FYI: Ill App Ct Allows Amended Affidavit of Service on Borrower to Cure Alleged Defect in First Affidavit

The Illinois Appellate Court, First District, recently held in a mortgage foreclosure action that an amended affidavit of service, specifying the employment relationship between a special process server and the detective agency that hired him, cured any alleged defect in the original return of service, which failed to expressly indicate whether the special process server had been appointed to serve process or worked for a detective agency appointed to serve process on behalf of the owner of the loan. 

 

A copy of the opinion is available at:  http://www.state.il.us/court/Opinions/AppellateCourt/2012/1stDistrict/1112978.pdf.

 

Plaintiff, the trustee of a pool of securitized mortgages ("Loan Owner"), filed a foreclosure action against defendant Borrower on property in Chicago, Illinois, and used a special process server to personally serve Borrower.  After personally serving Borrower, the special process server submitted a signed affidavit of service, indicating his name, along with the name, license number, and contact information of the private detective agency appointed to serve process for the Loan Owner.  The affidavit did not expressly state the relationship between the special process server and the detective agency. 

 

Borrower failed to answer or otherwise appear in the foreclosure proceedings.  As a result, a default judgment of foreclosure and sale was eventually entered in favor of Loan Owner.  Loan Owner later purchased the property at the foreclosure sale.

 

Shortly after the sale, Borrower moved to quash personal service, asserting that service was improper, because there was no evidence that the special process server was ever appointed to serve process or was an employee or agent of one of the private detective agencies appointed to serve process for Loan Owner.  In response, Loan Owner provided an amended affidavit of service by the special process server averring that he worked for the licensed detective agency that had been appointed by the court to serve process for Loan Owner.

 

Based on the special process server's amended affidavit and Borrower's failure to submit a counteraffidavit, the lower court denied Borrower's motion to quash personal service.  The Court also confirmed the sale of the property to Loan Owner. 

 

Borrower appealed, contending that service on him should have been quashed due to insufficient proof that the special process server was authorized to serve process in this case. 

 

Noting that Borrower provided no support for his argument that failure to mention the process server's employment status in the return of process invalidated service, the Appellate Court pointed out that the special process server's amended affidavit of service clarified his employment status with the detective agency and that the detective agency was one of the detective agencies appointed to serve process for the Loan Owner. 

 

The Appellate Court thus ruled that the lower court properly relied on the amended affidavit to cure any purported defect in the return of process, and affirmed the judgment for foreclosure and sale. 

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

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

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

 

FYI: 9th Cir Rules Consent to Cell Phone Calls After Time of Original Transaction Not Sufficient Under TCPA, Upholds Class Certification

The U.S Court of Appeals for the Ninth Circuit recently upheld class certification in a lawsuit claiming that a debt collector violated the federal Telephone Consumer Protection Act, and in so doing held that debtors who provide their cellular telephone numbers after the time of the original transaction giving rise to the debt "are not deemed to have consented to be contacted...for purposes of the TCPA." 

 

A copy of the opinion is available at http://www.ca9.uscourts.gov/datastore/opinions/2012/10/12/11-56600.pdf.

 

A debtor filed a lawsuit against a debt collector, alleging violations of the Telephone Consumer Protection Act ("TCPA") in connection with the debt collector's practice of placing calls to cellular telephone numbers that the debt collector obtained via skip-tracing.  The debtor motioned for a preliminary injunction and provisional class certification, which the lower court granted.

 

The lower court limited the provisional class to all persons using a cellular telephone number that (1) the debt collector did not obtain either from a creditor or from the injunctive class member; (2) has a California area code; or (3) where the debt collector's records identify the injunctive class member as residing in California.  The debt collector appealed. 

 

On appeal, the debt collector argued that the requirements of Federal Rule of Civil Procedure 23(a) ("Rule 23(a)") were not met.  As you may recall, Rule 23(a) imposes commonality, typicality and adequacy requirements in connection with class certifications. 

 

First, the debt collector contended that some debtors included in the class might have agreed to be contacted at any telephone number, including numbers provided after the time of the original transaction.  The Ninth Circuit rejected this argument, noting that a recent Federal Communications Commission ("FCC") ruling provided that "prior express consent is deemed granted only if the wireless telephone number was provided by the consumer to the creditor, and only if it was provided at the time of the transaction that resulted in the debt at issue."  Accordingly, the Ninth Circuit held that "consumers who provided their cellular telephone numbers to creditors after the time of the original transaction are not deemed to have consented to be contacted at those numbers for purposes of the TCPA." 

 

The Ninth Circuit also rejected the debt collector's contention that the class could include debtors who expressly consented to be contacted via cellular telephone, but whose numbers were nevertheless obtained via skip-trace.  The Ninth Circuit found that argument unpersuasive because the debt collector did not point to a "single instance" where a consent to contact via cellular telephone number was given by a debtor to an original creditor, and the cell phone number was found via skip tracing. 

 

Next, the Ninth Circuit considered the debt collector's contention that the plaintiff debtor was an inadequate class representative, due to his past convictions for crimes involving dishonesty.  The Ninth Circuit surveyed the trial court's holding, and found that it considered the debtor's convictions, but also took into account that the debtor had "since taken positive steps in his life..."  Accordingly, the Ninth Circuit held that the lower court did not abuse its discretion by accepting the debtor as a class representative. 

 

The debt collector also challenged the lower court's decision to grant a preliminary injunction.  More specifically, the debt collector argued (1) that the district court erred by finding that the debtor demonstrated a likelihood of success on the merits; and (2) that the lower court erred by holding that the debtor did not need demonstrate irreparable harm to obtain a preliminary injunction. 

 

The Ninth Circuit considered both arguments, and found in favor of the debtor as to both.  It began by examining the elements of a TCPA claim: "(1) the defendant called a cellular telephone number; (2) using an automatic telephone dialing system; (3) without the recipient's prior express consent."  The Court noted that securities filings by the debt collector indicated that the debt collector used predictive dialing systems, and further noted that the debt collector did not dispute that its predictive dialing systems "have the capacity described in the TCPA."  Therefore, it held that the debt collector used an automatic telephone dialing system, as that term is used in the TCPA, and accordingly rejected the debt collector's "likelihood of success" argument.

 

The debt collector also took issue with the lower court's decision to hold that the debtor did not need to show irreparable harm in order to obtain a preliminary injunction.  The Court began by noting that the question of whether irreparable harm is necessary in all cases where a preliminary injunction is sought had not yet been resolved in the Ninth Circuit.  The Court found that question to be irrelevant to the outcome here, however, because the debtor in this instance did demonstrate irreparable harm. 

 

In reaching that conclusion, that Court relied on the lower court's finding that the debt collector would continue to violate the TCPA absent an injunction, and further noted that the debtor collector "did not acknowledge the wrongful nature of its conduct" in its response to the debtor's motion seeking an injunction. 

 

Accordingly, the Ninth Circuit affirmed the judgment of the lower court.   

 

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

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

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

 

FYI: Cal App Ct Rules in Favor of Lender in Case Involving Conversion of Insurance Proceeds

The California Court of Appeals, Second Appellate District, recently held in a lender's favor in a conversion action, where the a car repair shop endorsed an insurance check to a consumer, despite the fact that a lender had an equitable lien in the insurance proceeds.  In so holding, the Court rejected as irrelevant the repair shop's defense that it had no knowledge of the lender's interest.   

 

A copy of the opinion is available at:   http://www.courts.ca.gov/opinions/documents/B232073.PDF. 

 

A consumer financed his purchase of a car with a credit union.  Their agreement provided that the car was collateral for the loan, and that the consumer was required to maintain insurance for the car, with the credit union named as an additional insured on the policy. 

 

The consumer did insure the car, but failed to name the credit union on the policy.  When the car was damaged, the consumer took it to a repair shop.  The insurance company estimated the damage to the car, and produced a check for the estimated amount made out jointly to the repair shop and the consumer.  The repair shop's owner, who did not know that the credit union had a lien on the car, endorsed the check at the consumer's request.  The consumer cashed the check without engaging the repair shop to complete the repairs.  Neither the repair shop nor the credit union received any of the insurance money.

 

The consumer stopped making payments on his car loan, and filed for bankruptcy.  The credit union repossessed the car, paid for the necessary repairs, and instituted an action against the owner of the body shop for conversion.  The lower court found in favor of the credit union, and the owner of the body shop appealed. 

 

As you may recall, under California law the elements of a conversion claim are (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages.  Neither knowledge nor intent on the part of the defendant is necessary for the plaintiff to prevail.  See Burlesci v. Petersen (1998) 68 Call.App.4th 1062, 1066. 

 

On appeal, the Court upheld the trial court's decision.  The Court first established that, due to the parties' contractual obligations, the credit union obtained an equitable lien on the proceeds from the consumer's insurance policy.  Further, the Court cited precedent establishing that an equitable lien is a property interest that can be converted.  See Mcafferty v. Gilbank (1967) 249 Call.App.2d 569, 574-76. 

 

Therefore, the Court held that "[b]ecause the Credit Union had an equitable lien in the insurance proceeds, with which defendants interfered when [the repair shop owner] endorsed the [insurance company] check, defendants are liable for conversion." 

 

The repair shop owner argued that he was unaware of the credit union's interest in the vehicle, and further explained that endorsing checks from insurance companies was his regular practice -- because he kept his customers' vehicles until he received payment, endorsing the checks did not subject him to financial risk. 

 

The Court found this argument unconvincing, noting that a defendant's knowledge or lack thereof is irrelevant in a conversion action.  Accordingly, it affirmed the judgment of the lower court. 

 

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

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

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

 

FYI: Ill App Ct Holds Tenancy by Persons Not in Privity with Borrower Provides Notice to Lender of Title Issue

The Illinois Appellate Court, First District, recently held that a mortgage lender had inquiry notice of a prior homeowner's purported equitable mortgage, because the prior homeowner's relative was occupying the property as a tenant.  On that basis, the Court determined that the assignee mortgagee was not a bona fide mortgagee, and quieted title in the borrower's favor. 

 

A copy of the opinion is available at:  http://www.state.il.us/court/Opinions/AppellateCourt/2012/1stDistrict/1120061.pdf. 

 

A homeowner signed a contract with a now-defunct company called Property Tax Counselors, Inc. ("PTC"), by which she conveyed her property to a land trust in exchange for a loan to pay her property taxes.  The contract provided that the property could be conveyed to a third party, but that PTC would be obligated to re-purchase the property and convey it to the homeowner, if the homeowner made the required payments on her loan.  The homeowner also executed a warranty deed effecting the conveyance, which was recorded. 

 

The defendant in the instant action, an employee of PTC ("employee"), purchased the property and took title.  The employee mortgaged the property with a lender.  That lender, in turn, sold and assigned the mortgage loan to another bank, as trustee.  When PTC's employee stopped making payments on the mortgage, the assignee/mortgagee instituted foreclosure proceedings, purchased the property at the foreclosure sale, and obtained an order of possession. 

 

At the time of the foreclosure, the property was occupied by the original homeowner's grandson.  When the original homeowner learned of the foreclosure, she filed motions to intervene and to vacate the judgment for foreclosure.  The original homeowner alleged in her pleadings that she had made all required payments to PTC, until her payments were returned because PTC was no longer at their former address, and had not left a forwarding address.  The lower court granted the original homeowner's motions, and granted her leave to file an answer, affirmative defense, and a complaint to quiet title. 

 

Both the assignee/mortgagee and the original homeowner then filed motions for summary judgment.  The original homeowner argued that the contract she executed with PTC, as well as the warranty deed she recorded, constituted an equitable mortgage such that the assignee/mortgagee was not a bona fide mortgagee.  She further argued that the fact that her grandson was living in the home, as well as the fact that she received inadequate consideration for her initial transfer of the property, constituted constructive notice to the assignee/mortgagee. 

 

The assignee/mortgagee countered that the borrower's equitable mortgage claim could not defeat the assignee/mortgagee's recorded interest, because the assignee/mortgagee's interest was recorded first, and because the assignee/mortgagee had no actual or constructive notice of the original homeowner's claim. 

 

The lower court found that the original homeowner's loan operated as an equitable mortgage only as to PTC, but not as to the assignee/mortgagee.  Further, the lower court held that issues as fact as to the assignee/mortgagee's status as a bona fide mortgagee remained, and therefore denied both motions for summary judgment. 

 

The assignee/mortgagee filed a motion to reconsider, wherein it argued that because the tenancy of the borrower's grandson was not inconsistent with the public record, it did not provide the assignee/mortgagee with notice of the borrower's interest.  The original homeowner responded, again asserting her argument that her motion for summary judgment was proper and that title should be quieted in her favor. 

 

This time, the lower court agreed with the original homeowner, and granted her motions for summary judgment and to quiet title.  The assignee/mortgagee appealed. 

 

As you may recall, the Illinois Mortgage Act provides that "[e]very deed conveying real estate, which shall appear to have been intended only as a security in the nature of a mortgage, though it be an absolute conveyance in its terms, shall be considered as a mortgage."  765 ILCS 905/5.  Further, the Conveyances Act provides that "all such deeds and title papers shall be adjudged void as to all such creditors and subsequent purchases, without notice, until the same shall be filed for record."  765 ILCS 5/30. 

 

On appeal, the Court began by stating that the primary issue before it was whether the assignee/mortgagee had notice of the original homeowner's interest prior to its extension of the mortgage loan to PTC's employee.  It recited that constructive notice may consist of record notice or inquiry notice, and explained that inquiry notice is at issue here. 

 

The Court then surveyed the arguments of the parties, noting that the original homeowner contended that the assignee/mortgagee's knowledge of her grandson's tenancy in the property, as well as the fact that she received inadequate consideration from PTC in exchange for her conveyance of the property, put the assignee/mortgagee on inquiry notice.  Further, the original homeowner cited case law providing that "one having notice of such facts as would put a prudent man on inquiry is chargeable with the knowledge of other facts which he might have discovered by diligent inquiry."  Cessna v. Hulce, 322 Ill. 589, 595 (1923).  The assignee/mortgagee maintained its position that its mortgage was recorded first, and that the facts at issue here were not sufficient to put it on inquiry notice. 

 

The Court then engaged in an extensive examination of relevant Illinois case law, finding binding precedent as far back as 1876 establishing that an owner's right of possession was evidenced by tenants.  See, e.g., Whitaker v. Miller, 83 Ill. 381, 386 (1876). 

 

Accordingly, the Court held that the original mortgagee's "equitable mortgage has all the effects of recordation because the land was in possession by someone other than the record owner."  The Court further held that the assignee/mortgagee "was imputed with record notice of [the borrower's] interest based on [her grandson's] possession of the home."  Had the assignee/mortgagee "dutifully inquired" of the grandson, the Court found, it would have led the assignee/mortgagee to discover that the original homeowner was still the owner of the home.  According to the Court, the assignee/mortgagee would then have reason to search the chain of title further, and discover that the original homeowner received inadequate consideration for the transfer, and further discover "PTC's misrepresentation and fraud." 

 

Because the assignee/mortgagee "had before it a series of facts that should have led it to inquire further before issuing its loan and mortgage," the Court held that the assignee/mortgagee was not a bona fide mortgagee.  Therefore, it affirmed the holding of the lower court. 

 

 

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

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

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

 

FYI: Kansas App Ct Rejects MERS Challenge to Foreclosure

The Kansas Court of Appeals recently held that formal assignment of a mortgage from MERS to the non-originator holder of the underlying promissory note was not necessary to vest the note holder with a beneficial interest in the mortgage and to give it standing to foreclose.  A copy of the opinion is attached.

 

Rejecting the "split note" theory, the Court ruled that, because the beneficial interest in the mortgage always was vested in the original lender and the lender's successors and assigns, MERS merely acted as the agent of the lender and the successor note holder, and the assignment of the mortgage simply served as recorded notice of a formal transfer of title to the promissory note as required by recording statutes.    

 

Defendants borrowers ("Borrowers") obtained a loan from a mortgage lender ("Lender") and secured the loan with a mortgage on their property.  Among other things, the mortgage identified Mortgage Electronic Registration Systems, Inc. ("MERS") as the mortgagee and provided that MERS acted "solely as nominee for the Lender and the Lender's successors and assigns."   After being indorsed and transferred a number of times, the note was ultimately transferred to plaintiff (the "Loan Owner"). 

 

Borrowers eventually defaulted on the loan and MERS, "solely as nominee for [Lender]," then assigned the mortgage to Loan Owner.   Loan Owner filed a foreclosure action against Borrowers. 

 

The parties each filed motions for summary judgment.  In their motion, Borrowers challenged Loan Owner's standing to foreclose, arguing that the Note and Mortgage had been "irreparably split" when the Note was indorsed over to other entities while the mortgage remained with MERS.    In response, Loan Owner argued that it had standing to foreclose simply based on its holding of the note and mortgage at the time of the foreclosure action, regardless of any alleged prior split between the two instruments.   

 

Granting Loan Owner's motion for summary judgment, the lower court ruled in part that both the note and mortgage had come under Loan Owner's common control and that any prior split was thus "cured" upon MERS's assignment of the mortgage to Loan Owner.  Borrowers unsuccessfully sought reconsideration and appealed.

 

The Kansas Court of Appeals affirmed the grant of summary judgment, but on different grounds.  Providing an overview of the MERS system of tracking ownership interests and servicing rights in mortgage loans, the Court noted that in the absence of an agency relationship between the holder of the mortgage and the holder of the promissory note, the note holder may lack the power to foreclose in the event of a default.  See, e.g., Landmark Nat'l Bank v Kesler, 289 Kan. 528, 540 216 P.3d 158 (2009)(ruling that absent an agency relationship between holder of note and holder of mortgage, a mortgage may become unenforceable when it is not held by the same entity that holds the promissory note).

 

Notably, however, the Appellate Court ruled that in this case the note and mortgage were never split, because MERS acted throughout as an agent under the terms of the mortgage instrument.  See U.S. Bank v. Howie, 47 Kan. App. 2d 690, 280 P.3d 225 (2012)("Howie")(plain language of the mortgage provided sufficient and undisputed evidence that MERS was acting as the agent of lender at all relevant times). 

 

Recognizing that in this case, Loan Owner was not the original lender as in Howie, the Court looked to the language of the mortgage itself to determine whether there was an agency relationship between MERS, Lender, and Lender's assignees.  In addressing this question, the Court applied the rules of contract construction and found no ambiguity in either the note or the mortgage, pointing out that the mortgage clearly stated that Borrowers mortgaged their property "to MERS (solely as nominee for Lender and Lender's successor's and assigns)."    

 

The Court further noted that the plain language of both the note and mortgage reflected the parties' intent to keep both instruments together as part of one transaction, observing that the mortgage and note expressly cross-referenced each other and that the mortgage provided that the Note, together with the mortgage could be sold one or more times. 

 

Rejecting Borrowers' argument that because MERS never held the note and because the assignment of the mortgage from MERS to Loan Owner specified that MERS assigned the Note and mortgage to Loan Owner "solely as nominee for [Lender]" (rather than "as nominee for [Lender] and its successors and assigns"), the Court ruled that Lender's rights in the mortgage never transferred to MERS.  In so ruling, the Court stressed that as nominee, or agent, MERS had no legally enforceable rights beyond those of the Lender and, further, that the beneficial interest in both the mortgage and note remained vested in Lender and its successors and assigns in accordance with the language of the note and mortgage. 

 

Accordingly, the Court ruled that, even if the wording of the assignment was "somehow faulty," as an assignee of the note, Loan Owner did not need the assignment in order to vest it with a beneficial interest in the mortgage and that, as the valid holder of the Note, it already had such a beneficial interest sufficient to give it standing to foreclose. 

 

Pointing out that its interpretation was consistent with Kansas mortgage law under which the transfer of a debt secured by a mortgage generally transfers the mortgage as well, the Court noted that the "assignment of the mortgage was merely recorded notice of a formal transfer of the title to the instrument as required by recording statutes, which are primarily designed to protect the mortagee against other creditors of the mortgagor for lien-priority purposes, not to establish the rights of the mortgagee vis-à-vis the mortgagor."  See, e.g., Army Nat'l Bank v. Equity Developers, Inc. 245 Kan. 3, Syl. ¶ 6, 17, 774 P.2d 919 (1989)(mortgage follows note); K.S.A. 58-2323 (assignment of mortgage carries the debt thereby secured).

 

The Court thus concluded that Loan Owner was entitled to summary judgment on the foreclosure action.

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

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

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