FYI: DC Court of Appeals Holds Foreclosure Sale of Super Priority Portion of HOA Lien Extinguished First Deed of Trust

The District of Columbia Court of Appeals recently reversed a lower court’s ruling, and held that foreclosure of the super-priority portion of a condominium assessments lien could extinguish a previously recorded first position deed of trust. 

 

In so holding, the Court held that the lender had standing to sue and protect its interest under the previously recorded deed of trust as holder of the promissory note secured thereby. 

 

Nevertheless, under the District of Columbia Condominium Act, D.C. Code § 42-1901.01 et seq., the condominium assessment lien enjoyed super-priority for six-months of condominium assessments against the first deed of trust, which was therefore extinguished upon foreclosure of the super-priority lien.

 

A copy of the opinion is available at: http://www.dccourts.gov/internet/documents/13-CV-623plus.pdf

 

Borrower financed the purchase of a condominium unit by executing a promissory note for $280,000, secured by a deed of trust on the unit.  Borrower defaulted on his mortgage payments, and failed to pay his required monthly condominium-association assessments. Condominium Association recorded a condominium-assessment lien on the unit in the amount of $9,415. At the time the lien was recorded, a title search revealed the first deed of trust.

 

Condominium Association commenced foreclosure proceedings, seeking to recover six months’ worth of unpaid assessments.  The notice of foreclosure sale specified that the foreclosure sale would not be subject to the first deed of trust.  Appellant Foreclosure Purchaser (“Foreclosure Purchaser”) purchased the unit for $10,000 at the foreclosure sale.

 

Soon thereafter, appellee lender (“Lender”) initiated foreclosure proceedings on the unit in light of Borrower’s failure to make his mortgage payments. Upon discovering that Condominium Association had already foreclosed on the unit, Lender filed a complaint against Condominium Association and Foreclosure Purchaser requesting that the trial court void the foreclosure sale and declare that Lender held title to the unit.  After rejecting the Condominium Association’s challenge to the Lender’s standing to foreclose under the deed of trust, the trial court determined that Condominium Association could not lawfully extinguish the first deed of trust.  To that end, the court voided the foreclosure sale and declared that Lender had superior title to the unit.  Condominium Association and Foreclosure Purchaser appealed.

 

As to the issue of the Lender’s standing to foreclose under the deed of trust and standing to protect its interest, the Court of Appeals explained that “[u]nder District of Columbia law, the holder of a negotiable instrument indorsed in blank is normally entitled to foreclose, including through foreclosure proceedings.”  Op. at 6.  Moreover, the Court noted that the Lender could protect its interests under the promissory note even if it is not a successor in interest under the deed of trust, because “the rights under the Deed of Trust follow the note.”  Op. at 7 n.2 .

 

As to the title issue, you may recall, the District of Columbia Condominium Act, D.C. Code § 42-1901.01 et seq. (“DCA”), permits a condominium association to impose an assessment lien against a unit.  The Act affords an assessment lien higher priority than a previously recorded first deed of trust for six months of unpaid assessments, but affords an assessment lien lower priority for any additional unpaid assessments. D.C. Code § 42-1903.13(a)(1)(B) & (a)(2).  Consequently, the DCA “effectively splits condominium assessment liens into two liens of differing priority: (1) a lien for six months of assessments that is higher in priority than the first mortgage or first deed of trust – sometimes called a ‘super-priority lien’ – and (2) a lien for any additional unpaid assessments that is lower in priority than the first mortgage or first deed of trust.”  Op. at 15.

 

On appeal, the Condominium Association and Foreclosure Purchaser (collectively, “Appellants”) argued that pursuant to the DCA, Condominium Association was permitted to foreclose on the super-priority portion of the lien, and to distribute the proceeds first to satisfy its lien, and then to satisfy any remaining liens. Appellants asserted that after distribution of the sale proceeds, any unsatisfied liens or encumbrances, including a first mortgage or first deed of trust, are extinguished.  Thus, the foreclosure sale purchaser takes title to the property free of a first mortgage or first deed of trust.  Although Lender conceded that Condominium Association’s lien was superior to its deed of trust for six-months of assessments, Lender argued that regardless of priority, the foreclosure does not extinguish a first deed of trust.

 

Recognizing that the DCA does not expressly address what happens where the Condominium Association forecloses solely on the super-priority portion of the lien, the Court found persuasive the common law canon of foreclosure law that “liens with lower priority are extinguished if a valid foreclosure sale yields proceeds insufficient to satisfy a higher-priority lien.” Op. at 15.

 

Consequently, the Court rejected Lender’s argument contending that Condominium Association had higher priority but could not extinguish the first deed of trust. “Such an interpretation would be a significant departure from the basic principle that foreclosure on a higher priority lien extinguishes lower-priority liens” and “[t]he language of §42-1903.13(a)(2) does not suggest that the District of Columbia Council intended such a departure.” Op. at 17.

 

Buttressing that conclusion, the Court indicated that the Act’s legislative history and the official comments to the Uniform Common Interest Ownership Act (“UCOIA”) and the Uniform Condominium Act (“UCA”) – two acts upon which the §42-1903.013(a)(2) was modeled –revealed that the drafters “understood that foreclosure on the super-priority lien could extinguish a first mortgage or first deed of trust, but expected that mortgage lenders would take the necessary steps to prevent that result, either by requiring payment of assessments into an escrow account or by paying assessments themselves to prevent foreclosure.” Op. at 18-19.

 

Accordingly, the Court of Appeals vacated the summary judgment ruling in favor of Lender, and remanded the case to the trial court to consider the claim that the foreclosure price of $10,000 was unconscionably low.

 

 

 

 

 

 

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 TCPA Allows Prior Express Consent Through Intermediaries, Hobbs Act Precludes District Court Challenge to FCC Rulings

The U.S. Court of Appeals for the Eleventh Circuit recently held that the TCPA allows callers to obtain consent through intermediaries.

 

The Court also held that a 2008 FCC Ruling interpreting the “prior express consent” defense applies to all creditors and debt collectors, including medical debt collectors, when calling wireless telephone numbers. 

 

In addition, the Eleventh Circuit held that, pursuant to the Hobbs Act, the district court lacked jurisdiction to consider the validity of the 2008 FCC Ruling.

 

A copy of the opinion is available at:  http://media.ca11.uscourts.gov/opinions/pub/files/201314008.pdf

 

A consumer (“Debtor”) sought emergency room treatment at hospital (“Hospital”), and his wife completed and signed admission documents, which she gave to a Hospital representative.  Debtor’s wife provided a nurse with demographic and insurance information, including Debtor’s cell phone number. 

 

By signing a Conditions of Admission form, Debtor’s wife acknowledged receiving Hospital’s Notice of Privacy Practices (the “Notice”).  The Notice provided that Hospital could provide Debtor’s contact information to business associates involved in the Debtor’s treatment and care.  Business associates included healthcare providers and billing companies.

 

Debtor was admitted to the Hospital where he received medical services from a hospital-based provider (“Creditor”).  A billing company serving as Creditor’s agent provided Debtor’s telephone number to a debt collector (“Debt Collector”) pursuant to a written agreement between Debt Collector and Creditor’s parent company (“Parent Company”). 

 

Debt Collector called Debtor’s cell phone about the debt with a predictive dialer between fifteen and thirty times and left four messages.

 

Debtor filed a putative class action against Debt Collector, Creditor and Parent Company (collectively, “Defendants”), alleging that their collection activities violated the TCPA because Debt Collector, acting on behalf of Creditor and Parent Company, called his cell phone using an automatic dialing system or a prerecorded or artificial voice without his prior express consent. 

 

Before the district court considered the question of class certification, the Defendants moved for summary judgment on the affirmative defense that Debtor’s wife provided prior express consent.

 

Defendants relied on a 2008 FCC Ruling, which concluded that “the provision of a cell phone number to a creditor, e.g., as part of a credit application, reasonably evidences prior express consent by the cell phone subscriber to be contacted at that number regarding the debt.”  See 23 FCC Rcd. at 564. 

 

Defendants further argued that because the Hospital had consent to use and disclose Debtor’s cell phone number under the Health Insurance Portability and Accountability Act (HIPAA), Pub. L. No. 104-191, 101 Stat. 1936 (1996), the TCPA prior express consent exception was satisfied. 

 

Creditor and Parent Company separately argued that they could not be held vicariously liable for Debt Collector’s calls because § 227(b)(1)(A) of the TCPA only reached those who “make a call” to a cell phone using automatic dialing or a recorded voice. 

 

Debtor likewise moved for partial summary judgment, arguing that he had not given prior express consent for the calls because the 2008 FCC Ruling did not apply to medical debt and because his cell phone number had been given to the Hospital, not Creditor.

 

The district court found that Debtor, not the Defendants, was entitled to summary judgment on the prior express consent defense mounted by the Defendants.  The district court held that the satisfaction of HIPAA did not automatically ensure compliance with the TCPA.  The district court also determined that Defendants could not prevail on the basis of the 2008 FCC Ruling. 

 

While acknowledging that the Hobbs Act gave the federal courts of appeals exclusive jurisdiction to review final FCC orders, the district court determined that it had jurisdiction to examine the FCC’s interpretation of the TCPA because the central purpose of the lawsuit was to obtain damages for violations of the TCPA, not to collaterally attack or invalidate the 2008 FCC Ruling.  The district court concluded that the FCC’s interpretation of “prior express consent” embodied in its 2008 rule was not entitled to any deference because it conflicted with the clear meaning of the TCPA.  See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc. 467 U.S. 837, 843 n.9 (1984). 

 

The district court then concluded that listing Debtor’s cell phone number on the Hospital admissions documents alone did not evince prior express consent to receive autodialed or prerecorded calls.  In the alternative, the district court ruled that even if the 2008 FCC Ruling was valid and binding, the rule would not apply under the facts of the case because it was designed to cover consumer and commercial contexts, not the medical setting.  Further, the district court determined that the FCC’s 2008 rulemaking did not apply because Debtor’s wife only provided his number to the Hospital and not the Creditor.

 

At the same time, the district court ruled that Creditor and Parent Company were entitled to summary judgment because they could not be held vicariously liable under the TCPA for Debt Collector’s calls. 

 

Ultimately, the district court granted summary judgment to Debtor against Debt Collector in part, ruling that he was entitled to $500 per call in statutory damages for each of fifteen violation calls placed to his cell phone was well as an injunction ordering Debt Collector not to place any further calls to Debtor’s cell phone in violation of the TCPA.  Before the district court could consider whether Debtor was entitled to treble damages, Debt Collector filed an interlocutory appeal.

 

As you may recall, the TCPA prohibits “any person … to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice … to any telephone number assigned to a … cellular telephone service.” See 47 U.S.C. § 227(b)(1).  For each violation, a plaintiff can recover the greater of actual monetary loss or $500; treble damages are available if the defendant committed a violation willfully or knowingly. See 47 U.S.C. § 227(b)(3)(B)-(C).

 

The Eleventh Circuit turned to the TCPA’s statutory and regulatory background.  It noted that Congress conferred general rule making authority to the FCC concerning the TCPA and that the TCPA permitted the FCC to create exemptions “by rule or order” for certain dialed or prerecorded calls.

 

The Court noted that the FCC first promulgated the express consent exception in 1992.  The exception provided that consumers effectively gave their permission to receive calls at a number they provided absent instructions to the contrary. See In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991 (1992 FCC Order), 7 FCC Rcd. at 8752, 8769. 

 

Further, the Eleventh Circuit recognized that in promulgating the exception, the FCC specifically referenced the House Report on the TCPA, which recognized that if a person knowingly releases his phone number, calls are permitted because “the called party has in essence requested the contact by providing the caller with their telephone number for use in normal business communications.” See id. at 8769 n.57 (quoting H.R. Rep. No. 102-317, at 13 (1991)).

 

In a 2008 Declaratory Ruling, the FCC “clarif[ied] that autodialed and prerecorded message calls to wireless numbers that are provided by the called party to a creditor in connection with an existing debt are permissible calls as made with the prior ‘prior express consent’ of the called party.” See 2008 FCC Ruling, 23 FCC Rcd. at 559.  Specifically, the FCC “conclude[d] that the provision of a cell phone number to a creditor, e.g., as part of a credit application, reasonably evidences prior express consent by the cell phone subscriber to be contacted tat that number regarding the debt.” See id. at 564.  Again, as in the 1992 FCC Order, the FCC found support for its interpretation in the House Report on the TCPA.

 

Next, the Eleventh Circuit ruled that the district court exceeded its jurisdiction by declaring the 2008 FCC Ruling to be inconsistent with the TCPA.  It noted that Section 402 of the Communications Act provided that any “proceeding to enjoin, set aside, annul, or suspend any order of the [FCC]” must be brought under the Hobbs Act.  See 47 U.S.C. § 402(a).  In turn, the Hobbs Act expressly conferred federal courts of appeals “exclusive jurisdiction to enjoin, set aside, suspend (in whole or in part), or to determine the validity of” such FCC orders.  See 28 U.S.C. § 2342; FCC v. ITT World Commc’ns, Inc., 466 U.S. 463, 468 (1984).  The Court criticized the district court’s attempt to evade the Hobbs Act by considering Debtor’s central purpose in bringing about the suit.  See B.F. Goodrich Co. v. Nw. Indus., Inc., 424 F.2d 1349, 1353-54 (3d. Cir. 1970) (noting Hobbs jurisdictional analysis requires a court to look at the “practical effect of a proceeding”).  Thus, it did not matter that the 2008 FCC Ruling was raised as a defense, the district court lacked jurisdiction to consider the rule’s validity.

 

Next, the Appellate Court considered whether the facts and circumstances of the case fell within the scope of the 2008 FCC Ruling.  The Eleventh Circuit held that the FCC’s general language sent a strong message that it meant to reach a wide range of creditors and collectors, including those pursuing medical debts.  The 2008 FCC Ruling clarified the meaning of “prior express consent” for all “creditors and collectors when calling wireless telephone numbers to recover payments for goods and services received by consumers.”  See 23 FCC Rcd. at 563.  Further, the 2008 FCC Ruling’s reference to a “credit application” was not meant to be exclusive and noted the TCPA’s application outside of the context of commercial creditors.  See e.g. Mitchem v. Ill. Collection Serv., Inc., No. 09 C 7274, 2012 WL 170968, at *1-2 (N.D. Ill. Jan 20. 2012) (unpublished); Moise v. Credit Control Servs., Inc., 950 F. Supp. 2d 1251, 1253 (S.D. Fla. 2011).  Thus, the 2008 FCC Ruling applied to all types of debt collectors.

 

Next, the Eleventh Circuit rejected Debtor’s argument that the FCC Ruling applied only when a cell phone number is given directly to a creditor.  The Court noted that Debtor signed a document authorizing Hospital to give his number to Debt Collector, and could not identify any prohibitive language in support of Creditor’s argument within the 2008 FCC Ruling.  In fact, it noted that the 2008 FCC Ruling indicated that prior consent existed when a cell phone subscriber “made the number available to the creditor regarding the debt.”  See 23 FCC Rcd. at 567. 

 

Further, the Court noted that the FCC recently ruled that “the TCPA does not prohibit a caller from obtaining consent through an intermediary.”  See In re GroupMe, Inc./Skype Commc’ns S.A.R.L. Petition, 29 FCC Rcd. at 3442, 3447 (2014).  A caller may rely on a representation from an intermediary that the requisite consent has been obtained, and the FCC has explained that “allowing consent to be obtained and conveyed via intermediaries in this context facilitates these normal, expected, and desired business communication sin a manner that preserves the intended protections of the TCPA.”  See id. at 3445.

 

Finally, the Eleventh Circuit rejected Debtor’s argument that “health information,” as used in the Hospital admissions forms, did not include his cell phone number.  The Court noted that “health information,” as defined within the document, included billing-related information.  Furthermore, the Court believed that practical consideration of the need for follow up communications regarding Debtor’s health and HIPAA’s broad definition of “health information” supported its interpretation.  See 42 U.S.C. §§ 1320(d)(4), (6) (noting that health information includes payment information and information which may be used to identify an individual).  However, the court did not rule that compliance with HIPAA triggered compliance with the TCPA.

 

Ultimately, by granting Hospital permission to pass Debtor’s health information to Creditor for billing, Debtor’s wife provided his cell phone number to Debt Collector, consistent with the meaning of prior express consent announced by the FCC in its 2008 Ruling.  Debt Collector was entitled to summary judgment because the calls to Debtor fell within the TCPA prior express consent exception as interpreted by the FCC.  Under the Hobbs Act, the district court lacked jurisdiction to review the FCC’s interpretation. 

 

Accordingly, the Eleventh Circuit reversed the partial grant of summary judgment as to Debtor and remanded the matter to the district court with instructions to enter summary judgment in favor of Debt Collector on its prior express consent defense.

 

 

 

 

 

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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