Saturday, July 4, 2015

FYI: Fla Court Denies Motion to Dismiss FCCPA Claim Against Loan Owner Based on Alleged Conduct of Servicer and Foreclosure Counsel

The Circuit Court of the Seventh Judicial Circuit in and for St. Johns County, Florida, recently denied a motion to dismiss a borrower’s counterclaims alleging violations of the Florida Consumer Collections Practices Act (“FCCPA”) against the owner of a mortgage loan, based on alleged communications by the servicer and foreclosure counsel with a debtor supposedly known to be represented by counsel and attempting to collect an allegedly invalid debt.

 

In so ruling, the Court also held:

 

- Merely foreclosing on a mortgage, without more, did not constitute “debt collection” under the FDCPA; and

 

- False statements regarding a debt made to a court instead of directly to the debtor are not actionable under the FDCPA; and

 

- The common law litigation privilege, which provides absolute immunity from civil actions based on an attorney’s conduct during a judicial proceeding as long as the act has some relation to the proceeding, applies to FDCPA and FCCPA allegations.

 

A copy of the opinion is attached.

 

A bank sued to foreclose its mortgage. The borrower filed a counterclaim and third party complaint alleging violations of the FCCPA, breach of contract, violations of the federal Fair Debt Collections Practices Act (“FDCPA”) and common law indemnity against the bank, its loan servicer and two law firms. The defendants moved to dismiss all of the borrower’s claims.

 

In Count I, the borrower alleged that the defendants violated FCCPA sections 559.72(9) and 559.72(18) by sending her collection letters when the note and mortgage had been paid off and knowing she was represented by an attorney.

 

FCCPA section 559.72(9) prohibits the collection of a debt by any person who knows the debt is not legitimate or the assertion of a legal right when such person knows the right does not exist.

 

FCCPA section 559.72(18) prohibits communicating with a debtor in an attempt to collect a debt when the debtor is represented by an attorney.

 

The Court held that the borrower’s counterclaim stated a cause of action under the FCCPA, reasoning that the letter attached to the debtor’s counterclaim were similar to the letter sent in Reese v. Ellis, Painter et al., 678 F.3d 1211 (11th Cir. 2012), in which the U.S. Court of Appeals for the Eleventh Circuit held that pursuing collection of a debt that had been paid in full and communicating with the debtor in the process, even though the debtor had counsel, violated the FDCPA. The Court also noted that the fact that Count I was a claim under the FCCPA did not matter, because decisions of federal courts interpreting the FDCPA are given great weight under the FCCPA and case law.

 

The Court rejected the loan owner defendant’s argument that because its servicer and counsel sent the alleged letter and the defendant itself did not send the alleged letter, the loan owner defendant was not liable because it lacked the required knowledge that the debt was not legitimate.  In so ruling, the Court relied on case law holding that a collection agent’s knowledge can be imputed to the principal under traditional agency principles.

 

Turning to defendants’ argument that the FCCPA claim was time-barred, the Court held that because the borrower had filed, on September 22, 2011, a motion seeking leave to file a second amended counterclaim asserting the FCCPA violations, and the two-year statute of limitations did not expire until May 18, 2012, the counterclaim was not time-barred.

 

However, the Court made short shrift of the borrower’s breach of contract claim, finding that the borrower did not plead with sufficient clarity whether borrower was suing under the note and mortgage, or based on an oral agreement with the servicer’s representative, or both.

 

The Court held that, if the borrower were suing under the note and mortgage, the borrower failed to attach copies of the written instruments, as required by Florida Rule of Civil Procedure 1.130. In addition, the Court noted that if the borrower were suing based on a verbal agreement with the representative, such claim would likely be barred by the statute of frauds contained in section 687.0304, Florida Statutes.

 

As to the borrower’s allegations that the servicer and two law firms violated section 1692e(10) of the FDCPA by falsely representing to the court in the foreclosure complaint that the borrower still owed the debt, the Court concluded that it failed to state a cause of action and was barred by the litigation privilege.

 

The Court relied the decision of the U.S. District Court for the Middle District of Florida in Trent v. Mortgage Elec. Reg. Sys., Inc., 618 F. Supp. 2d 1356 (M.D. Fla. 2007), which held that foreclosing on a mortgage did not constitute debt collection under the FDCPA.

 

The Court also relied on the decision of the U.S. Court of Appeals for the 7th Circuit in O’Rourke v. Palisades Acquisitions XVI, LLC, 635 F. 3d 938 (7th Cir. 2011), which held that false statements regarding a debt made to a court instead of directly to the debtor are not actionable under section 1692e(10) of the FDCPA.

 

In addition, the Court relied on the common law litigation privilege, which provides absolute immunity from civil actions based on an attorney’s conduct during a judicial proceeding as long as the act has some relation to the proceeding.

 

Turning to the borrower’s allegations for common law indemnity, the Court found that the borrowed failed to allege that she was “vicariously, constructively, derivatively or technically liable for the wrongful acts of the party from whom [she] is seeking indemnity,” one of the required elements, and therefore that this counterclaim failed to state a cause of action. The court dismissed this count, without prejudice, giving the borrower one last opportunity to attempt to plead this cause of action.   

 

 

 

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

 

 

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:


Financial Services Legal Developments

 

and

 

The Consumer Financial Services Blog

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery 

 

 

 

Friday, July 3, 2015

FYI: 1st Cir Holds Mortgagor Cannot Sue Mortgagee to Quiet Title in a Title Theory State

The U.S. Court of Appeals for the First Circuit recently affirmed the dismissal of two mortgagors’ quiet title allegations against a mortgagee, holding that the plaintiff mortgagors could not assert a quiet title claim under Rhode Island law against the mortgagee defendants because Rhode Island is a title-theory state, and the mortgagors’ equitable interest in title to the property at issue was not adverse to the mortgagee’s legal interest in title.

 

A copy of the opinion is available at: http://media.ca1.uscourts.gov/pdf.opinions/14-1448P-01A.pdf

 

The plaintiff mortgagors (one of whom is an attorney) claimed uncertainty as to which entity held an enforceable mortgage on their home.  They originally purchased their Rhode Island home in 2000.  In 2006, they refinanced their mortgage with a lender that soon went bankrupt.  Subsequently, their mortgage and note were assigned to at least two other entities.

 

In 2008, the mortgagors allegedly “grew suspicious” as to how their mortgage and note were being handled and “slowed” their mortgage payments.  That same year, the holder of the mortgage and note contacted them and threatened to foreclose.  Those threats of foreclosure continued through 2010 when foreclosure proceedings began. 

 

Shortly after that, one of the mortgagors (the attorney) threatened to sue the law firm prosecuting the foreclosure.  The foreclosure sale was put on hold. 

 

Subsequently, the mortgagors filed a lawsuit against several “potential” mortgagees and asserted three causes of action.  In Count 1 they sought “interim relief” by way of a court ordered agreement to sell their house and place the proceeds in the court registry or in escrow from which the “true holder” of the note could later be satisfied.  In Count 2, they asserted a quiet title claim in an attempt to nullify the note and mortgage.  Finally, in Count 3, the asserted a claim for “Credit Reporting” where they essentially sought declaratory relief in the form of a court order stating that they owed nothing to any of the defendants and a court order forcing the defendants to remove all delinquent reports from their credit history.

 

In their complaint, the mortgagors made a number of allegations that the district court held were utterly devoid of evidentiary support.  For example, the mortgagors alleged that neither the note nor their mortgage were executed and therefore both documents were void.  Yet, copies of the fully executed note and mortgage were attached to the defendants’ motions to dismiss.  Thus, the district court ignored the mortgagors’ baseless allegations and instead relied on those exhibits (incorporated by reference in the complaint) and held the mortgage and note were both valid and enforceable.  In sum, the district court concluded the mortgagors could not possibly sustain any of their three claims and dismissed their complaint. 

 

The First Circuit affirmed dismissal, but for different reasons.

 

The mortgagors only appealed dismissal of Count 2, “quieting title.”  In their appeal, they argued that they needed additional discovery to support their claims.  They also argued that the district court should have applied Rhode Island’s lower pleading standard, and under that standard should not have granted the defendants’ motions to dismiss.

 

The First Circuit rejected both of these arguments.  It held that the mortgagors were not entitled to additional discovery.  It held that their flawed argument for additional discovery ignored one of the fundamental premises of federal pleadings standards where the plaintiff bears the burden of stating sufficient facts to “state a claim for relief that is plausible on its face.”  The First Circuit also held that the mortgagors’ argument that the much lower Rhode Island pleading standard should apply was without merit because it “flies in the face of clear precedent” that state court pleading standards are irrelevant in federal court “even as to claims arising under state law.” 

 

The First Circuit also held that the mortgagors lacked standing to assert a quiet title claim against the defendant mortgagees.  

 

Under Rhode Island, law a defendant or defendants to a quiet title action must have “an adverse interest” to the plaintiff(s).  See, e.g., R.I. Gen. Laws § 34-16-4.  The First Circuit held that the mortgagors had not and could not plead sufficient facts to establish an adverse interest and therefore lacked standing to assert a quiet title claim. 

 

As the Court held, Rhode Island is a title theory state, “in which 'a mortgagee not only obtains a lien upon the real estate by virtue of the grant of the mortgage deed but also obtains legal title to the property subject to defeasance upon payment of the debt."  In a title theory state, the mortgage law “splits the title [to the property] in two parts: the legal title, which becomes the mortgagee’s and secures the underlying debt, and the equitable title, which the mortgagor retains,” and a “mortgagor can reacquire this defeasible legal title by paying the debt which the mortgage secures.”

 

The First Circuit held that the mortgagors’ equitable interest in title, and the defendant mortgagees’ legal interest in title, were separate and complimentary to one another and “not adverse.” Therefore, the mortgagors could not possibly establish an “adverse” interest necessary to confer standing for a quiet title claim. 

 

Indeed, the Court held that, although the mortgagors might be adverse to the defendants in that they dispute owing money to any of the defendants, they “cannot be heard to argue that [their]…claim is adverse” to the defendants “within the meaning of the quiet title statue.”  Consequently, the First Circuit held the mortgagors’ quiet title claim failed for lack of standing, and affirmed the District Court’s dismissal on this basis.

 

In reaching its holding, the Court noted that Massachusetts, like Rhode Island is a title theory state.  The First Circuit relied heavily on its prior 2013 decision Lemelson v. U.S. Bank Nat'l Ass'n, where it had applied Massachusetts law regarding the impact of the mortgagor-mortgagee relationship on a quiet title regime. 

 

 

 

 

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

 

 

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:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services

 

 

 

 

 

Thursday, July 2, 2015

FYI: Cal App Ct Reverses Judgment on Hazard Insurance Loss Appraisal Award, Holding Appraisal Panel Exceeded Its Authority

The Court of Appeal of the State of California, First District, recently reversed a judgment confirming an appraisal award in an action for damages to an apartment building arising from a fire, as the appraisal panel incorrectly assigned a loss value to all items submitted to it for consideration by the insured, regardless of whether the item was damaged or ever existed.

 

A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/A136280.PDF

 

The insured filed an insurance claim for an apartment building as a result of a fire.  The insurer investigated the claim and issued initial payment of $46,755.34 based on its interim estimate of damage for one unit, less depreciation and the applicable deductible.  The insurer made additional payments directly to various vendors for demolition and fire restoration.

 

The insured, however, claimed the fire damaged six of the twelve apartments with fire or smoke, and provided a statement of loss in excess of $800,000, including replacement of common walls in all the interior rooms of the other five apartments as well as a portion of the stucco exterior around the building, removal of iron balcony railings, and repainting of the entire building.

 

The insured filed a petition to compel an insurance appraisal and to appoint an umpire to oversee the appraisal.  The insurer was permitted to re-inspect the subject property and thereafter issued an additional payment of $109,367.41. 

 

The insured again demanded that the court order an appraisal of the full extent of the loss, which the trial court granted.  While at the initial appraisal hearing, the parties disputed the scope of loss to be appraised and appraisal was suspended pending clarification from the trial court.  Thereafter, the insured filed a separate lawsuit for breach of contract and bad faith against the insurer.

 

The insurer then moved to dismiss the petition for appraisal.  The trial court denied the motion and modified its order compelling appraisal directing the appraisal panel to “value three categories of items: (a) items of loss agreed by the parties to have been damaged by the fire; (b) items of loss asserted by [the insured] to have been damaged by the fire but where [the insurer] dispute coverage; and (c) items of loss asserted by [the insurer] to have been damaged by the fire but where [the insured] does not assert a claim.”

 

The modified order further directed the panel not to make any causation or coverage determinations, or value the loss of rental or business income, and specifically stated that following the appraisal, the parties could resolve “their disputes regarding whether an appraised item was covered by the policy, whether the item was damaged, and whether the item was damaged by the fire.”

 

The panel issued an appraisal award with two separate calculations of replacement cost and actual cash values based on the different scopes of loss provided by the insured and the insurer. 

 

In response, the insurer petitioned to vacate the award as the panel issued two vastly different valuations of the same fire loss, and valued a theoretical loss, including items that were not damaged or that never existed.  The trial court denied the petition stating it was not the appraisal panel’s role to decide whether particular items were actually damaged in the fire or replaceable under the policy, or even whether they existed at the time of the fire.

 

The trial court then confirmed the appraisal award and entered judgment, and the insurer timely appealed.

 

As you may recall, all fire policies issued in California must be on a standard form that includes an appraisal provision as set forth in California Insurance Code section 2071, under which the parties are required to participate in an informal appraisal proceeding in the event there is a disagreement about the actual cash value or the amount of the loss and the insurer or insured makes a written request for an appraisal.

 

The Appellate Court stated the appraisal process is limited in scope.  Citing precedent, the Court noted that “an appraiser has authority to determine only a question of fact, namely the actual cash value or amount of loss of a given item.”  The Court also noted that “[t]he function of appraisers is to determine the amount of damage resulting to various items submitted for their consideration. It is certainly not their function to resolve questions of coverage and interpret provisions of the policy.”

 

The Appellate Court distinguished three California cases that define the limits of an appraisal panel’s authority: Safeco Ins. Co. v. Sharma (1984) 160 Cal.App.3d 1060, (“Sharma”); Kacha v. Allstate Ins. Co. (2006) 140 Cal. App. 4th 1023 (“Kacha”); and Devonwood Condominium Owners Association v. Farmers Insurance Exchange (2008) 162 Cal.App.4th 1498 (“Devonwood”). 

 

In Sharma, the appellate court held an appraisal panel exceeded its authority by deciding a factual issue not properly before it when finding a set of 36 eighteenth century Indian paintings were unmatched and therefore less valuable.  There, an appraisal panel was not empowered to determine whether an insured lost what he claimed to have lost or something different, and any dispute as to a description in identification of lost or destroyed property should be raised before the trial court as a potential misrepresentation or fraud. 

 

In Kacha, an appraisal panel determined claimed damage to various items was caused by something other than a wildfire.  The appellate court in Kacha held that the panel exceeded its authority by deciding causation issues and making coverage determinations.

 

In Devonwood, an appraisal panel issued an award segregating the replacement cost of disputed interior painting from the replacement cost of all other items, and the trial court confirmed the appraisal award and issued a money judgment for the entire amount.  The appellate court in Devonwood vacated the judgment because it did not conform to the appraisal award, which merely addressed values but did not address liability, and stated that a judgment after confirmation of an appraisal award fixing the cash value of loss does not preclude further litigation on other issues between the parties to an insurance policy.

 

After addressing these cases, the Appellate Court stated that Sharma and its progeny have been misconstrued to suggest that an appraisal panel is compelled to assign a loss value to anything that is submitted to it for consideration by an insured, regardless of whether the item was damaged or ever existed, and it was an error to compel the appraisal panel to assign values to such items. 

 

The Appellate Court held that, although an appraisal is not limited to items of loss that the parties agree are covered under a policy, such an award does not establish coverage or the insurer’s liability to pay, as coverage is a separate legal issue that must be resolved outside of the appraisal process. 

 

Moreover, the Appellate Court held that it is not appropriate to order a panel to assign loss values to items that inspection reveals are not damaged or plainly never existed.  Citing Jefferson Ins. Co. v. Superior Court (1970) 3 Cal. 3d 398 and Sharma, the Court acknowledge that the function of appraisers is to determine the amount of damage resulting to various items submitted for their consideration, which includes an item’s quality or condition as well as whether an item is undamaged or did not exist.

 

The Appellate Court separately addressed whether the appraisal panel here exceeded its authority by issuing two completely different amounts of loss.  The Court noted that, although this challenge was technically moot based on the initial finding of error, the Court provided additional guidance acknowledging that the appraisal award was fundamentally deficient because it did not provide a single valuation of the loss suffered by the insured. 

 

The Court specifically held that it is the responsibility of the appraisal panel to resolve factual disputes about the condition and quality of the damaged property, and the panel should apply a single set of measurements to a physical space and determine what is required to effect a repair, instead of offering two competing versions of required repairs. 

 

Accordingly, the Court reversed and remanded the judgment confirming the appraisal award. 

 

 

 

 

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

 

 

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:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services

 

 

 

 

 

Monday, June 29, 2015

FYI: NY High Court Confirms New York Only Requires Possession of Note -- And Not Also the Mortgage -- to Have Standing to Foreclose

The New York Court of Appeals recently confirmed that, under New York state law, a loan servicer had standing to foreclose on delinquent borrowers based only upon the servicer’s demonstrated possession of the note evidencing the borrowers’ loan since the time the foreclosure action was filed.

 

The Court also held that, although the loan servicer’s affidavit set out sufficient facts to show exclusive possession and control of the note prior to the date the foreclosure action was filed, the affidavit would have been better and clearer if it had also included facts describing how the servicer came into possession of the note.

 

A copy of the opinion is available at: https://www.nycourts.gov/ctapps/Decisions/2015/Jun15/83opn15-Decision.pdf

 

In this case, the borrowers obtained a $600,000.00 adjustable rate mortgage loan in July 2006, and delivered the fully executed note and mortgage to the lender that originated the loan.  Subsequently, the loan became part of a residential mortgage-backed securitization trust pursuant to a pooling and servicing agreement (“PSA”).  In March 2008, the plaintiff loan servicer began servicing the PSA.  The mortgage was also assigned to the plaintiff loan servicer in August 2009.

 

Shortly after that, the borrowers defaulted by failing to make their January 2010 payment and every monthly payment after that.  In May 2010, by limited power of attorney, the PSA trustee granted the loan servicer the right to perform certain acts including the right to commence foreclosure proceedings.  The loan servicer also took physical possession of the original note on May 20, 2010. 

 

On May 24, 2010 the loan servicer commenced foreclosure proceedings.  Throughout those proceedings, the borrowers never disputed their default or obligation to pay under the note. 

 

Instead, they argued that the loan servicer lacked standing to foreclose, and filed a motion for summary judgment.  In their motion, they argued that the loan servicer lacked standing because the loan servicer did not also possess the mortgage.

 

The loan servicer filed a cross-motion for summary judgment, which the trial court granted.  The trial court also denied the borrowers’ motion for summary judgment.  The loan servicer provided an affidavit that stated in pertinent part that the “original Note has been in custody of Plaintiff…and in its present condition since May 20, 2010.”   The affidavit also stated that “prior to commencement of the action…[the servicer] has been in exclusive possession of the original note and allonge affixed thereto…and has not transferred same to any other person or entity.”

 

The Court of Appeals held the servicer was entitled to summary judgment, and affirmed the lower court’s judgment. 

 

The Court of Appeals held that the borrowers “misconstrue the legal principle that an entity with a mortgage but no note lacks standing to foreclose…to also mean the opposite—that an entity with a note but no mortgage lacks standing.”   The Court held the borrowers’ argument is “simply incorrect.”

 

Rather, the Court held, the loan servicer’s affidavit and its demonstrated physical possession of the note was enough under New York law to confer standing to foreclose. 

 

Contrary to the borrowers’ argument, the Court of Appeals confirmed that it “it is not necessary to have possession of the mortgage at the time the [foreclosure] action is commended.”  The Court held this “conclusion follows from the fact that the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law.” 

 

Finally, the Court held that although the loan servicer’s affidavit was sufficient as a matter of law, “the better practice would have been for [it]…to state how it came into possession of the note in its affidavit in order to clarify the situation completely.”

 

 

 

 

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

 

 

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:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services

 

 

 

 

 

Sunday, June 28, 2015

FYI: Cal App Ct Holds Tender Not Required for HBOR, Borrower's Failure to Timely Submit Complete Loan Mod Application May Not Preclude HBOR Claim

The California Appellate Court, Second District, recently reversed a trial court’s dismissal of a complaint alleging a servicer violated California’s Homeowner’s Bill of Rights (“HBOR”) by proceeding with a trustee’s sale when the servicer and the borrowers were allegedly exploring a loan modification.

 

In so ruling, the Appellate Court made two key holdings:

 

First, the Appellate Court held that a borrower does not need to tender the balance due prior to instituting a suit for alleged violation of the HBOR. 

 

Second, the Appellate Court also held that a borrower’s failure to timely provide the documents needed for a loan modification may not preclude a suit for alleged violation of the HBOR if the servicer failed to give the borrower adequate time to respond.

 

A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/B256378.PDF

 

Two borrowers sued a servicer for proceeding with a trustee’s sale while loan-modification discussions were allegedly ongoing. 

 

The borrowers alleged that, as of March 1, 2013, a new servicer took over their mortgage loan.  Then, on March 13, 2013, the servicer allegedly sent a letter to the borrowers advising them of the potential for a loan modification.  The letter allegedly asked the borrowers to submit a number of documents seven days before the foreclosure sale.  That deadline was March 18, 2013.  But the borrowers supposedly did not receive the letter until March 18, 2013.

 

The borrowers allegedly submitted financial information to the servicer on March 21, 2013.  Further, the borrowers allegedly submitted additional financial information on March 23, 2013, after speaking with a representative for the servicer.

 

The servicer allegedly sent a letter to the borrowers on March 25, 2013, stating that they were not eligible for a loan modification, because there was a sale date scheduled within seven days.  The servicer then proceeded with the non-judicial trustee’s sale on March 25, 2013. 

 

The borrowers sued the servicer, alleging a number of causes of action.  The pertinent portion of the opinion relates to the HBOR’s prohibitions against “dual tracking”— i.e., proceeding with a foreclosure while loan-modification negotiations are ongoing.  See Cal. Civil Code 2923.6.

 

As you may recall, the HBOR states that a servicer cannot hold a trustee’s sale while a “complete application for a first lien loan modification” is pending.  Id.  The HBOR defines a “complete” application as one where the “borrower has supplied the mortgage servicer with all documents required by the mortgage servicer within reasonable timeframes specified by the mortgage servicer.” Cal. Civil Code 2923.6(h).

If a borrower brings an HBOR claim pre-sale, it can ask the court for injunctive relief.  See Cal. Civil Code 2924.12.  The HBOR allows borrowers to sue servicers for actual economic damages post-sale, and allows for treble damages or statutory damages of $50,000 in the event of “[a] material violation found by the court to be intentional or reckless, or to result from willful misconduct.”  Id.

 

In this appeal, the servicer advanced two main arguments.  First, the servicer argued that the borrowers could not bring an action under the HBOR until they tendered the principal balance due on the loan. 

 

In making this argument, the servicer relied on the so-called “tender rule,” which forbids a borrower from setting aside a foreclosure sale on technical grounds unless the borrower made a showing that he or she could have paid off the loan.  To support its position, the servicer relied on case law from before HBOR’s enactment.

 

The Appellate Court rejected this argument summarily, stating that such a holding would “completely eviscerate” the remedial nature of the HBOR.  It also faulted the servicer for relying on pre-HBOR case law. 

 

The Court also noted that “several unpublished federal district court cases have concluded that a plaintiff’s failure to allege tender of the loan balance does not alone defeat a plaintiff’s

section 2923.6 claim. (See Bingham v. Ocwen Loan Servicing, LLC (2014 WL 1494005 (N.D. Cal.); Stokes v. CitiMortgage, Inc. (2014 WL 4359193 (C.D. Cal.).)”

 

Second, the servicer argued that, because the borrower did not respond to the request for information by the deadline in the letter, there was no “complete” loan application under the HBOR, and therefore the servicer had not violated the HBOR. 

 

However, the Appellate Court pointed out that the borrowers alleged they did not receive the letter requesting the information until the day the information was due.  Given this allegation, the Court found that there was at the least a triable issue of fact about whether the servicer gave the borrowers a “reasonable timeframe” to respond to the request for information.

 

Accordingly, the Appellate Court held that the trial court did not properly consider the sufficiency of the factual allegations to support the borrowers’ HBOR allegations, and reversed the trial court’s ruling on demurrer as to each of them.

 

 

 

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

 

 

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:


Financial Services Legal Developments

 

and

 

The Consumer Financial Services Blog

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery