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  • FTC bans mortgage relief defendant from future debt relief activities

    Federal Issues

    On June 7, the FTC announced a settlement with an individual who allegedly operated a mortgage relief scheme, which charged distressed homeowners thousands in upfront fees while falsely promising foreclosure prevention or payment modifications. According to the FTC, the defendant, operating through multiple company names, falsely suggested the businesses were endorsed by the federal government and encouraged consumers not to communicate with their mortgage company and to stop making monthly mortgage payments. The settlement order imposes a judgment of more than $15.5 million but suspends the judgment due to the individual’s inability to pay. The settlement prohibits the individual from, among other things, (i) advertising, marketing, promoting, offering, or selling debt relief services or products; and (ii) misrepresenting, or assisting others in misrepresenting information relating to the offering of financial products and services. Additionally, the settlement bars the individual from disclosing or benefitting from the information collected from the consumers through the business operations.

    Federal Issues FTC Debt Relief Mortgages Mortgage Modification Foreclosure

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  • 9th Circuit affirms credit reporting agency’s code data did not violate the FCRA


    On May 29, the U.S. Court of Appeals for the 9th Circuit affirmed summary judgment for a national credit reporting agency, holding that the company did not violate the Fair Credit Reporting Act (FCRA) in its reporting of short sales executed by the plaintiffs. The decision results from a proposed class action suit alleging that the credit reporting agency violated the FCRA by reporting short sales executed between 2010 and 2011 with code numbers that misreported the data as foreclosures. In September 2016, the lower court found that the credit reporting agency provided creditors with clear instructions on how to interpret the code system and Fannie Mae’s Desktop Underwriter program misinterpreted the “settled” code number “9” as a foreclosure, which was not the credit reporting agency’s fault. In affirming the lower court’s decision, the 9th Circuit held that the credit reporting agency “clearly and accurately disclosed to [consumers] all information that [the company] recorded and retained that might be reflected in a consumer report.” Additionally, the panel noted that the credit reporting agency was not required to report that Fannie Mae mishandled the code data when it became aware of it.

    Courts Ninth Circuit FCRA Credit Reporting Agency Short Sale Foreclosure Fannie Mae Appellate

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  • FHA extends foreclosure moratoriums for certain properties in Puerto Rico & U.S. Virgin Islands

    Federal Issues

    On May 16, the Federal Housing Administration (FHA) released Mortgagee Letter ML 2018-03 (ML 2018-03), which extends the 180-day foreclosure moratorium on FHA-insured properties in Puerto Rico & the U.S. Virgin Islands affected by Hurricane Maria for an additional 90 days. As previously covered by InfoBytes, in March, FHA extended the moratorium an additional 60 days to May 18. The foreclosure moratorium is now in effect, for properties that meet certain conditions, until August 16.

    Find continuing InfoBytes coverage on disaster relief here.

    Federal Issues FHA Disaster Relief Mortgages Foreclosure

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  • D.C. Appeals Court holds that a condominium association may not foreclose on its super-priority lien while leaving the property subject to the first-lien mortgage


    On March 1, the District of Columbia Court of Appeals held that a condominium association acting on its six-month super-priority lien for unpaid condominium fees may not perform its foreclosure sale while leaving the property subject to a first deed of trust lien, even if the terms of the sale stated that the condo unit could be sold subject to the first deed of trust. The D.C. Appeals Court was tasked with deciding whether the mortgagee’s first mortgage lien was extinguished by foreclosure of the HOA’s super-lien under D.C. Code § 42-1903.13(a)(2).  In the District of Columbia, condominium associations are granted a “super-priority lien” over first mortgage lienholders, which permits an association to collect up to six months of unpaid assessments upon foreclosure on a condominium unit.  Foreclosure of a unit extinguishes all liens when the proceeds of the foreclosure sale are insufficient to satisfy them. The D.C. Appeals Court held that a condominium association could not foreclose on its super-priority lien while leaving the property subject to the unsatisfied balance of the first mortgage or first deed of trust.

    The D.C. Appeals Court reversed the trial court’s order granting summary judgment to the mortgagee and remanded for further proceedings.


    Courts Mortgages Foreclosure

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  • Fannie and Freddie extend temporary suspension of foreclosure sales

    Federal Issues

    On March 7, Fannie Mae, in Lender Letter LL-2018-01, and Freddie Mac, in Guide Bulletin 2018-04, extended the suspension of foreclosure sales through May 31 of mortgaged properties in FEMA-declared disaster areas in Puerto Rico and the U.S. Virgin Islands due to Hurricanes Irma and Maria.

    Find continuing InfoBytes coverage on Disaster Relief here.

    Federal Issues Disaster Relief Fannie Mae Freddie Mac Foreclosure Mortgages

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  • FHA and VA extend foreclosure moratoriums on certain disaster areas

    Federal Issues

    On March 1, the Federal Housing Administration (FHA) released Mortgagee Letter ML 2018-02 (ML 2018-02), which extends the 180-day foreclosure moratorium on FHA-insured properties in Puerto Rico & the U.S. Virgin Islands affected by Hurricane Maria for an additional 60-days. The foreclosure moratorium is now in effect until May 18.

    The Department of Veterans Affairs (VA) also released updates to VA circulars 26-17-23, 26-17-27, and 26-17-28, extending the foreclosure moratorium on VA-insured properties affected by Hurricanes Harvey, Irma, and Maria from 180 days to 270 days.

    Find continuing InfoBytes coverage on disaster relief here.

    Federal Issues Disaster Relief Foreclosure Mortgages Department of Veterans Affairs FHA

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  • 5th Circuit affirms dismissal of claims against bank but not Fannie Mae in foreclosure suit


    On February 26, the U.S. Court of Appeals for the 5th Circuit issued an opinion in a foreclosure dispute ruling that a lower court wrongly dismissed a breach of contract claim against Fannie Mae but was correct in dismissing the claim against a national bank that serviced the loan (bank). According to the opinion, a group of companies and investors (plaintiffs/appellants) constructed a low-income housing program (earning low income housing tax credits) through the financing of a loan by one of the companies secured by a deed of trust later assigned to Fannie Mae and serviced by the bank. When the plaintiffs/appellants defaulted on the loan, Fannie Mae accelerated the note and instituted non-judicial foreclosure proceedings pursuant to the deed; however, the plaintiffs/appellants alleged that some of the notices of acceleration and foreclosure were not received, and when the foreclosure sale proceeded and the IRS “recaptured” the tax credits earned on the project, the plaintiffs/appellants brought suit against Fannie Mae and the bank for, among other things, breach of contract based on the deed of trust and wrongful foreclosure. After granting a motion for rehearing, the lower court granted the bank’s motion for summary judgment, stating it did not breach a contract because it was not a party to the deed of trust. The lower court also dismissed the breach of contract claims against Fannie Mae and the bank, holding that because the plaintiffs/appellants defaulted on the deed of trust, they had no standing to sue based on a breach of that agreement.

    In affirming in part and reversing in part, the three-judge panel determined that although the bank was the loan servicer at the time of default, “once Fannie Mae was notified of default, Fannie Mae became the loan servicer” and therefore the “primary point of contact.” Therefore, “[b]ecause the only claim on appeal is for breach of contract based on the [d]eed of [t]rust, and [the bank] was never a party to the [d]eed of [t]rust, [the bank] has no liability.” However, concerning the breach of contract against Fannie Mae for failing to serve notice of foreclosure to appellants, the panel reversed the lower court’s decision, stating that this particular breach “exists as a stand-alone cause of action,” separate from a claim of wrongful foreclosure. Further, the “obligation to give notice of foreclosure would not even arise unless and until the [plaintiffs/appellants] were in default under the note.” The 5th Circuit remanded the case back to the lower court for review.

    Courts Appellate Fifth Circuit Foreclosure Fannie Mae Mortgages Mortgage Servicing

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  • Florida judge rules borrower failed to establish RESPA private right of action


    On February 20, a federal judge for the U.S. District Court for the Southern District of Florida issued an opinion and order against a borrower after a two-day bench trial, finding that the borrower failed to establish a private right of action for any of her alleged RESPA violations. According to the opinion, one of the defendants, a mortgage company, initiated foreclosure proceedings against the borrower for failing to pay required insurance and tax associated with her reverse mortgage. During this period, the mortgage company purchased force-placed insurance through an insurance intermediary company to protect its collateral for the reverse mortgage. When the borrower later brought the account current, the mortgage company dismissed the foreclosure complaint. However, the borrower filed a suit against the mortgage company for failing to “advance insurance premiums on her behalf through an escrow account” and against the second defendant, an insurance company, for procuring a policy that “tortiously interfered” with her business relationship with the mortgage company. Specifically, the borrower alleged the procedure used to obtain the force-placed rates violated Florida Insurance Code Section 626.916, and were, therefore, “not bona fide and reasonable under RESPA.”

    However, the judge ruled that none of the borrower’s claims created a private right of action under RESPA, and furthermore, the borrower could not “bootstrap Section 626.916 through another cause of action.” Additionally, the judge noted that counsel for the borrower was unable to provide case law authority to support the “proposition that [the borrower’s] RESPA claim could be premised on a Florida statue which lacked a private right of action.” Concerning the borrower’s allegations of tortious interference against the insurance company, the judge concluded that the claim failed to show that the insurance company “intentionally or unjustifiably” interfered with her relationship with the mortgage company.

    Courts State Issues RESPA Mortgages Reverse Mortgages Foreclosure Force-placed Insurance

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  • Alabama extends right of redemption period

    State Issues

    On February 22, Alabama enacted HB 90, which amends the Code of Alabama section relating to the right of redemption on residential property. The amendment provides for a one-year right of redemption period after the foreclosure sale date. Alabama requires a mortgagee to mail a notice of a mortgagor’s right of redemption at least 30 days prior to the foreclosure sale, and the amendment allows the mortgagee to use the proof of mailing of the notice as an affirmative defense to any notice requirement action. Finally, the amendment reduces the time all actions related to the notice requirement must be brought from two years to one year after the date of foreclosure.

    State Issues Mortgages Foreclosure Redemption State Legislation

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  • NJ appeals court says consumer should have litigated issues in original foreclosure action


    On January 31, the Superior Court of New Jersey Appellate Division affirmed the lower court’s decision that a widower (plaintiff) should have raised improper foreclosure allegations during the final foreclosure action and cannot subsequently litigate the issues in a different forum. According to the opinion, in 2009, the bank initiated a foreclosure complaint against the plaintiff’s husband (borrower) and the borrower raised no defenses to the complaint. The borrower then initiated a modification request, which the bank ultimately denied due to title liens, and a final foreclosure judgment was entered at the end of 2010. The borrower filed an appeal to the foreclosure action but the plaintiff ultimately withdrew it after the borrower died. The current litigation was filed after the final foreclosure judgment was entered and asserted, among other things, that the foreclosure was improper due to the modification curing the default. The lower court dismissed two of the plaintiff’s claims because she was not a party to the original mortgage or modification attempt and granted summary judgment for the bank on the remaining claims because the “issue of the enforceability of the 2010 loan modification agreement is at the heart of plaintiff's claims and was directly related to the foreclosure action and should have been raised as part of that litigation.” The appeals court agreed with the lower court’s reasoning noting that the plaintiff “attempted to litigate the same issue in two forums.”

    Courts Mortgages Foreclosure Appellate

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