relevant Texas four-year statute of limitations.

 

The issue in the first round of appeals was whether the common-law doctrine of equitable subrogation provided the mortgagee with an alternative means of foreclosure. By balancing the equities, including the mortgagee's purported negligence in allowing the statute of limitations to expire, the intermediate Court of Appeals held that the trial court did not err by denying the mortgagee's claim for equitable relief and rendering judgment for the borrowers.

 

While the lender's first petition for review was pending with the Texas Supreme Court, the Texas Supreme Court ruled in a separate case, Federal Home Loan Mortgage Corp. v. Zepeda, that, in the mortgage-lending context specifically, a refinance lender's negligence in preserving its own lien plays no part in its entitlement to enforce an earlier lien through equitable subrogation. 601 S.W.3d 766-67 (Tex. 2020). Thus, because the Intermediate Court of Appeals' equity-balancing analysis conflicted with the Texas Supreme Court's holding in Zepeda, the Texas Supreme Court reversed the Court of Appeals' judgment and remanded with an instruction to address the borrowers' claim that the mortgagee's equitable-subrogation claim was time-barred.

 

On remand, the Court of Appeals concluded that any equitable subrogation claim that the mortgagee could have asserted would have accrued when the mortgagee accelerated the borrowers' notes and, therefore, this claim was time-barred too. The mortgagee again appealed to the Texas Supreme Court.

 

In its second appeal, the mortgagee argued that the statute of limitations on a refinance lender's subrogation claim should not begin to run until the maturity date of the notes on the original debts that were later refinanced.

 

However, the Texas Supreme Court concluded that the accrual rule urged by the mortgagee was incompatible with "the dual nature of a note and deed of trust" under Texas law. Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 255 (5th Cir. 2013). The Court reasoned that, in a refinance transaction, the original note is paid and then ceases to exist; it no longer has a maturity date and a new note between the borrower and the refinance lender is executed.

 

The Texas Supreme Court held that equitable subrogation actually transfers to a refinance lender the original creditor's security interest so that the refinance lender has an alternative lien to foreclose on if its own lien is later determined to be invalid. See Federal Home Loan Mortgage Corp. v. Zepeda, 601 S.W.3d 766 & n.13 (Tex. 2020).

 

Nevertheless, the Court stressed that a refinance lender only has one foreclosure claim, which accrues when the note made in the refinancing transaction is accelerated. Subrogation provides the refinance lender with the alternative remedy of foreclosing on the original creditor's lien in case its own is deemed invalid, not an additional claim and not a separate statute of limitations period. LaSalle Bank National Association v. White, 246 S.W.3d 616, 619 (Tex. 2007).

 

Accordingly, the Texas Supreme Court held that any claim the mortgagee would have had through subrogation to foreclose on the original creditor's lien would have accrued at the same time the mortgagee's own claim accrued, when the mortgagee accelerated the borrowers' refinanced loans. Because the mortgagee did not initiate foreclosure within four years of that date, the Court concluded that its claim was time-barred.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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Saturday, May 20, 2023

FYI: 7th Cir Holds Allegations of "Confusion" and "Alarm" Not Enough for Article III Standing

The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of a consumer's lawsuit against a debt collector, holding that the consumer lacked Article III standing to sue because his allegations of ╩║confusion" and "alarm" were not sufficiently concrete to result in an injury in fact.

 

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

 

The consumer previously leased an apartment, and when he filed for Chapter 7 bankruptcy, he listed as a debt pastdue rent he allegedly owed the property management company. The bankruptcy court proceeded to grant the consumer a discharge, including any debt owed to the property manager.

 

That bankruptcy discharge was listed on the consumer's credit reports, but the property manager was not notified of the consumer's bankruptcy. 10 weeks before the discharge, the property manager placed the consumer's account with a collection agency. Over the next 18 months, the collection agency sent the consumer two collection letters, stating that if payment was made, the collector "will update credit data it may have previously submitted regarding this debt."

 

The week before the consumer received the second letter, he filed suit under the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692e for allegedly demanding payment of a debt not owed and Section 1692c(c) for purportedly failing to cease communications and cease collections. The consumer alleged that the collection agency's continued communications "confused and alarmed" him. The collection agency did not give information to a credit reporting agency — before or after his bankruptcy discharge.

 

The trial court dismissed the consumer's complaint for lack of Article III standing, and the consumer timely appealed.

 

Article III of the U.S. Constitution limits the jurisdiction of federal courts to cases and controversies. U.S. CONST. art. III, § 2. To establish Article III standing to sue, "[a] plaintiff must have (1) a concrete and particularized injury in fact (2) that is traceable to the defendant's conduct and (3) that can be redressed by judicial relief." Pierre v. Midland Credit Mgmt., Inc., 29 F.4th 934, 937 (7th Cir. 2022).

 

On the first element, a concrete injury is "'real,' and not 'abstract.'" Spokeo, Inc. v. Robins, 578 U.S. 330, 340 (2016). "Qualifying injuries are those with a close relationship to a harm traditionally recognized as providing a basis for a lawsuit in American courts." Pierre, 29 F.4th at 938.

 

The Seventh Circuit began by noting that the ruing of the Supreme Court of United States in TransUnion LLC v. Ramirez limited the intangible harms that can be considered concrete. 141 S. Ct. 2190, 2210 (2021). Specifically, the Supreme Court held that a risk of harm qualifies as a concrete injury only for claims for "forwardlooking, injunctive relief to prevent the harm from occurring." Id.

 

The Seventh Circuit reasoned that the Supreme Court's TransUnion decision weakened the consumer's standing argument because he was only seeking monetary damages in this action. Additionally, although the consumer claimed that he was "confused and alarmed" about the status of his bankruptcy discharge and his credit score, he provided no facts showing that his emotional response led to actionable injury. Because the consumer did not "otherwise act to [his] detriment in response to anything," Pierre, 29 F.4th at 939, the Court concluded that the risk he pled of possible futility to his bankruptcy or potential harm to his credit did not satisfy the standing requirement of a concrete and particularized injury in fact.

 

Resisting this conclusion, the consumer argued that his injuries were of the same kind held actionable under common law invasion of privacy tort theories, specifically "invasion of privacy" and "intrusion upon seclusion." An intangible harm can qualify as a concrete injury in fact, but only when the harm bears a "close relationship" to a traditional harm given redress in courts at common law. Spokeo, 578 U.S. at 340–341.

 

The Seventh Circuit observed that ╩║invasion of privacy" and "intrusion upon seclusion" are actually not distinct torts. Instead, "invasion of privacy" encompasses four theories of wrongdoing, including "intrusion upon seclusion." Persinger, 20 F.4th at 1192. Intrusion upon seclusion "occurs when a person 'intrudes … upon the solitude or seclusion of another or his private affairs or concerns' and this 'intrusion would be highly offensive to a reasonable person.'" Persinger, 20 F.4th at 1192 (quoting RESTATEMENT (SECOND) OF TORTS § 652B).

 

The Seventh Circuit noted that the phrase "intrusion upon seclusion" did not appear in the consumer's complaint or his supporting declaration. Conceding that the consumer did not need to include this precise phrase in his pleadings, the Court determined that none of his allegations spoke to such a theory of injury in any way. Instead, the consumer's appellate briefing tried to shoehorn his allegations within that tort theory.

 

Furthermore, each time the consumer invoked "intrusion upon seclusion," he claimed that the collection agency's letters undermined his belief that his bankruptcy discharge created a "fresh start." However, the Court held that this specific injury was not actionable under the "intrusion upon seclusion" theory, as the potential for the consumer's bankruptcy case to be undone presented only a risk of harm.              

                                                                                                                                                                                                                            

Accordingly, the Seventh Circuit concluded that the trial court correctly found that the consumer had not alleged a concrete and particularized injury in fact, and that there was no Article III standing. Therefore, the Court affirmed the dismissal of the case for lack of standing.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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Thursday, May 18, 2023

FYI: Ill App Ct (1st Dist) Holds Trial Court Improperly Denied Borrower's Estate Opportunity to Show Lack of Capacity

The Appellate Court of Illinois, First District, recently reversed a trial court's order striking an affirmative defense to a foreclosure, vacated the foreclosure rulings, and remanded the matter for further proceedings.

 

Specifically, the Appellate Court held that an estate administrator's affirmative defense alleging that the deceased mortgagor's dementia denied her the requisite mental capacity to execute the mortgage loan documents was sufficient to withstand the reverse mortgage lender's motion to strike and that the administrator should have been granted the opportunity to amend his affirmative defense prior to the entry of summary judgment.

 

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

 

In response to a foreclosure action brought by a reverse mortgage mortgagee, the administrator of the mortgagor's estate raised an affirmative defense that the mortgagor was mentally incompetent to execute the mortgage documents due to her dementia.

 

The mortgagee moved to strike the affirmative defense arguing that, because the mortgagor had never been adjudicated incompetent by a court, nor had a court-appointed guardian administering her affairs, the defense was insufficient at law. The mortgagee also moved for summary judgment.

 

In his responses to both of the mortgagee's motions, the administrator presented new factual materials as exhibits, including an affidavit from the mortgagor's son stating that, when he lived at the subject property with his mother, she was approached by an individual who worked for the mortgagee's predecessor in interest and was urged to sign a reverse mortgage to help pay her debts and obtain money to rehabilitate the property. Although the mortgagor's son purportedly told the individual that his mother was not competent to sign any contracts because she was diagnosed with "severe dementia," she signed the mortgage documents anyway at the individual's behest.

 

After briefing on the motion to strike, the trial court expressed concern about whether a deceased contracting party could be retroactively proven to have been incompetent at the time of signing a contract. Therefore, the court entered a judgment of foreclosure and sale and struck the affirmative defense.

 

The mortgagee then purchased the foreclosed property at a judicial sale for a full credit bid. The administrator made similar arguments in opposition to the lender's motion for confirmation of the sale as he had against summary judgment, but the trial court again rejected these arguments and entered a final judgment confirming the sale. The administrator timely appealed.

 

On appeal, the administrator contended that the trial court erred in striking the affirmative defense and that the materials he submitted in opposition to the mortgagee's motions were sufficient to create a genuine issue of material fact.

 

An affirmative defense admits the legal sufficiency of the cause of action but "asserts new matter by which the plaintiff's apparent right to recovery is defeated." Vroegh v. J&M Forklift, 165 Ill. 2d 523, 530 (1995). A defendant must state the facts establishing an affirmative defense with the same degree of specificity that is required of a plaintiff stating a cause of action. International Insurance Co. v. Sargent & Lundy, 242 Ill. App. 3d 614, 630 (1993). Moreover, under 735 ILCS 5/2-612(b), "[n]o pleading is bad in substance which contains such information as reasonably informs the opposite party of the nature of the claim or defense which he or she is called upon to meet."

 

The First District noted that section 11a-22 of the Probate Act of 1975 (755 ILCS 5/11a-22) provides that a contract entered into by a person who has been adjudicated as incompetent is void against that person and her estate. Additionally, the Appellate Court found that there was no dispute that, at the time she signed the mortgage, the mortgagor had not been adjudicated as incompetent, and nothing in the record on appeal suggested that she was later so adjudicated.

 

However, the Appellate Court also recognized that incapacity due to mental impairment is a valid defense to a contract claim under Illinois common law. Campbell v. Freeman, 296 Ill. 536, 539 (1921) (citing Bordner v. Kelso, 293 Ill. 175 (1920), Crosby v. Dorward, 248 Ill. 471 (1911), McLaughlin v. McLaughlin, 241 Ill. 366 (1909), Baker v. Baker, 239 Ill. 82 (1909), and Sears v. Vaughan, 230 Ill. 572 (1907)). Additionally, "mental weakness of one party to a transaction, even if it is of itself insufficient to destroy a contract will, if accompanied by undue influence, inadequacy of price, ignorance and want of advice, misrepresentation or concealment be a basis for setting aside the agreement." Freiders v. Dayton, 61 Ill. App. 3d 873, 880 (1978) (citing Fewkes v. Borah, 376 Ill. 596, 601 (1941)).

 

Thus, the First District concluded that the allegations in the administrator's affirmative defense were sufficient to withstand the mortgagee's motion to strike because they contained the basic elements set forth in Illinois case law regarding incapacity of mentally impaired persons to contract. Furthermore, the Appellate Court determined that the affirmative defense contained such information as reasonably necessary to inform the mortgagee of the nature of the defense which it was called upon to meet. Therefore, the Appellate Court held that the trial court erred in striking the affirmative defense.

 

The First District next addressed the trial court's entry of judgment of foreclosure and sale. Summary judgment is appropriate "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c).

 

The First District found that the mortgagor's son's affidavit, attached to the administrator's responses to the motion to strike and motion for summary judgment, did not present a genuine issue of material fact sufficient to overcome the mortgagee's summary judgment motion. However, the Appellate Court also held that the trial court erred by striking the administrator's affirmative defense, which was properly pleaded, while simultaneously granting summary judgment to the mortgagee. because this deprived the administrator of a fair opportunity to properly frame his defense of incapacity. As pointed out by the Appellate Court, 735 ILCS 5/2-1005(g) requires: "[b]efore or after the entry of a summary judgment, the court shall permit pleadings to be amended upon just and reasonable terms." An affirmative defense is a "pleading" within the scope of the Code. Id. §§ 2-603(a), 2-613(a).

 

Accordingly, the First District (1) reversed the trial court's order striking the administrator's affirmative defense; (2) vacated the order of foreclosure and sale; (3) vacated

the order confirming sale; and (4) remanded for further proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   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:

 

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Monday, May 15, 2023

FYI: 6th Cir Holds Mortgagee's Foreclosure Action Time-Barred Under Tennessee Law

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a trial court's decision granting summary judgment and dismissing a mortgagee's foreclosure action as time-barred under Tennessee law, and rejecting the mortgagee's arguments of oral modification, partial payment, and equitable estoppel, as well as its request for an equitable lien.

 

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

 

In 1997, a borrower executed a Deed of Trust (DOT) and a home equity line of credit agreement (collectively, the "Loan") in the amount of $200,000, in favor of a mortgagee, and secured by real property in Tennessee. The DOT was properly recorded and the terms of the Loan provided for monthly interest payments until the maturity date in May 10, 2007.  On that date, a final balloon payment of the entire outstanding balance would become due.

 

The Loan contained a provision that stated the mortgagee generally "may not change the terms of this agreement," with certain exceptions, including that the mortgagee "may make changes that unequivocally benefit" the borrower.

 

May 2007 passed, the mortgagee took no action, and the borrower continued making monthly interest payments until he passed away in 2009. The borrower's heirs ("heirs") continued operate a business at the property and the company's bookkeeper continued to make payments to the mortgagee. The heirs did not initiate probate proceedings and the mortgagee did not find out about the borrower's death until 2011. However, the mortgagee continued to accept over $100,000.00 total in monthly payments from 2011 until 2017.

 

The mortgagee alleged that the company's bookkeeper orally modified the maturity date until 2017. The company's bookkeeper and the heirs disputed this fact.  After the disputed 2017 maturity date, the mortgagee initiated foreclosure proceedings. In October of 2018, the mortgagee filed a foreclosure action and requested a declaration that the loan's maturity date had been extended and that it be granted the right to foreclose. The mortgagee later amended its complaint, adding a request that the court grant the mortgagee an equitable lien against the property.

 

The heirs moved for summary judgment and the trial court granted their motion holding that the statute of limitations had expired because Tennessee law provides that "liens of mortgages, deeds of trust, and assignments of realty executed to secure debts, shall be barred, and the liens discharged, unless suits to enforce the same be brought within ten (10) years from the maturity of the debt." Tenn. Code Ann. § 28- 2-111(a). Thus, the trial court held the statute of limitations expired on May 10, 2017, ten years beyond the Loan's maturity date because the heirs alleged oral extension of the maturity date was not a duly executed and acknowledged written instrument as required by Tenn. Code Ann. § 28-2-111(c).

 

In addition, the trial court disagreed that heirs were estopped from raising the statute of limitations as a defense and refused to establish an equitable lien on the property in favor of the mortgagee. Therefore, the trial court summary judgment in favor of the heirs. The mortgagee appealed.

 

On appeal, the Sixth Circuit first determined whether the Loan's maturity date was in May 2007, making the mortgagee's foreclosure suit untimely under Tennessee law, or whether the Loan's maturity date was extended to April 2017.

 

The Court of Appeals examined Tenn. Code Ann. § 28-2- 111(a) which states: "[l]iens on realty, equitable or retained in favor of vendor on the face of the deed, also liens of mortgages, deeds of trust, and assignments of realty executed to secure debts, shall be barred, and the liens discharged, unless suits to enforce the same be brought within ten (10) years from the maturity of the debt." Unless the maturity date was extended, the mortgagee's foreclosure action would not have been timely because the mortgagee's foreclosure action was brought more than ten (10) years after the 2007 maturity date.

 

As the trial court noted in granting summary judgment, Tenn. Code Ann  § 28-2- 111(c) further provides that liens on realty "may be extended without their priority or legal effectiveness being in any way impaired, for any period of time agreed upon and beyond the ten-year period from the maturity of the obligation or debt" provided that the extension is "evidenced by a written instrument . . . [that is] duly executed and acknowledged," and "filed for record with the register of the county in which the realty affected is located" and the written instrument must "contain a brief recital of the facts with reference to the original lien and shall provide that the lien shall continue, for a definite period of time in the future" Id.

 

The mortgagee did not argue that there was a written instrument that extended the maturity date. Instead, it argued that (a) that there was an oral modification to the Loan or it had the unilateral right to extend the Loan; (b) that the Loan contained a future advances provision that could extend the maturity date for up to twenty years; (c) that partial performance -- the heir's continued monthly interest payments —- excused any writing requirement; and (d) that the heirs are equitably estopped from raising the statute of limitations as a defense or the mortgagee is entitled to an equitable lien.

 

The Sixth Circuit disagreed with all of these arguments. First, the Court of Appeals rejected the argument that there was an oral modification to the loan because any extension must be in writing to satisfy the Statute of Frauds.

 

Next, the Court of Appeals also disagreed that Loan contained a future advances provision that could extend the maturity date for up to twenty years. The future advances provisions in the original DOT allowed for the borrower to receive additional loans from the mortgagee to be secured by the property, provided that the due date of any new debt "not be more than twenty years after" the original maturity date of May 10, 2007. The Sixth Circuit held that the mortgagee did not adequately address the clause in the DOT that provided that "any such commitment must be agreed to in a separate writing."

 

Regarding the mortgagee's argument that the heir's continued monthly payments constituted partial performance and excused any writing requirement, the Sixth Circuit also disagreed because "payment of principal or interest" will not "toll the statute of limitations placed on deeds of trust" under § 28- 2-111. See Slaughter v. Slaughter, 922 S.W.2d 115, 118 (Tenn. Ct. App. 1995). Although there is Tennessee case law that recognizes partial performance as an exception to the Statute of Frauds, this exception did not apply to real property. See Buice v. Scruggs Equipment Co., 250 S.W.2d 44, 47-48 (Tenn. 1952). Accordingly, the Sixth Circuit agreed with the trial court that the mortgagee could not show as a matter of law that the maturity date of the original Loan was extended, its suit is untimely under Tenn. Code Ann. § 28-2-111(a).

 

Next, the mortgagee argued that the heirs should be equitably estopped from asserting the statute of limitations as a defense based on their inequitable conduct. The mortgagee argued the inequitable conduct of the heirs resulted from the heirs not initiating probate proceedings, not timely informing the mortgagee of the borrower's death, and for claiming under oath in 2017 there were no outstanding debts on the property.

 

In Tennessee, a defendant is equitably estopped from asserting the statute of limitations as a defense "when the defendant has misled the plaintiff into failing to file suit within the statutory limitations period." Redwing v. Cath. Bishop for Diocese of Memphis, 363 S.W.3d 436, 460 (Tenn. 2012).  In addition, an equitable estoppel inquiry "is on the defendant's conduct and the reasonableness of the plaintiff's reliance on that conduct.'" Id. at 461 (quoting Hardcastle v. Harris, 170 S.W.3d 67, 85 (Tenn. Ct. App. 2004). A plaintiff must also demonstrate that its delay in filing suit was not attributable to its "own lack of diligence." Id. (quoting Hardcastle, 170 S.W.3d at 85).

 

The Sixth Circuit noted that although the mortgagee raised numerous issues concerning the heirs inequitable conduct, it was still unclear how any of these actions specifically misled the mortgagee into failing to file a timely foreclosure suit. The Court of Appeals went on the further state any delay was due to the mortgagee's own lack of diligence and failure to comply with Tennessee law requiring that lien extensions and contracts involving interests in real property be in writing. As a result, the mortgagee did not show that the heirs misled it into failing to file a suit before the limitations period had run.

 

Lastly, the Sixth Circuit examined whether the trial court erred in refusing to impose an equitable lien on the property.  Under Tennessee Law, in order to create an equitable lien, there must be "proof (1) that the parties intended to make the particular property a security for the obligation, (2) that valuable consideration passed between the parties, and (3) there is an equitable reason for imposing the lien." Ewing v. Smith, No. 85-294-II, 1986 WL 2582, at *5 (Tenn. Ct. App. Feb. 26, 1986).

 

Again, the mortgagee argued that that the evidence established that the Loan's maturity date had been extended to April 11, 2017, and that equity requires a finding that the ten-year period for enforcement did not begin to run until that date. However, the Sixth Circuit disagreed because based on the facts in the record it found there was no equitable reason to impose a lien.

 

Accordingly, the trial court's decision granting summary judgment in favor of the heirs was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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Saturday, May 13, 2023

FYI: 'Tennessee Information Protection Act' with NIST Security Standards Enacted

Tennessee Governor Bill Lee on May 11, 2023 signed into law House Bill 1181, making Tennessee the eighth state to enact a comprehensive consumer data privacy law, following California, Virginia, Colorado, Utah, Connecticut, Iowa, and Indiana. The law will take effect July 1, 2024.

 

PRIVACY PROGRAM

 

Under the new law, controllers and processors must create, maintain, and comply with a written privacy program that reasonably conforms to the National Institute of Standards and Technology (NIST) Privacy Framework entitled "A Tool for Improving Privacy through Enterprise Risk Management Version 1.0," and update the program as the Framework is revised.  

 

APPLICABILITY

 

The Act applies to persons that conduct business in Tennessee or produce products or services that are targeted to residents of Tennessee and that:

 

    During a calendar year, control, or process personal information of at least 100,000 consumers; or

    Control or process personal information of at least 25,000 consumers and derive more than 50% of gross revenue from the sale of personal information.

 

EXEMPTIONS

 

Importantly, the Act exempts financial institutions and affiliates, or data subject to the Gramm-Leach-Bliley Act. Other exemptions include covered entities or business associates governed by the privacy, security, and breach notification rules issued pursuant to the Health Insurance Portability and Accountability Act, and the use of personal information to the extent the activity is regulated by and authorized under the Fair Credit Reporting Act.

 

CONSUMER RIGHTS

 

Consumers are provided the right to:

 

    Confirm whether a controller is processing the consumer's personal information and to access the personal information;

    Correct inaccuracies in the consumer's personal information;

    Delete personal information provided by or obtained about the consumer;

    Obtain a copy of the consumer's personal information that the consumer previously provided to the controller;

    Request that a controller that sold personal information about the consumer, or disclosed the information for a business purpose, disclose the:

        Categories of personal information the business sold;

        Categories of third parties to which the personal information was sold;

        Categories of personal information disclosed for a business purpose;

    Opt out of the sale of personal information.

 

SENSITIVE DATA

 

A controller may not process "sensitive data" without a consumer's consent.

 

"Sensitive data" includes:

 

    Personal information revealing racial or ethnic origin, religious beliefs, mental or physical health diagnosis, sexual orientation, or citizenship or immigration status;

    The processing of genetic or biometric data for the purpose of uniquely identifying a natural person;

    The personal information collected from a known child; or

    Precise geolocation data.

 

CONTRACT REQUIREMENTS

 

A contract between a controller and a processor must clearly set forth instructions for processing data, the nature and purpose of processing, the type of data subject to processing, the duration of processing, the rights and obligations of both parties, and require that the processor:

 

    Ensure that each person processing personal information is subject to a duty of confidentiality with respect to the data;

    At the controller's direction, delete or return all personal information to the controller as requested at the end of the provision of services, unless retention of the personal information is required by law;

    Upon the reasonable request of the controller, make available to the controller all information in its possession necessary to demonstrate the processor's compliance with the obligations in this part;

    Allow, and cooperate with, reasonable assessments by the controller or the controller's designated assessor;

    Engage a subcontractor pursuant to a written contract in accordance that requires the subcontractor to meet the obligations of the processor with respect to the personal information.

 

DATA PROTECTION ASSESSMENTS

 

A controller must conduct and document a data protection assessment if the processing involves:

 

    targeted advertising;

    the sale of personal information;

    certain profiling;

    sensitive data;

    activities involving personal information that present a heightened risk of harm to consumers.

 

ENFORCEMENT

 

The Attorney General has the exclusive authority to enforce the Act. Prior to taking any action, the Attorney General must provide a controller or processor 60 days to cure the violation. In the absence of a cure, civil penalties up to $15,000 may be sought for each violation.

 

IMPRESSION

 

The Tennessee Act is similar to the other non-California data privacy laws recently enacted, though the requirement to have a privacy program based on the NIST Framework is unique.

 

The Framework was developed by a private-public collaboration that began in 2018, and "is a voluntary tool intended to help organizations identify and manage privacy risk so that they can build innovative products and services while protecting individuals' privacy."

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   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

 

The Consumer Financial Services Blog

 

and

 

Webinars

  

 

 

 

 

Thursday, May 11, 2023

FYI: Ill App Ct (1st Dist) Holds "Small Servicer" Exempt from RESPA Loss Mitigation Rules

The Appellate Court of Illinois, First District, recently held that a borrower failed to identify any meritorious defense sufficient to stop or undo a judicial foreclosure sale.

 

In so ruling, the Appellate Court rejected the borrower's arguments that the servicer failed to comply with the loss mitigation rules under the federal Real Estate Settlement Procedures Act (RESPA) that she claimed would have allowed her to cure her default, because the servicer qualified as a "small servicer" under 12 C.F.R. 1026.41(e)(4), and was therefore exempt from the loss mitigation rules.

 

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

 

In 2007, a borrower executed a mortgage and note for $87,000 in favor of a lender ("mortgagee").  The borrower fell behind on her payment obligations.

 

In 2016, prior to the ending of the Home Affordable Modification Program (HAMP), the borrower applied for a HAMP modification with mortgagee. The mortgagee denied the mortgagor's HAMP modification request and filed a verified complaint for mortgage foreclosure in March of 2017. After a period of contested motion practice, the trial court entered an order of summary judgment and judgment of foreclosure and sale.

 

The foreclosure sale was scheduled on May 15, 2018. Prior to the sale, the borrower filed for Chapter 13 bankruptcy which was later converted into a Chapter 7 bankruptcy. In the bankruptcy proceeding, the borrower also brought UDAP claims against the mortgagee. The Bankruptcy Court dismissed the borrower's claims against the mortgagee and allowed the mortgagee to proceed with the foreclosure sale at the trial court.

 

In the trial court, the foreclosure sale was approved and occurred in January of 2020. The mortgagee repurchased the property and sought court approval of the sale in February 2020. In March of 2020, the mortgagor, pro se, raised new arguments and the trial court granted her leave to file a response to the motion for an order approving the sale by March 31, 2020 and the hearing was continued until May of 2020.

 

COVID-19's impact on the court system and moratorium on confirmation of judicial sales resulted in a delay of the approval of the sale. In January of 2021, the borrower filed a pro se answer, counterclaim, which was subsequently stricken. Furthermore, the suspension of the borrower's prior lawyer resulted in further delays while the parties litigated what misrepresentations were made by the borrower's prior lawyer. Ultimately, in February of 2022, the trial court entered an order confirming the judicial sale. The borrower timely appealed.

 

On appeal, the borrower raised three issues. First, she argued that the trial court erred in confirming the sale of the property because she never received a loss mitigation denial letter on her loan modification application as required by section 1024.41 of the Real Estate Settlement Procedures Act (RESPA) and Regulation X (12 C.F.R. § 1024.41). Second, the borrower argued that the trial court erred by confirming the sale of the property despite learning that she submitted a HAMP loan modification application which was not appropriately processed in accordance with RESPA or Regulation X by mortgagee, causing the borrower to no longer be eligible for the program. Third, mortgagor argued that the trial court erred by confirming the sale of the property by ignoring a preponderance of the evidence that showed that mortgagee neglected the borrower's numerous attempts to modify her loan and end her delinquency.

 

In Illinois, a judicial foreclosure sale is not complete until it has been approved by a trial court. Under section 15-1508(b), the trial court shall confirm a sale unless it finds that: (i) a notice required in accordance with subsection (c) of Section 15-1507 was not given, (ii) the terms of the sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done. 735 ILCS 5/15-1508(b).  The burden of the party opposing confirmation of the sale must prove that that sufficient grounds exist to disprove the sale.

 

The Appellate Court noted that in order for the borrower to properly vacate the sale, she must demonstrate that "that justice was not otherwise done because either the lender, through fraud or misrepresentation, prevented the borrower from raising [her] meritorious defense to the complaint at an earlier time in the proceedings, or the borrower has equitable defenses that reveal she was otherwise prevented from protecting her property interests." Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469 ¶ 26.

 

Here, the mortgagee argued that it was a small servicer under RESPA (12 CFR § 1026.41(e)(4)), and was therefore effectively exempt from the pre-foreclosure violations complained of by the mortgagor. The Appellate Court agreed that the mortgagee qualified as a "small servicer" and was exempt from the specific RESPA loss mitigation rules at issue.

 

As a result, the Appellate Court affirmed the trial court's judgment on the first two arguments raised by the borrower.

 

Lastly, the Appellate Court disagreed with the borrower's argument that a preponderance of the evidence showed that mortgagee neglected her numerous attempts to modify her loan and end her delinquency across the life of the loan and afterward and that section 15-1508(b)(iv) applied.  The Appellate Court disagreed because the borrower admitted to her prior inability to make her mortgage payments, failed to respond to the mortgagee's motion for summary judgment, and that the borrower defaulted on several forbearance options and was unable to make payments under her Chapter 13 bankruptcy plan.

 

Therefore, the Appellate Court held that the borrower failed to identify any meritorious defense sufficient to stop or undo the judicial sale, and confirmed the trial court's judgment.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   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

 

The Consumer Financial Services Blog

 

and

 

Webinars