FYI: FCC Issues Favorable Order Allowing TCPA Consent to Non-Telemarketing Cell Phone Calls and Texts Through "Intermediary," Reiterates Favorable Language from Prior Orders and Rulings

The Federal Communications Commission recently issued an Order granting a group text messaging service’s petition requesting clarification as to how prior express consent to receive non-telemarketing cell phone texts (also affecting calls) must be obtained.  In so doing, the FCC reiterated and applied several favorable statements from it prior orders and rulings.

 

A copy of the Order is available at:

http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0327/FCC-14-33A1.pdf

 

GroupMe provides a group text messaging service through its app, which allows free group texting for up to 50 people.  GroupMe users must agree to its terms of service, which require representations that each individual added to the group has consented to be added and to receive text messages.  GroupMe then sends confirmation text messages to each group member, including specific information about how to use the group texting service.  The recipient does not have a prior relationship with GroupMe, and do not have to consent in advance to receive the confirmation or other text messages.  Thus, GroupMe relies on its users to attest that the recipient has consented to receiving the messages. 

 

In grating GroupMe’s petition, the FCC stated:

 

We clarify that text-based social networks may send administrative texts confirming consumers’ interest in joining such groups without violating the TCPA because, when consumers give express consent to participate in the group, they are the types of expected and desired communications TCPA was not designed to prohibit, even when that consent is conveyed to the text-based social network by an intermediary. To ensure that the TCPA’s consumer protection goals are not circumvented, we emphasize that social networks that rely on third-party representations regarding consent remain liable for TCPA violations when a consumer’s consent was not obtained.

 

The FCC also noted that “we find that the TCPA is ambiguous as to how a consumer’s consent to receive an autodialed or prerecorded non-emergency call should be obtained. While the TCPA plainly requires a caller to obtain such consent, both the text of the TCPA and its legislative history are silent on the method, including by whom, that must be done. Similarly, although the Commission has required written consent for telemarketing calls, neither the Commission’s implementing rules nor its orders require any specific method by which a caller must obtain such prior express consent for non-telemarketing calls to wireless phones.  We conclude therefore that the TCPA does not prohibit a caller, such as GroupMe, from obtaining the consumer’s prior express consent through an intermediary, such as the organizer of a group using GroupMe’s service.”

 

In addition, the FCC also reiterated favorable language in its 1992 TCPA Order (Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CC Docket No. 92-90, Report and

Order, 7 FCC Rcd 8752 (1992)), and its 2008 ACA Order (Request of ACA International for Clarification and Declaratory Ruling, CG Docket No. 02-278, Declaratory Ruling, 23 FCC Rcd 559 (2008):

 

The Commission stated in the 1992 TCPA Order that “persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary.”  Based on this reasoning, the Commission found in the [2008] ACA Order that a consumer who provides his or her wireless telephone number on a credit application, absent instructions to the contrary, has given prior express consent to receive autodialed or prerecorded message calls “regarding the debt” at that number, including autodialed and prerecorded debt collection calls from a debt collector acting on behalf of the creditor.  Thus, the Commission determined that a third-party debt collector could lawfully make an autodialed or prerecorded call “regarding the debt” to a wireless number that the consumer had provided to the creditor, which the creditor had then passed along to the debt collector.

. . .

Although the ACA Order did not formally address the legal question of whether consent can be obtained and conveyed via an intermediary, that Order did make clear that consent to be called at a number in conjunction with a transaction extends to a wide range of calls “regarding” that transaction, even in at least some cases where the calls were made by a third party.

 

The FCC also clarified that:

 

To the extent that the comments are intended to suggest that we should interpret the TCPA as permitting someone other than the consumer, such as someone claiming actual or apparent authority, to provide the prior express consent of the consumer, we make no such finding.  GroupMe’s petition does not raise that issue.  We note, however, that the TCPA specifically requires the prior express consent of the consumer and reiterate that, under our ruling today, a group organizer may only convey the consumer’s prior express consent.  …To be clear, we do not foreclose the possibility that an agent or legal guardian, for example, could provide the consent of the consumer.

 

 

 

 

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

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

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FYI: 3rd Cir Confirms Fannie, Freddie, FHFA Exempt from Paying State and Local Transfer Taxes on Foreclosed Properties

The U.S. Court of Appeals for the Third Circuit recently confirmed that Fannie Mae, Freddie Mac and the Federal Housing Finance Agency are exempt from paying transfer taxes to state and local governments when buying and selling foreclosed properties.

 

In so holding, the Court rejected arguments from local governments that:  (1) their transfer taxes fell within the statutory exception for taxation of real property, and  (2) the tax exemptions exceeded Congressional authority under the Commerce Clause and infringed upon the 10th Amendment. 

 

A copy of the opinion can be found at:  http://www2.ca3.uscourts.gov/opinarch/132163p.pdf

 

This appeal is a consolidation of three District Court actions brought by various counties in Pennsylvania and New Jersey (“Appellants”), against Federal National Mortgage Association (“Fannie”), Federal Home Loan Mortgage Corporation (“Freddie”), and the Federal Housing Finance Agency (“FHFA”) (collectively, the “Enterprises”). 

 

The Appellants filed suit against the Enterprises seeking judicial declaration that the Enterprises are not exempt from paying state and local real estate transfer taxes.  The cases were dismissed by the District Courts and consolidated for appellate review by the Third Circuit.

 

As you may recall, Fannie and Freddie are federally-chartered but privately owned corporations that issue publically traded securities.  Congress created Fannie and Freddie to establish and stabilize the secondary markets for residential mortgages to promote access to mortgage credit.  In the wake the housing market collapse of 2008, Fannie and Freddie owned a significant number of defaulted and overvalued subprime mortgages and went bankrupt.  On July 30, 2008, Congress created the FHFA to act as conservator for Fannie and Freddie.

 

Under their charters, Congress exempted the Enterprises from “all taxation” by any state or local government, with the exception to taxes on real property.  See 12 U.S.C. § 1723a(c)(2) [Fannie]; 12 U.S.C. § 1452(e) [Freddie] ; 12 U.S.C. § 4617(j)(2) [FHFA]. 

 

Pennsylvania and New Jersey, like many other states, tax the transfer of real estate.  Pennsylvania imposes a tax on the recording of transfers of real estate.  See 72 Pa. Cons. Stat. Ann. § 8102-C and D.  New Jersey imposes similar taxes on recording of deeds and transfers of real property.  See N.J. Stat. Ann. § 46:15-7a.

 

The Appellants challenged the tax exemptions to the Enterprises under two arguments.  First, Appellants argued that state and local transfer taxes fall within the statutory exception for taxes on real property.  Second, the tax exemption exceeded Congress’s power under the Commerce Clause and infringed upon the 10th Amendment. 

 

In rejecting the Appellants’ statutory challenge, the Court determined that transfer taxes are not direct taxes but rather an excise tax, or an indirect tax.  Thus, the state and local transfer taxes do not fall within the exception for direct taxes on real property.

 

Appellants relied on United States v. Wells Fargo Bank, 485 U.S. 351 (1988), where Wells Fargo sought a refund of estate taxes paid on tax-free financing instruments issued by state and local housing authorities under the Housing Act of 1937.  The court in Wells Fargo Bank explained that Housing Act was passed to exempt property from direct taxation, but certain privileges of ownership, such as the right to transfer the property, could be taxed.

 

In rejecting the Appellants’ reliance on Wells Fargo Bank, the Court explained that Wells Fargo Bank involved an exemption of specific property from all taxation.  The estate tax at issue was an excise tax on the transfer of property at death, whereas here, the tax emptions at issue involved exemptions of taxation on entities.  Thus, the distinction between a property exemption and an entity exemption renders Wells Fargo Bank inapposite. 

 

The Court relies instead on Federal Land Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95 (1941), which considered whether a provision of the Federal Farm Loan Act that exempted Federal Land Banks from paying state taxes included a state sales tax on property.  The relevant portion of the Farm Loan Act stated “[t]hat every Federal land bank . . . shall be exempt from Federal, State, municipal, and local taxation.”  Id. at 99.  Bismark held that the term “taxation” used in the Farm Loan Act clearly encompassed a sales tax such as the one at issue.  Id.

 

As the Court explained, the exemption in Bismark is materially identical to the Enterprise exemptions in two important ways.  First, the exemption applied to entities and not to specific property, unlike the exemption in Wells Fargo Bank.  Second, a sales tax is an excise or privilege tax different in kind from a tax on real property.  Thus, both taxes are taxes on the privilege of transferring ownership of property and not taxes on the property itself. 

 

The Third Circuit also considered similar contentions rejected by the Sixth, Seventh and Eighth Circuits, and agreed with its sister circuits.  Accordingly, the Court held that the phrase “all taxation” means the Enterprises are statutorily exempt from paying state and local real estate transfer taxes.

 

The Court then considered whether the tax exemptions to the Enterprises exceeded Congress’s power under the Commerce Clause and violated the 10th Amendment. 

 

The Third Circuit easily reached its conclusion as to the first argument because the Supreme Court has firmly established the authority of Congress to regulate economic activity under the Commerce Clause.  The Enterprises were created to buy mortgages from banks and pump money into the banking industry that could be used to make additional loans.  Thus, Congress could have rationally believed that exempting the Enterprises from the burden of state and local taxation would allow them to pursue their directives.

 

Although the Appellants attempted to shift the analysis away from the economic nature of the secondary mortgage market by arguing that the collection of taxes is not economic activity but rather the sovereign rights of states, the argument was flatly rejected.  The transfer tax exemption aids the Enterprises in regulating the secondary mortgage market, which is clearly economic in nature and in any event, considerations of state sovereignty must yield under the Supremacy Clause.  Accordingly, the Court held that Congress acted well within the bounds of the Commerce Clause in exempting the Enterprises from paying state and local real estate transfer taxes.

 

Lastly, the Third Circuit considered Appellants’ contention that by requiring states and local governments to register deed transfers involving the Enterprises at no cost, Congress violated the anti-commandeering principal of the 10th Amendment.  In the Court’s own words, the “argument is frivolous.”

 

Looking to the only two Supreme Court cases that found a federal statute to unlawfully commandeer state government actors, the common thread in those cases involved imposing an affirmative obligation on state and local officials, which is not the case with the exemptions to the Enterprises.

 

In Printz v. United States, the Supreme Court invalidated a federal statute requiring state and local law enforcement officers to perform background checks on prospective handgun purchasers, holding that the 10th Amendment precludes Congress from commanding state executive officers to administer and enforce a federal regulatory scheme.  Printz v. United States, 521 U.S. 898 (1997).

 

In New York v. United States, the Supreme Court struck down a provision of a federal regulatory regime involving the disposal of low-level radioactive waste by the states, whereby states were required to take title to the waste if they failed to arrange for disposal by a specified date.  New York v. United States, 505 U.S. 144 (1992).

 

In this case, the tax exemptions to the Enterprises do not require states and local governments to administer or enforce a federal regulatory program.  A state official’s compliance with federal law and non-enforcement of a preempted state law— as required by the Supremacy Clause – is not an unconstitutional commandeering.

 

Accordingly, the Third Circuit held that the statutory language “all taxation” includes within its scope state and local real estate transfer taxes, and the exemption for real property taxation does not apply to transfer taxes.  The Court further held that Congress acted within its constitutional authority in granting the Enterprises such immunity.

 

The Third Circuit affirmed the orders of the District Courts dismissing Appellants’ complaints.

 

 

 

 

 

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

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

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FYI: 11th Cir Rules Subscribers Are TCPA "Called Parties," Revocation of TCPA Consent May Be Oral, No Charge for Call Required Under TCPA

The U.S. Court of Appeals for the Eleventh Circuit recently reversed and remanded judgment in favor of the defendant in a federal Telephone Consumer Protection Act (“TCPA”) case arising from autodialed debt collection calls to a cell phone, holding that:

 

1.  Only cellphone subscribers or their agents may give consent to receive autodialed collection calls to a cell phone;

 

2.  Revocation of consent under the TCPA need not be in writing; and

 

3.  A TCPA violation may be found absent prior express consent for debt collection calls to paging, cellular phone or mobile radio services, even where the subscriber was not charged for the call.

 

A copy of the opinion is available at:  http://www.ca11.uscourts.gov/opinions/ops/201310951.pdf

 

A consumer (“Consumer A”) applied for a car-insurance policy with a creditor (“Creditor”) and opened a credit card account for the policy premium to be charged to the credit card.  Consumer A provided Telephone No. 1 as her cell phone in her application. 

 

Telephone No. 1, along with two other numbers, were actually connected to a single individual account belonging to Consumer A’s housemate (“Consumer B”).  Consumer A and B both testified that Telephone No. 1 belonged to Consumer B.

 

Consumer A modified her contact information in connection with the credit card several times in the years that followed.  Consumer A returned a change of address form listing Telephone No. 1 as her work phone.  A year later, she updated her contact information to reflect that her home phone number had changed to Telephone No. 1.

 

Consumer A testified that she subsequently told the Creditor that Telephone No. 1 belonged to Consumer B and was to be used for emergency purposes only.  Consumer A also supposedly informed Creditor that Telephone No. 2 was her cell phone number.  Creditor maintained that Consumer A provided Telephone 2 as her home phone and no changes were made to the listing of Telephone No. 1 as her work phone.

 

Consumer A defaulted on her credit card and received 327 autodialed calls to Telephone No. 1.  Creditor maintained that at no time did anyone answering Telephone No. 1 indicate the number did not belong to Consumer A.  Consumer B testified that he told Creditor twice to stop calling him on Telephone No. 1.

 

Consumer B sued Creditor alleging violations of the TCPA.  Creditor filed a third party complaint against Consumer A, asserting six claims including for indemnification, breach of contract, negligent misrepresentation, and claims to recover the outstanding balance under the credit card.  The district court granted summary judgment in favor of Creditor on four of its six claims against Consumer A and dismissed the complaint by Consumer B.  Consumer A and B appealed the judgments with respect to the TCPA and negligent misrepresentation claims.

 

As you may recall, the TCPA prohibits use of automatic telephone dialing systems or an artificial or prerecorded voice for telephone solicitations:

 

(iii) to any telephone number assigned to a paging service, cellular telephone service, specialized mobile radio service, or other radio common carrier service, or any service for which the called party is charged for the call. . .

 

47 U.S.C. § 227(b)(1)(A)(iii).

 

The TCPA allows for recovery for actual monetary loss from such a violation, or $500 in statutory damages for each violation, whichever is greater.  47 U.S.C. § 227(b)(3)(B).  Treble damages are also available for knowing or willful violations.  Id.

 

On appeal, the threshold issue was whether Creditor had prior express consent to call Telephone No. 1.  Creditor relied on a previous decision from the Eleventh Circuit, holding that a debt collection agency did not violate the TCPA by placing prerecorded calls to collect on debts owed by the previous residents of the home.  See Meadows v. Franklin Collection Service, Inc., 414 F.App’x 230 (11th Cir. 2011).  Thus, Creditor argued that it had prior express consent from Consumer A as the “intended recipient” of the debt collection calls.

 

The Court rejected the argument because Meadows concerned a different section of the TCPA prohibiting artificial or prerecorded voice calls to landlines absent prior express consent.  Furthermore, the Meadows court relied on a regulation promulgated by the FCC exempting calls to landlines “made to any person with whom the caller has an established business relationship at the time the call was made.”  47 C.F.R. § 64.1200(a)(2)(iv).  Because no such exemption exists for calls to cell phones, the Court found Meadows inapplicable to this case.

 

Instead, the Court looked to a Seventh Circuit case brought by cell-phone subscribers receiving debt collection calls directed at prior subscribers to their phone numbers.  See Soppet v. Enhanced Recovery Co., LLC, 679 F.3d 637 (7th Cir. 2012).  The Seven Circuit held that consent must come from the current subscriber, just as consent may only be revoked by the current subscriber.  Id. at 640-41.

 

Applying this rubric, the Eleventh Circuit indicated that the only way for Creditor to prevail in this action would be to show that it obtained consent from Consumer A, as an agent of Consumer B, and the consent was not revoked.  Consumer A and B testified that they have never given each other authority to consent to phone calls from third parties.  Creditor argued that the Court should infer such authority because they have an adult son and shared both a home and a cell phone plan.  However, because the facts are in dispute, the Court determined that this issue should not have been decided on summary judgment.

 

The Eleventh Circuit also determined that revocation of consent under the TCPA need not be in writing.  In so ruling, the Court rejected Creditor’s argument that revocation must be in writing as required under the FDCPA. 

 

In addition, because a dispute exists as to whether Consumer B effectively revoked whatever consent Creditor may have had to call Telephone No. 1, the Court determined that this issue should not have been decided on summary judgment.

 

Additionally, the Court also rejected Creditor’s argument that no violation occurred under the TCPA because neither Consumer A nor Consumer B were charged for the calls in question.  Under the rule of the last antecedent, the Eleventh Circuit held that the phrase “for which the called party is charged for the call” applies only to the phrase immediately preceding.  Thus, according to the Eleventh Circuit, a TCPA violation may be found absent prior express consent for debt collection calls to paging, cellular phone or mobile radio services where the subscriber was not charged for the call.  See 47 U.S.C. § 227(b)(1)(A)(iii).

 

Lastly, the Court turned to the Creditor’s negligent misrepresentation claim against Consumer A for listing Telephone No. 1 as her own, resulting significant legal expenses to defend Consumer B’s action.  Consumer A argued on appeal that she could not have made a misrepresentation if she is ultimately found to have had authority to consent to Consumer B receiving calls.  In addition, Consumer A argued that Creditor cannot establish justifiable reliance because she had informed Creditor that Telephone No. 1 was only for emergencies, and because Consumer B had told Creditor to stop calling.  As the facts are in dispute, the Court again determined that this issue should not have been decided on summary judgment. 

 

Accordingly, the Eleventh Circuit reversed the district court’s grant of summary judgment to Creditor on Consumer B’s TCPA claim, reversed its grant of summary judgment to Creditor on the negligent misrepresentation claim against Consumer A, and remanded for further proceedings consistent with its opinion.

 

 

 

 

 

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

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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FYI: WA App Ct Holds Commercial Guarantors May Be Sued for Deficiency Following Non-Judicial Foreclosure

The Washington Court of Appeals, Division I, recently reversed and remanded the dismissal of a foreclosure deficiency judgment against the guarantors of a commercial loan, holding that the Washington Deeds of Trust Act, codified in RCW 61.24.100, does not preclude an action for a deficiency judgment against guarantors of commercial loans following non-judicial foreclosure. 

 

A copy of the opinion is available at:  http://www.courts.wa.gov/opinions/pdf/700049.pdf

 

A bank (“Bank”) acquired three commercial loans secured by deeds of trust and guaranteed by the owners and managers of the borrower entities (“Guarantors”).  After the three loans went into default, the Bank conducted a non-judicial foreclosure and sued the Guarantors for a substantial deficiency. 

 

The trial court granted summary judgment in favor of the Guarantors, ruling that the Washington Deeds of Trust Act prohibited the Bank from seeking a deficiency judgment against the Guarantors, other than for waste and wrongful retention of rents.

 

As you may recall, the Washington Deeds of Trust Act permits non-judicial foreclosure of deeds of trust when certain requirements are met.  Generally, in Washington non-judicial foreclosures, borrowers relinquish their statutory right to redeem the property up to one year after the foreclosure sale, and in exchange, lenders relinquish their right to seek deficiency judgments following trustee’s sales.  See former RCW 61.24.050 and 61.24.220 (1965).  This provided an alternative to judicial foreclosure. 

 

The Washington Deeds of Trust Act was subsequently amended to create an exception to the ban against deficiency judgment on obligations secured by a foreclosed deed of trust for commercial loans.

 

The provision of the Washington Deeds of Trust Act governing deficiency judgments was codified at RCW 61.24.100.  An exception for commercial loans was created which states certain circumstances where deficiency judgments against borrowers, grantors, and guarantors are allowed:

 

This chapter does not preclude any one or more of the following after a trustee’s sale under a deed of trust securing a commercial loan executed after June 11, 1998:

 

(a) [provision addressing “waste to the property,” “wrongful retention of any rents, insurance proceeds, or condemnation awards,” etc.]

 

(b) [provision regarding foreclosures of other deeds of trusts, etc.]

 

(c) Subject to this section, an action for a deficiency judgment against a guarantor if the guarantor is timely given the notices under RCW 61.24.042.

 

RCW 61.24.100(3).

 

In reversing the lower court’s decision, the Appellate Court first determined that the trial court misinterpreted RCW 61.24.100(3)(c) by limiting the scope of a deficiency against a guarantor to waste and wrongful retention of rents.  The language of the statute states “section” and not “subsection.”  Therefore, Appellate Court held that the lower court misinterpreted the statute by considering only subjections (3)(a) and (b), as opposed to RCW 61.24.100 in its entirety.

 

The Court then considered the Guarantors’ argument that “obligations under a guaranty secured by a deed of trust are extinguished by the nonjudicial foreclosure” pursuant to RCW 61.24.100(10).  Subsection (10) states:

 

A trustee’s sale under a deed of trust securing a commercial loan does not preclude an action to collect or enforce any obligation of a borrower or guarantor if that obligation, or the substantial equivalent of that obligation, was not secured by the deed of trust.

 

RCW 61.24.100(10).

 

In rejecting this argument, the Appellate Court explained that “[subjection (10)] states a permissive rule applicable to situations where the obligation of a borrower or guarantor is not secured by the deed of trust that was foreclosed by a trustee’s sale.  In that situation, the trustee’s sale does not preclude the lender from bringing an action to collect on or enforce a guaranty.”

 

Put in another way, the Appellate Court explained that only by striking the word “not” from subsection (10) can the otherwise permissive statement of the statute be read as a prohibition as the Guarantors suggest.  The Court declined to omit or add language to the statute, and held it would not infer the inverse of what the statute states is necessarily true.

 

The Appellate Court also rejected the Guarantor’s reliance on First-Citizens Bank & Trust Co. v. Cornerstone Homes & Development LLC, ____ Wn. App. ___, 314 P.3d 420 (2013), in support of their interpretation of subjection (10) as barring a deficiency action.

 

In First-Citizens Bank, a deficiency judgment against guarantors of commercial loans was reversed because the court in that action concluded that RCW 61.24.100(10) implied that a bank cannot sue a guarantor for any deficiency remaining after non-judicial foreclosure.  Id. at 425. 

 

The Appellate Court declined to follow First-Citizens Bank because its narrow interpretation ignores other subsections within the statute, particularly subsection (3)(c), which is at issue in this case.  Moreover, the First-Citizens Bank interpretation requires an inverse reading of subsection (10) by eliminating the word “not,” which this Court declined to do.

 

The Appellate Court disagreed with the Guarantors’ follow-up argument that subsection (10) permits an action to enforce the guaranties only if the guaranties were not secured by the non-judicially foreclosed deeds of trust.  In doing so, the Court noted that the statute states “if,” not “only if,” and declined to rewrite the statue by adding the word “only” into the analysis to create an indispensable condition precedent.

 

In sum, the Appellate Court rejected the various interpretation of RCW 61.24.100(10) provided by the Guarantors, and held that the Bank is not precluded from pursuing a deficiency under subsections (3)(a) and (b), or subjection (10).

 

Additionally, the Appellate Court also rejected Guarantors’ argument that the loan contracts barred an action for deficiency because their guaranties were secured by the foreclosed deeds of trust.

 

Washington law looks to the intent of the parties when interpreting a contract.  In this case, the deeds of trust at issue used identical language for the relevant provisions: 

 

PAYMENT AND PERFORMANCE.  Except as otherwise provided in this Deed of trust, Borrower and Grantor shall pay to Lender all indebtedness secured by this Deed of Trust as it becomes due…

 

FULL PERFORMANCE.  If Borrower and Grantor pay all the Indebtedness when due, and Grantor otherwise performs all the obligations imposed upon Grantor under the Deed of Trust, Lender shall execute and deliver to Trustee a request for full reconveyance…

 

The Appellate Court held “[t]here is simply no way to read these provisions so that any deed of trust secures the payment and performance obligations of anyone other than the Borrower and Grantor.”  The Court also noted that there is no mention of any obligations of guarantors in the deeds of trust.  Thus, according to the Appellate Court, the guaranties were not secured by the deeds of trust and extinguished by foreclosure.

 

Finally, the Court denied an award of attorney fees to either party as premature.  Although the guaranties provide for payment of reasonable attorney fees in connection with enforcement of the guarantees, such an award is premature until the “prevailing party” is determined and a fair value hearing conducted. 

 

Accordingly, the Appellate Court reversed and remanded for further proceedings, vacating the portion of the trial court’s decision concerning enforceability of waiver of anti-deficiency defenses, and denying an award of attorney’s fees as premature. 

 

 

 

 

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

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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

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FYI: Ill App Ct Holds Illinois HAMP Compliance Requirement Only Applies When "Complete" HAMP Application Submitted

The Illinois Appellate Court, First District, held that in order to side aside a foreclosure sale under the Illinois HAMP compliance requirement at section 15-1508(d-5) of the Illinois Mortgage Foreclosure Law (“Foreclosure Law”), a borrower must prove by a preponderance of evidence that:  (1) she submitted a complete HAMP application, with all required documentation; and (2) the property sold was in material violation of HAMP requirements for proceeding to a judicial sale. 

 

A copy of the opinion is available at:

http://www.state.il.us/court/Opinions/AppellateCourt/2014/1stDistrict/1122824.pdf

 

The borrowers sought assistance through the federal Home Affordable Modification Program (“HAMP”), a component to the United States Treasury’s Making Home Affordable Program (“MHAP”). 

 

The borrowers accepted an offer from their lender to participate in a Trial Period Plan (“TPP”) under HAMP.  As you may recall, a TPP is a three month forbearance plan period during which the borrower makes payments that are an estimate of the anticipated modified payment amount.  HAMP guidelines permit a servicer to issue a TPP based upon information either provided verbally or through required documentation.  Under HAMP guidelines, borrowers are required to submit various forms and documents, and lenders are required to verify the borrower’s income and eligibility before offering a permanent HAMP loan modification.

 

In this case, the borrowers submitted their first TPP payment along with the TPP agreement and incomplete financial documentation.  The lender notified the borrowers of the missing documents and eventually determined the borrowers were ineligible for a HAMP loan modification due to their deficient documentation.  As a result, the TPP was terminated after the borrowers made eight payments pursuant to the TPP.    

 

After a judgment of foreclosure was entered and the property sold, the borrowers appeared in the lawsuit for the first time and sought to set aside the foreclosure sale.  In their motion, the borrowers argued the sale should be set aside pursuant to section 15-1508(d-5) of the Foreclosure Law (735 ILCS 5/15-1508(d-5) because they executed all relevant documents and made payments pursuant to the TPP, and thus, the lender was mandated to convert their TPP to a permanent loan modification. 

 

The lender argued that the borrowers failed to present evidence establishing their eligibility for a HAMP modification, including various missing documents.  For instance, the profit and loss statement submitted by the borrowers was actually a letter from a real estate company stating the co-borrower is self-employed and providing the amount of his commissions.

The circuit court denied the borrowers' motion to set aside the judicial sale and order confirming the sale, as well as the borrowers’ requests for leave to file additional motions and to obtain limited discovery.  The borrowers subsequently filed a motion to reconsider which was also denied. 

 

On appeal, the borrowers argued that the circuit court erred in approving the judicial sale because (1) they applied for assistance, and (2) their property was sold in material violation of HAMP.  Among other things, the borrowers asserted that the foreclosure plaintiff sold their property in material violation of HAMP because the plaintiff failed to provide written, incomplete-information notices to the borrowers before sending them the denial letter, and that the Illinois statute does not require them to have submitted a complete HAMP application.

 

The lender argued the borrowers never submitted a complete HMP application with all required documentation, and therefore had not “applied for assistance” under HAMP as required by section 15-1508(d-5)(i) of the Foreclosure Law.

 

Section 15-1508(d-5) of the Foreclosure Law provides, in relevant part, that a sale may be set aside “if the mortgagor proves by a preponderance of the evidence that (i) the mortgagor has applied for assistance under the Making Home Affordable Program . . . and (ii) the mortgaged real estate was sold in material violation of the program’s requirements for proceeding to a judicial sale.”  735 ILCS 5/15-1508(d-5).

 

In order to determine whether the borrowers “applied for assistance,” the Court first considered the language of section 15-1508(d-5) and the GSE Guides and Bulletins governing mortgages owned by Freddie Mac, such as the loan to the borrowers.  Construing the language of the statute according to its plain meaning, the Court determined that “applied for assistance under MHAP” means to formally apply, usually in writing, for help pursuant to the procedures set forth by HAMP, a component of MHAP.

 

Although the HAMP Guides and Bulletins do not set forth procedures to “apply” for assistance, the Guide and Bulletins do provide the procedures required to issue a TPP offer (the first step in the loan modification process), specifically that the borrowers must be “eligible” and their income “verified.”  Here, the borrowers’ TPP was based on prior, unverified financial information provided by the borrowers over the telephone

 

The record shows that the borrowers failed to prove by a preponderance of evidence they submitted the necessary documents to establish their eligibility and income, including an executed hardship affidavit, the most recent quarterly or year-to-date profit/loss statement for a self-employed borrower, and separate tax transcript request forms from each borrower.

 

The borrower’s also argued they never received the required HAMP incomplete information notices.  However, because the borrowers failed to establish the threshold requirement under section 15-1508(d-5), and because the argument was waived when the borrowers failed to raise the issue in the lower court, the Court did not reach a determination of whether the property was sold in material violation of MHAP.

 

The Court held that the trial court did not abuse its discretion in denying the borrowers’ motion and confirming the sale of the property.  Accordingly, the judgment of the circuit court was affirmed.

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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Chicago, Illinois 60602
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Email: RWutscher@mwbllp.com

 

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