FYI: Fla App Ct (2nd DCA) Rejects Third Party Record Title Holder's Attempts to Prevent Foreclosure Sale

The District Court of Appeal of Florida, Second District, recently affirmed the trial court's denial of a third party record title holder's motion to cancel a mortgage foreclosure sale, even though the third party movant acquired title in a prior homeowners association lien foreclosure action, and even though the third party movant alleged that the mortgagee thwarted its redemption rights by supposedly failing to provide an estoppel letter.

 

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

 

In December of 2012, a mortgagee filed a foreclosure action along with a lis pendens against the property owners and the community association that held a lien on the property for unpaid assessments. The lis pendens was recorded in the public records of the county where the case was filed shortly thereafter.

 

The trial court granted the mortgagee's motion for summary judgment and entered a final foreclosure judgment in March of 2014, which scheduled the sale date for July of 2014. The sale was later rescheduled at the request of the plaintiff for September of 2014.

 

Two days before the sale, a third party filed an emergency motion to cancel the sale, arguing that it was the owner of record pursuant to a certificate of title issued in July of 2013 in a separate foreclosure action filed by the community association, and that because the mortgagee failed to provide the estoppel letter required by section 701.04, Florida Statutes, the mortgagee wrongly prevented the third party movant from redeeming the property before the foreclosure sale.

 

The trial court initially granted the third party's motion to cancel the foreclosure sale, but re-set the sale for November of 2014.  Four days prior to the sale, the third party filed another motion to cancel the sale on the same grounds as the first motion, but also adding an argument that the notice of the foreclosure sale violated section 702.035, Florida Statutes. The trial court denied motion, finding that the third party movant lacked standing, and the third party movant appealed.

 

On appeal, the third party movant argued that as the owner of record, it had a clear interest in the property, and thus the trial court erred in finding that it lacked standing to challenge the sale.

 

The Court first noted the common law rule that unless one is a party to a lawsuit, he or she lacks standing to request relief from the court, but then found that by moving to cancel the sale and asserting its interest in the property as owner, the third party movant effectively sought to intervene in the mortgage foreclosure action.

 

However, the Court then noted the settled rule in Florida that "when property is purchased during a pending foreclosure action in which a lis pendens has been filed, the purchaser generally is not entitled to intervene in the pending foreclosure action."

 

The Court found that the notice of lis pendens filed by the mortgagee put the third party movant on notice of the pending mortgage foreclosure action before the third party movant acquired title.  Rejecting the third party movant's arguments, the Court reasoned that the purpose of the lis pendens was "developed from a common law doctrine that the result of pending litigation affecting property superseded transactions concerning the property before termination of the litigation."

 

Because the third party movant acquired title of the property after the mortgagee recorded its notice of lis pendens, the Court held that the third party movant took the property subject to the court's ruling in the mortgagee's foreclosure action, including the foreclosure sale ordered by the final judgment.

 

The Court pointed out that the third party movant was not asserting that the association's lien, from which its title was derived, was somehow superior to the mortgagee's lien.  The Court also pointed out that the mortgage was recorded in 2006, and thus even if the mortgagee had not recorded a lis pendens, the third party movant had constructive notice of the mortgagee's prior and superior lien on the property.

 

The Court concluded that the third party movant's interest in the property was not legally cognizable and did not confer standing, because even though it held legal title, the third party movant acquired the property subject to the mortgagee's foreclosure action as a matter of law.

 

Finally the Court rejected the third party movant's argument that its right to redeem the property was thwarted by the mortgagee's alleged failure to provide an estoppel letter, because under section 45.0315, Florida Statutes, which governs the right of redemption, the third party movant could simply pay the amount of the foreclosure judgment in order to redeem the property.

 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
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Email: rwutscher@MauriceWutscher.com

 

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FYI: Fla Court Holds FCCPA Preempts Florida's Offer of Judgment Statute

The County Court of the 13th Judicial Circuit in and for Hillsborough County, Florida, recently struck a mortgagee's and servicer's offer of judgment in an action under the Florida Consumer Collection Practices Act ("FCCPA"), holding in a matter it deemed of great public importance that the FCCPA preempts Florida's Offer of Judgment statute.  A copy of the order is attached. 

 

In May of 2013, a borrower filed a one-count complaint against defendants, a mortgagee and its loan servicer, alleging a violation of the FCCPA.  The defendants filed an offer of judgment pursuant to section 768.79, Florida Statutes. In response, the plaintiff borrower moved to strike the offer of judgment.

 

The defendants argued that the plaintiff borrower's motion to strike was premature because whether the offer of judgment even applies cannot be determined until after damages are quantified.  However, the court rejected this argument, reasoning that the motion was not premature because the question before the court was whether the offer of judgment statute applies at all in FCCPA actions.

 

The court then rejected the plaintiff borrower's argument that the offer of judgment would unduly prejudice him because he would be exposed to liability if he guessed wrong about the strength of his case, finding that was precisely what the Florida legislature intended in adopting the offer of judgment statute -- i.e., to encourage settlement.

 

The court reasoned that while two appellate court rulings — decided by the Second and Fifth District Courts of Appeals respectively — held that the federal Magnuson-Moss Warranty Act does not preempt Florida's offer of judgement statute, they did not involve either the federal Fair Debt Collection Practices Act ("FDCPA") or Florida's equivalent, the FCCPA, and thus while persuasive, were not controlling.

 

Nevertheless, the court granted the plaintiff borrower's motion to strike, reasoning that the Fifth District Court of Appeals' decision in Clayton v. Bryan was on point, as it dealt direct with the FDCPA and FCCPA and held that section 559.72 of the FCCPA preempts Florida's Offer of Judgment law, section 768.79, Florida Statutes.  The court also found persuasive a 2003 order of the 13th Judicial Circuit in and for Hillsborough County, which held that section 559.72 of the FCCPA provides the sole remedy for cases brought under that Act.

 

The court added in passing that in the absence of controlling authority from the Second District Court of Appeals, and but for the fact that its decision was not a final order, it would deem the conflict between the consumer protection policies behind the FCCPA and policy of encouraging settlement in Florida's Offer of Judgment statute to be a matter of great public importance and would certify the following question to the Second District Court of Appeals:  Does a claim made pursuant to Fla. Stat. 552.72 (FCCPA) pre-empt the application of the offer of judgment provisions of Fla. Stat. 768.79?

 

A recent examination of the docket (attached) shows no interlocutory appeal was attempted.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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FYI: 8th Cir Upholds Sum Judg For Investor and Against Lender in Loan Repurchase Action

The U.S. Court of Appeals for the Eighth Circuit recently affirmed summary judgment against the seller and originator of mortgage loans and in favor of the purchaser because the originator breached the purchase and sale agreement by refusing to cure or repurchase 8 of the 11 loans.

 

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

 

The plaintiff mortgage loan investor purchased mortgage loans originated by the defendant lender in 2004. The plaintiff's business involved re-selling most of its loans to other investors in the secondary mortgage market.

 

The purchase and sale agreement required the seller to cure or repurchase any loan that the buyer, in its "sole and exclusive discretion," determined did not conform to Fannie Mae's underwriting requirements or was based on any materially inaccurate information or any misrepresentation.

 

Between 2004 and 2009, more than 4,700 loans were purchased under the agreement. The buyer determined that 11 of the loans were defective and demanded that the seller cure or repurchase.  The seller refused and the buyer sued in federal court to recover the repurchase price of the defective loans as provided in the agreement.

 

The trial court, applying Missouri law, concluded that the seller breached the agreement and granted the buyer's motion for summary judgment as to 8 of the 11 loans. The trial court also concluded that the buyer acted good faith in determining which loans were defective and disposing of the underlying properties.

 

On appeal, the seller argued that the trial court erred because there existed genuine issues of material fact regarding whether the buyer acted in bad faith in determining that four of the eleven loans violated the terms of the purchase and sale agreement, and in calculating the amount of damages owed on two other loans. The seller also argued that it was not obligated to cure or repurchase three of the loans because the plaintiff buyer was the underwriter of those loans and was thus responsible for any defects as to those loans.

 

Relying on its own earlier decision in Residential Funding Co. v. Terrace Mortg. Co., the Eighth Circuit refused to look beyond the plain language of the agreement to second guess the accuracy, materiality, and good faith of the buyer's loan-defectiveness determinations, even though the trial court had done so, given the unfettered discretion conferred by the purchase and sale agreement to the plaintiff buyer on these issues.

 

The Eighth Circuit found that the seller did not provide any evidence that the buyer acted in bad faith in exercising its clear contractual right to determine whether a loan was defective. 

 

The seller also argued that genuine issues of material fact existed with respect to the appropriate calculation of the repurchase price under the purchase and sale agreement, because the buyer supposedly unreasonably delayed in disposing of the collateral properties by specifically refusing to approve a deed in lieu of foreclosure or a short sale that would have limited the decline in the properties' value and the resulting repurchase price.  The seller argues that this conduct by the buyer and the resulting increase in the repurchase price was not reasonably foreseeable to the seller, and was a violation of the buyer's duty to mitigate damages.

 

The Eighth Circuit rejected this argument, holding that the measure damages — i.e., the repurchase price — was specifically bargained for by the parties and reflected in the purchase and sale agreement.  Accordingly, the Court affirmed the district court's summary judgment awarding the repurchase price to the plaintiff buyer as calculated using the formula in the agreement.

 

Lastly, the seller argued that summary judgment was improper as to three of loans because there was a genuine issue of material fact regarding which party's negligent underwriting caused the loans to be defective. 

 

However, the Eighth Circuit held that the language of the purchase and sale agreement clearly and unequivocally required the seller to cure or repurchase a loan if the buyer, in its sole and exclusive discretion, determined that any loan was "underwritten and/or originated" based on any materially inaccurate information or misrepresentation.  The Court noted that the seller originated these loans, and that the buyer exercised its discretion in determining that they were originated based on material misrepresentations.

 

Accordingly, the Court held that the trial court did not err in granting summary judgment on these loans.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

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FYI: MD Fla Bankr Holds TPCA Revocation of Consent Must Be "Express and Clear"

The U.S. Bankruptcy Court for the Middle District of Florida recently held that:

 

1)  A bankruptcy trustee was entitled to recover $1,000 in statutory damages on behalf of each of the husband and wife debtors against a loan servicer for violating the Florida Consumer Collection Practices Act ("FCCPA") by contacting the debtors after they were represented by counsel; and

 

2)  The servicer could not set off the $2,000 in FCCPA damages against the balance owed on the mortgage loan because, according to the Court, allowing a set off would thwart the FCCPA's goal of deterring abusive debt collection practices; and

 

3) The servicer did not violate the federal Telephone Consumer Protection Act ("TCPA") because the debtors did not "expressly and clearly" revoke their prior consent to be called using the cell phone number they provided on their loan application.

 

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

 

Husband and wife obtained a loan secured by a mortgage on their home in 2007. In 2010, the wife's health deteriorated and by the end of the year, they defaulted.

 

The debtors hired an attorney in February of 2011. The following month, the servicer began trying to collect the balance owed on the mortgage. These efforts included calling the debtors. On one of the calls, the husband allegedly provided the name and contact information of their attorney.  After this call, the servicer allegedly continued making phone calls and sending letters to the debtors.

 

In July of 2011, the debtors filed a chapter 7 bankruptcy. The chapter 7 trustee then filed an adversary complaint against the servicer seeking statutory damages under the FCCPA and the TCPA.

 

The servicer denied the allegations of the complaint and argued that it was entitled to set off any damages against the balance owed on the mortgage. The case eventually went to trial in May of 2014.

 

The Court began by addressing the TCPA claim, explaining that the TCPA prohibits placing autodialed calls to cell phones without the "prior express consent of the called party."  The parties stipulated at trial that the servicer made 11 auto-dialed calls to the husband's cell phone number.

 

However, because the debtors had given the husband's cell phone number on the loan application and never revoked the authorization to call that number, the Court found that  this constituted "prior express consent."

 

The husband argued that he later revoked his consent, but the Court held that Eleventh Circuit precedent requires "express and clear revocation of consent; implicit revocation will not do."  At best, the Court found, the debtors "implicitly revoked their consent" because when asked on cross examination whether he clearly told the servicer to stop calling his cell phone, the husband admitted he did not.

 

The Court then turned to the FCCPA claim, explaining that "[a]ny person who violates the FCCPA is liable for actual damages, statutory damages not to exceed $1,000, court costs, and the plaintiff' reasonable attorney's fees."

 

The Court found that the debtors did not prove any actual damages, but were entitled to recover $1,000 each in statutory damages, rejecting the servicer's argument that the wife could not recover damages because it only communicated with the husband.

 

The Court reasoned that, although most of the contact was with the husband, there was unrebutted testimony that the wife saw collection notices addressed to her, which the Court held was enough to violate the FCCPA, especially when the evidence indicated that the servicer knew that the debtors had an attorney at the time.  In addition, the Court held that the FCCPA prohibits "indirect communication with a represented debtor," which the servicer did when it communicated with the husband about the debtors' joint debt.

 

The Court then found that the servicer was not entitled to set off the $2,000 statutory damages against the balance owed on the mortgage because, although the law generally favors set offs, "the decision to permit or disallow a setoff as to FCCPA liability is within the bankruptcy court's discretion, and a setoff in this case is unfitting."

 

The Court reasoned that "[i]n addition to eradicating abusive practices, the FCCPA aims to protect each consumer's right to privacy. If these goals are to be reached, consumer collection agencies must appreciate the real penalties for violating the FCCPA. Otherwise, the FCCPA will have little to no deterrent effect. If a consumer collection agency knows that it can engage in harassing and obnoxious debt collection practices with the best outcome being that it squeezes money from consumers and the worst being that the consumer's debt is merely reduced by penalties imposed under the FCCPA—with no money ever coming out of the collection agency's pocket—the collection agency will have no reason to play by the rules."

 

The Court concluded that the trustee was entitled to recover $2,000 in statutory damages under the FCCPA, which could not be set off against the servicer's proof of claim filed in the main bankruptcy case.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: WD Mo Holds Account Number on Envelope Did Not Violate FDCPA

The U.S. District Court for the Western District of Missouri recently held that an internal account number displayed on the envelope of a debt collector's demand letter did not violate the federal Fair Debt Collection Practices Act ("FDCPA") because it did not reveal that plaintiff consumer was a debtor.

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

In March 2014, a debt collector sent a demand letter regarding a consumer debt owed by the plaintiff consumer (Plaintiff).  The letter's envelope had a window in which Plaintiff's name, address and account number were visible.  The debt collector maintained the account number was not a number provided by Plaintiff, but was instead assigned by the debt collector and known only internally within the debt collector's business.

Plaintiff filed suit in March 2015, alleging the demand letter violated the FDCPA because it included her personally identifiable information (i.e., the account number) on the exterior of the envelope and visible to third parties.  The debt collector filed a motion for judgment on the pleadings, which the Court granted.

As you may recall, it is a violation of the FDCPA to use "any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business."  15 U.S.C. § 1692f(8). 

Here, Plaintiff's account number was visible on the exterior of the envelope used by the debt collector.  However, as the Court noted, the U.S. Court of Appeals for the Eighth Circuit has held that adhering to the plain language of this provision of the FDCPA would "create bizarre results"  -- for example, the plain language of the statute would prevent the debtor's address, postage, or other postal marks such as "overnight mail" from being placed on the outside of an envelope.  Strand v. Diversified Collection Serv., Inc., 380 F.3d 316, 318 (8th Cir. 2004). 

Ultimately, the Eighth Circuit in Strand concluded that the FDCPA "does not proscribe benign language and symbols" from being visible on the outside of an envelope.  Id. at 319. 

The Plaintiff urged the Court to adopt the U.S. Court of Appeals for the Third Circuit's differing ruling in Douglass v. Convergent Outsourcing, 765 F.3d 299 (3d Cir. 2014). According to the Court, in Douglass, the Third Circuit held that an internal account number and QR code printed on the outside of an envelope violated the FDCPA.  765 F.3d at 302.

Of note, however, the Third Circuit's ruling in Douglass was not a QR code case.  In fact, the Douglass opinion expressly states in fn 4:  "Douglass no longer presses her argument that [the defendant in that case] violated the FDCPA by including the QR Code on the envelope.  Appellant Br. 5 n. 2.  We therefore do not decide that issue."

The Western District of Missouri went on to say that the Third Circuit in Douglass determined that the inclusion of the number and QR Code on the exterior of the envelope was not benign because "it [wa]s a piece of information capable of identifying [the plaintiff] as a debtor. And its disclosure has the potential to cause harm to a consumer that the FDCPA was enacted to address." Id. at 306.  The Court noted that the Third Circuit distinguished the Eighth Circuit's ruling in Strand because Strand "did not confront an envelope that displayed core information relating to the debt collection and susceptible to privacy intrusions." Id. at 305

The Court here, being within the Eighth Circuit, in turn distinguished the Third Circuit's ruling in Douglass, noting that the envelope at issue in Douglass contained an account number and a visible QR code, which, when scanned by a smart phone or similar device, revealed various personal information about the plaintiff, including the monetary amount corresponding to the Douglass plaintiff's alleged debt, but that in this case the Plaintiff did not allege that someone viewing the envelope at issue here could use the string of numbers in the visible account number to obtain information about the amount of his debt or other private information.

Plaintiff argued the display of the account number was not benign because it violated his privacy rights by exposing his account number to third parties.  The Court disagreed, reasoning that the legislative purpose of the FCPA was to prohibit a debt collector from using symbols and language on envelopes that would reveal that the contents pertained to debt collection.  Although the Court noted that a debtor's privacy is a legitimate concern, the Court believed the purpose of the FDCPA was not to prevent disclosure of internal account numbers, but to prevent identification of the recipient as a debtor.

Accordingly, the Court held that benign information which does not reveal that the recipient is a debtor may be included on the exterior of an envelope.  Because the account number contained on the envelope to the Plaintiff did not reveal she was a debtor, the Court held it did not violate the FDCPA.

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

Admitted to practice law in Illinois

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FYI: 1st Cir Holds "Fairly Conducted" Sale of Collateral Not Necessarily "Commercially Reasonable"

The U.S. Court of Appeals for the First Circuit recently held that a genuine dispute of material fact precluded summary judgment on the issue of whether the sale of collateral was "commercially reasonable," even though there was no evidence that the sale was not "fairly conducted."

 

A copy of the opinion is available at: http://media.ca1.uscourts.gov/pdf.opinions/15-1157P-01A.pdf

 

The assignee of a loan secured by an interest in an aircraft sued the guarantor of the loan to collect $108,681.50, the deficiency that remained after the assignee sold the collateral through a third-party dealer.

 

Pursuant to the loan documents, the assignee repossessed the plane and moved it to Florida into the custody of the third-party dealer. While in the third-party dealer's custody, the plane was vandalized and avionics components stolen.

 

Approximately two months later, the assignee sold the plane in "as-is" condition for $155,000. The sales agreement, however, required the seller to replace the missing components.

 

After deducting the cost of replacing the missing equipment and additional repairs, the assignee demanded payment of $108,681.50 from the guarantor and sued in New Hampshire federal district court to collect this deficiency based on diversity jurisdiction.

 

The assignee moved for summary judgment early in the action, which motion was denied without prejudice. After discovery, the assignee filed a second motion for summary judgment, which the district court granted, finding that the guarantor had not raised a genuine issue of material fact as to whether the sale was "commercial reasonable" because, the district court held, selling repossessed collateral through a dealer, if such sale is "fairly conducted," is recognized as commercially reasonable.  The guarantor appealed.

 

On appeal, the First Circuit explained that the district court, based on its finding of commercial reasonableness, apparently determined that the assignee had met its initial burden and therefore shifted the burden of proof to the guarantor to raise a genuine issue of material fact.

 

The Court noted that the applicable Nevada law, which governed under the loan documents, placed the burden on the creditor to prove that the sale of the collateral was commercially reasonable. Reasoning that the party bearing the burden of proof at trial also bears the burden of proof at the summary judgment stage, in this case to show that no reasonable trier of fact could find other than that the sale was "commercially reasonable,"  the First Circuit found that the district court prematurely shifted the burden of proof to the guarantor.

 

The Court rejected as misplaced the assignee's reliance on a Nevada Supreme Court case, Jones v. Bank of Nevada, because that opinion did not hold that using a dealer alone qualifies a sale as "commercially reasonable" regardless of whether the sale was "fairly conducted."  Instead, the First Circuit noted, the Jones ruling states the opposite: use of a dealer must also be "fairly conducted."

 

The First Circuit reasoned that the assignee must show, under the facts at issue here where the repossessed collateral was vandalized while in the dealer's care such that the plane could not be flown, that the dealer's disposition of the collateral was in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.

,

The Court rejected the assignee's argument that the guarantor's consent to using the dealer in question and communications leading up to the sale made the sale commercially reasonable, because the assignee cited no Nevada authorities in support of its interpretation of Nevada law.

 

Instead, the First Circuit found persuasive the guarantor's argument that the missing avionics would likely have turned way buyers, concluding that a reasonable trier of fact could decide against the assignee.  It also agreed with the guarantor that there was a genuine dispute of material fact as to whether the dealer's handling of the sale after the vandalism fell below the standard of reasonable commercial practices among such dealers.

 

The Court's conclusion was not altered by damage that already existed at the time or repossession. Simply put, the Court held, a fact-finder could reasonably conclude that an airworthy plane would attract more interest and a higher price than would a non-airworthy plane that had been vandalized, even if the seller promised to repair the known damage. The Court noted that, with a non-airworthy plane that had been vandalized, the buyer may wonder what else happened to the plane and has no chance to test it out.

 

Accordingly, the First Circuit concluded that, because the assignee failed to show that no reasonable trier of fact could find other than that the sale was "commercially reasonable," summary judgment should have been denied.  It reversed and remanded the case.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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

 

 

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