FYI: Fla App Ct (4th DCA) Reverses Sanctions Against Foreclosing Mortgagee as to Non-Signing Spouse

The District Court of Appeal of the State of Florida, Fourth District, recently reversed an order imposing sanctions against a foreclosing mortgagee, holding that the trial court erred in granting the motion for sanctions because the plaintiff mortgagee had an objectively reasonable belief that a non-signing spouse was a properly named defendant in the case.

 

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

 

A mortgagee filed a foreclosure action against husband and wife borrowers. The note and mortgage reflected only the wife as the borrower, but the first page of the mortgage had a box checked that referred to an attached addendum for additional mortgagors. The addendum, however, was missing.

 

The husband moved for summary judgment, arguing that although he was a co-owner, he did not sign the note or the mortgage. He also moved for sanctions under section 57.105(a), Florida Statutes, arguing that the mortgagee or its attorney "knew of should have known that its claim 'was not supported by the material facts necessary to establish the claim.'"

 

The trial court granted the husband's motion for summary judgment then held several hearings on the motion for sanctions, eventually granting the motion as against the plaintiff mortgagee, but denying the motion as against its attorney. The mortgagee appealed.

 

On appeal, the Fourth District, reviewing the sanctions order under an abuse of discretion standard, explained that "[t]o award fees under the statue, 'the trial court must find that the action was 'frivolous or so devoid of merit both on the facts and the law as to be completely untenable.'" … Moreover, that finding 'must be based upon substantial competent evidence presented to the court at the hearing on attorney's fees or otherwise before the court and in the trial court record."

 

The Court reasoned that while the husband was named as a defendant even though the complaint did not allege that he signed the note or mortgage, because the mortgagee showed "there was at least some triable set of facts under which [he] could be liable under the mortgage agreement" given the reference to an additional missing signature page, "its absence does not indicate that a theory based on its existence, with [the husband's] signature on it, was 'frivolous or so devoid of merit both on the facts and the law as to be completely untenable.'"

 

The Fourth District distinguished a 2010 ruling from the Second District Court of Appeal because in that case, "the plaintiff knew that there was no factual support for its claim and admitted as much in response to interrogatories. Here, on the other hand, Appellant had an objectively reasonable belief, based on the checked box on the mortgage instrument, that [the husband] may have been a proper defendant in this case."

 

The Court here pointed out that the mortgagee's "lack of concrete proof of [the fact that the husband signed the mortgage] does not mean its complaint was frivolous. A party does not need to have conclusive evidence to prove its case at the time of filing in order to avoid sanctions. Instead, like here, where the party reasonably believes the factual basis for its claim exists, it is entitled to proceed with its claims and seek to prove those facts. If attempt to prove those facts are fruitless, that is still not cause for sanctions where the party's initial belief was well-founded. It is only in circumstances  … where the party knew or should have known at the time of filing that the material facts were nonexistent that a claim is truly frivolous and worthy of sanctions."

 

Because the Fourth District found that neither the mortgagee nor its attorney knew or should have known that the claim asserted was not supported by the facts or the application of existing law when the complaint was filed, it reversed the trial court's sanctions order.  

 

 

 

 

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
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FYI: DC Cir Rejects FDCPA "Meaningful Involvement" and Related State-Law Claims

The U.S. Court of Appeals for the District of Columbia recently held that, under the federal Fair Debt Collection Practices Act (FDCPA), a collection letter from a law firm did not misrepresent any meaningful involvement by an attorney. 

 

Because the letter clearly stated that the law firm was acting as a debt collector, and that no attorney with the law firm had reviewed the debtor's account, the D.C. Circuit held the letter was not deceptive as a matter of law.

 

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

 

A borrower owed a debt to a bank.  The bank sold the debt to a third party.  The debt buyer hired a law firm to help collect the debt. 

 

The law firm sent a one-page letter to the borrower.  The letterhead had the name of the law firm.  The letter informed the borrower that the debt buyer had retained the law firm to collect the outstanding debt. 

 

The letter informed the borrower of the amount owed and warned that the debt would be assumed to be valid unless the borrower disputed the debt within thirty days.  Furthermore, the letter stated that the borrower could remit payment to the law firm. 

 

The signature block titled the sender of the letter as an attorney.  After the signature block, the letter included the following language:

 

Please be advised that we are acting in our capacity as a debt collector and at this time, no attorney with our law firm has personally reviewed the particular circumstances of your account.

 

The letter also stated that it was an attempt to collect a debt and any information obtained would be used for that purpose. The text of the letter, including disclaimers, were in the same readable font and size. 

 

The borrower filed suit against the law firm and the debt buyer arguing that the letter was deceptive under the FDCPA and two analogous District of Columbia statutes.  

 

On a motion for judgment on the pleadings, the lower court found that the letter did not misrepresent the extent of the law firm's involvement.  The borrower appealed. 

 

On appeal, the D.C. Circuit analyzed section 1692e of the FDCPA, which prohibits debt collectors from using "any false, deceptive, or misleading representations or means in connection with the collection of any debt." 15 U.S.C. § 1692e.  

 

Following the Second Circuit, the D.C. Circuit held that if an attorney is acting only as a debt collector and has not formed a legal opinion about the case, then the attorney cannot send a letter implying otherwise.  Greco v. Trauner, Cohen & Thomas, LLP, 412 F.3d 360, 364 (2d Cir. 2005).

 

The D.C. Circuit rejected the borrower's argument that using the title of attorney in the letterhead and signature block impermissibly implies that the law firm evaluated the case from a legal standpoint.  In support, the Court pointed to the letter's conspicuous disclaimer regarding the law firm's involvement. 

 

The Court also held that the letter did not threaten any improper legal action under 15 U.S.C. § 1692e(5) because the letter did not reference any legal action and stated that the law firm had not reviewed the case at the time of transmission.

 

The Court noted that the collection letter in the original Greco action stated: "At this time, no attorney with this firm has personally reviewed the particular circumstances of your account.  However if you fail to contact this office, our client may consider additional remedies to recover the balance due.  Greco, 412 F.3d at 364. 

 

The D.C. Circuit reasoned that many circuits have agreed that the Greco disclaimer makes clear that an attorney sending the letter was not, at the time of the letter's transmission, acting as an attorney.  The Court did not find anything in the law firm's disclaimer that made it unclear that the law firm was acting only as a debt collector, despite the fact that the disclaimer came after the signature block.  

 

The Court also rejected the borrower's claim under the District of Columbia statutes on similar grounds.  Specifically, the Court held that the D.C. Debt Collection Law largely mirrors the language of the FDCPA and consequently the borrower's claim under this D.C. statute also failed.  Furthermore, the Court held that the letter did not violate the D.C. Consumer Protection Act because the letter did not threaten a lawsuit. 

 

The Court also held the lower court did not abuse its discretion in an ancillary discovery matter.

 

Accordingly, the D.C. Circuit affirmed the lower court's ruling that the letter did not misrepresent the extent of the law firm's involvement. 

 

 

 

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: Fla App Ct (4th DCA) Reverses Dismissal of Foreclosure Based on "Unclean Hands"

The District Court of the Appeal of the State of Florida, Fourth District, recently reversed the dismissal of a mortgage foreclosure action, holding that the trial court "erred in using the doctrine of unclean hands to dismiss the bank's foreclosure action."

 

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

 

The borrower defaulted on her mortgage and the mortgagee sued to foreclose. The borrower raised several defenses, including that "the original lender committed fraud and used unclean hands in securing the loan."  Specifically, the borrower alleged that "the original lender's loan consultant falsified the loan application by overstating the borrower's liquid assets, her monthly income, and ownership of real estate."

 

At trial, "[t]he borrower testified that the income and asset information were false and the loan consultant inserted the information without her knowledge." She also testified that she did not read the application, although she was not prevented from doing so, and that she noticed it was an adjustable-rate loan although she requested a fixed-rate mortgage. She also knew the amount she was borrowing.

 

The trial court found that, although the borrower did not participate in the original lender's falsification of information on the loan application, the mortgagee either knew about or failed to conduct due diligence and therefore acquiesced in the fraudulent conduct, which precluded it from foreclosing the mortgage and enforcing the promissory note.

 

The trial court granted the borrower's motion for involuntary dismissal and entered final judgment for the borrower, from which the mortgagee appealed.

 

The Appellate Court concluded as a matter of law, based on its controlling 2013 ruling in Vidal v. Liquidation Properties, Inc., that the trial court "erred in dismissing the bank's foreclosure action based on the doctrine of unclean hands" because the borrower was in the best position to know her own income and the act of signing her own application containing obviously fraudulent information precluded her from raising this fraud as an affirmative defense as a matter of law.

 

Moreover, the Appellate Court held that it is settled in Florida that unless a party can show that he was prevented from reading a contract, he cannot defend against an action on the contract solely because he signed without reading it.

 

The Court reasoned that the trial court's reliance on its 2013 decision in Shahar v. Green Tree Servicing was misplaced because in that case, which reversed a summary judgment ruling based in part on the defense of unclean hands, the lender did not give the borrowers an opportunity to review the loan documents and "the borrowers were specifically harmed because the lender increased the monthly loan payments by fifty percent."

 

In addition, "[t]o establish a defense of unclean hands, a defendant must have relied on the plaintiff's misconduct. … In addition to acting in reliance on the misconduct, the defendant must also prove a harm that was caused by the misconduct."

 

The Appellate Court noted that "the bank was entitled to pursue an action on the note even if we were to affirm the trial court's dismissal of the foreclosure complaint. Florida law is well-settled that a note and a mortgage are separate instruments and a party may exercise its rights under one document without barring an action under the other document. Thus, a 'plaintiff can sue on the note without foreclosing the mortgage, as they are distinct agreements.'"

 

Because the borrower's loan payments were what she chose and she "was not prejudiced by the loan consultant's falsification of information" the Appellate Court reversed the dismissal of the foreclosure action and remanded the case for further proceedings.

 

 

 

 

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: Mass SJC Holds HOA/COA May Obtain Successive 6-Mnth Priority Liens for Unpaid Common Expense Assessments

The Supreme Judicial Court of Massachusetts (SJC) recently held that a homeowners association may establish and enforce multiple contemporaneous liens for unpaid common expenses, each with a six-month period of priority over the first mortgage, by filing successive legal actions.

 

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

 

The borrowers purchased a condominium unit, and later began withholding payment of their monthly common expense assessments because of a dispute concerning parking rules and related fines.

 

The condominium association commenced an action to recover the unpaid common expenses and to enforce a priority lien pursuant to Massachusetts G.L. c. 183A, §6 (c) that was superior to the first mortgage to the extent of the common expenses during the six months immediately preceding the commencement of the action.

 

The borrowers continued to withhold payment of their monthly common expense assessments. The condominium association commenced a second action to recover the unpaid expenses that had accrued since the filing of the first action, and to enforce a second six-month priority lien.

 

The borrowers continued to withhold payment of their monthly common expenses. The condominium association commenced a third action to recover unpaid expenses that had since accrued since the filing of its second action and to enforce a third six-month priority lien. 

 

All three actions were consolidated into this single action.  The trial court judge granted the condominium association's motion for summary judgment in the amount of $22,742.08.

 

However, the trial judge concluded that the filing of successive actions was not consistent with Massachusetts G.L. c. 183A, §6 (c), and that the condominium association's lien priority over the first mortgage for common expenses was limited to the one six-month period preceding the commencement of the first action. Thus, the trial judge established a priority lien in the amount of $15,054.86.

 

Both parties appealed, and the Appellate Division of the District Court affirmed the judgment in all respects. A panel reviewed the issues of standing and statutory interpretation. The panel found that extending a condominium association's lien priority beyond one six-month period of time would undermine the purpose of the statutory scheme.

 

Both parties appealed to the Appeals Court, which affirmed the judgment of the Appellate Division. The SJC granted the condominium association's application for further appellate review.

 

The Massachusetts SJC briefly addressed standing, and concluded that the condominium association had standing to bring the present action.

 

The SJC then addressed the issue of successive priority liens for successive periods of common expense assessments.  The Court held that an organization of unit owners can file successive legal actions under Massachusetts G.L. c. 183A, §6, to establish and enforce multiple contemporaneous liens on a condominium unit, each with a six-month period of priority over the first mortgage for the recoupment of successive periods of unpaid common expenses.

 

The SJC noted that the intent of the legislature guided this decision. The Court explained that an organization of unit owners is entitled to have a lien on a condominium unit for unpaid common expenses from the time the expenses become due.  Pursuant to Massachusetts G.L. c. 183A, §6, the SJC noted, notice must be given to the unit owner in order to give them an opportunity to remedy the delinquency and avoid an enforcement action that may result in foreclosure. 

 

The Massachusetts SJC found that the legislature inserted a second paragraph to section C in Massachusetts G.L. c. 183A, §6, to establish the priority of diverse liens that could be placed on a condominium unit.

 

The Court held that, when a condominium association initiates a lien enforcement action, it may obtain a six-month super-priority status over a first mortgagee for six months' worth of common expenses. However, the SJC noted, section C in Massachusetts G.L. c. 183A, §6, is silent as to whether an organization of unit owners can initiate subsequent actions to establish such liens beyond one six-month period.

 

The Massachusetts SJC noted that the legislature later amended the statute to include two additional paragraphs, in order to establish the procedure by which a first mortgagee could maintain its lien priority notwithstanding the initiation of an enforcement action by an organization of unit owners to recoup unpaid common expenses. Additionally, the Court noted, these two paragraphs include the language "priority liens".

 

The SJC found that construing G. L. c. 183A, § 6 (c), as permitting an organization of unit owners to establish a single priority lien on a condominium unit for the recovery of only six months' worth of unpaid common expenses would render the mechanism established by the legislature in the fourth and fifth paragraphs of the statute inconsequential. 

 

The Court noted that the first mortgagee would have little reason to assume responsibility for the payment of a unit owner's future common expenses if the condominium association were limited to one six-month period of lien priority.  In such circumstances, the Court explained, future common expenses would always be subordinate to the first mortgage. The Court also noted that the procedure articulated in the fourth and fifth paragraphs of G. L. c. 183A, § 6 (c), reflects an awareness by the legislature that the statute permits an organization of unit owners to establish and enforce multiple contemporaneous priority liens on a condominium unit.

 

Accordingly, the Massachusetts SJC held that the association may file successive legal actions against the defendants under G.L.c. 183A, §6, to establish and enforce multiple contemporaneous liens on their condominium unit, each with a six-month period of priority over the first mortgage, for the recoupment of successive periods of unpaid common expenses.

 

 

 

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: 10th Cir Rejects Lender's Title Insurance Action Involving Municipal Tax Lien

The U.S. Court of Appeals for the Tenth Circuit recently held that, under Utah law, only the actual levy of a municipal tax assessment on the property constitutes a defect in, or a lien or encumbrance on, title to the insured property. 

 

Because the levy of assessment at issue occurred after the title policy was issued, the Tenth Circuit held that the title insurance policy did not cover a loss incurred when a municipality foreclosed on the insured property.

 

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

 

In 2008, a lender extended a mortgage loan, and obtained a title insurance policy to cover loss caused by defects in title to the collateral property.  The borrower defaulted on the loan and the lender foreclosed on the property in 2009.  The lender acquired title to the property at a trustee's sale.

 

In 2005, the county announced an intention to create an improvement district that would levy assessments against properties within the district, including the subject property. In 2006, the county formally created the improvement district through a resolution. 

 

By 2008, the improvement district had begun installing improvements in the district, including on the property.  In 2009, the improvement district levied assessments against properties within the district. Under Utah state law, a municipal assessment lien is superior to the lien of any trust deed or mortgage. 

 

The borrower never made any payments toward the municipal assessment.  The improvement district began foreclosure proceedings in 2010.  The lender did not learn about the improvement district's lien on the property until 2010, after the lender had acquired the property. 

 

In a separate court proceeding, the lender unsuccessfully sued the improvement district to stop the foreclosure.  The improvement district acquired title to the property, extinguishing the lender's interest.

 

The lender submitted a title insurance claim, and eventually filed suit under the title insurance policy.  On a motion for judgment on the pleadings, the lower court held that the title-insurance policy did not cover the improvement district's foreclosure.  The lender appealed.

 

On appeal, the Tenth Circuit systematically examined the title policy's covered risks. 

 

First, the Court held that there was no defect in, or a lien or encumbrance on, title to the insured property at the time of the issuance of the title insurance policy.  The Tenth Circuit relied on a Utah Supreme Court ruling that only an actual assessment can constitute a defect in, or a lien or encumbrance on, title to the property.  Vestin Mortg., Inc. v. First Am. Title Ins. Co., 139 P.3d 1055, 1057 (Utah 2006).  The Court noted that the Utah Supreme Court's ruling in Vestin applies even if the improvement district made physical improvements to the property before the assessment. 

 

Therefore, the Tenth Circuit held that the title insurance policy did not cover the lender's loss because the assessments began after the issuance of the policy.

 

Additionally, the Court held that the title policy language only provides coverage if notice of the intention to enforce the subdivision ordinance has been recorded in the public records at the time of the policy issuance.  The resolution creating the improvement district at issue here, the Tenth Circuit held, did not qualify as record notice because the resolution merely suggested that the improvement district would levy proportional assessments, rather than showing intent to enforce.

 

Furthermore, the Court held that the improvement district's foreclosure happened at the time of the assessment, which occurred after the title policy was issued.  Stated differently, the Tenth Circuit held there was no coverage for the governmental takings at issue because the assessment occurred after the issuance of the title insurance policy.

 

The Tenth Circuit also rejected the lender's argument that the title insurance policy covers liens at issue because the liens were for services, labor, or material.  The Court held that the assessment lien did not constitute a lien for services, labor, or material, but rather a collection of a municipal assessment. 

 

The Court did not entertain other claims for coverage for procedural reasons.  The Court found that the argument that a disclosable encroachment would affect title was not present in the lender's complaint.  Rather, the Court noted, the lender's complaint against the title insurer only brought a claim for loss caused by the improvement district's foreclosure. 

 

The Tenth Circuit held that the lender also did not preserve its argument that there was unmarketable title due to the assessments.  Last, the Court rejected the lender's argument that the title insurer had a duty to defend because the argument was inadequately developed.

 

Accordingly, the Court affirmed the lower court's ruling granting the title insurer judgment on the pleadings. 

 

 

 

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

 

 

 

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

 

 

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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