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  • 5th Circuit affirms dismissal of automatic stay violation claim on grounds of judicial estoppel

    Courts

    On July 27, the U.S. Court of Appeals for the 5th Circuit affirmed a district court’s decision following a bench trial to dismiss plaintiffs’ allegations that a bank violated an automatic stay imposed during one of the plaintiff’s (debtor) bankruptcy schedules when it took foreclosure action, holding that the plaintiffs were barred by judicial estoppel from pursuing claims because the debtor failed to amend his bankruptcy schedules to disclose a quitclaim deed for his mortgage or note a change in his financial status. In this case, the debtor filed a Chapter 13 bankruptcy, but failed to list the address or creditor information for a property in which he had entered into an equity sharing agreement with his son. When the son signed a quitclaim deed conveying the property to the debtor, the deed was recorded but not listed on the bankruptcy schedules.

    According to the appellate court, the debtor failed to “disclose an asset to a bankruptcy court, but then pursue[d] a claim in a separate tribunal based on that undisclosed asset” when it filed a lawsuit against the bank for wrongful foreclosure. The doctrine of judicial estoppel requires that three elements be met: (i) “the party against whom estoppel is sought has asserted a position plainly inconsistent with a prior position”; (ii) “a court accepted the prior position”; and (iii) "the party did not act inadvertently.” The court held the first two elements were met by the plaintiff’s failure to amend his bankruptcy schedules to disclose the quitclaim deed or his legal action against the bank. The court noted, however, the debtor’s actions were not inadvertent because he was aware of the inconsistency and had a motive to conceal the asset. The appellate court specifically noted the motive to conceal was “self-evident” because the debtor’s failure to disclose his changed financial status had the potential to provide a financial benefit to the debtor. The appellate court further held that the district court did not abuse its discretion in denying plaintiffs' motion for a new trial, and that, moreover, the plaintiffs failed to show that the district court abused its discretion when it chose to exclude several of their exhibits.

    Courts Appellate Fifth Circuit Mortgages Bankruptcy Foreclosure

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  • 9th Circuit affirms dismissal of SCRA private action, applies federal four-year catch-all statute of limitations

    Courts

    On July 26, the U.S. Court of Appeals for the 9th Circuit affirmed the dismissal of a private suit alleging a mortgage servicer violated the Servicemembers Civil Relief Act (SCRA) prohibition on foreclosure on the grounds that the claim was time-barred, holding that the federal catchall four-year statute of limitations applies to private suits under the SCRA. The decision results from a 2016 lawsuit filed by a United States Marine veteran (the plaintiff) alleging that the August 2010 foreclosure sale on his home violated section 303(c) of the SCRA as it occurred within nine months of the end of his active military service. While the SCRA does not provide a specific statute of limitations for a private right of action, the defendants moved to dismiss the case as time-barred, arguing that the court should apply the closest state-law analogue to the SCRA. The plaintiff argued that the court should look to the Uniformed Services Employment and Reemployment Rights Act (USERRA) as the most analogous statute, which does not limit the period for filing claims. In response to the plaintiff, the defendants added an alternative argument that the court should apply 28 U.S.C. § 1658(a), which establishes a four-year limitation period for any claims arising from a federal law enacted after 1990, which does not delineate a specific limitations period. The district court granted the motion to dismiss, rejecting the plaintiff’s arguments, and applied the four-year statute of limitations found in the Washington State Consumer Protection Act.

    In affirming the dismissal of the plaintiff’s case on an alternate ground, the court noted that while the SCRA’s protection against foreclosure existed prior to 1990, Congress did not add a private right of action until 2010. The court rejected the plaintiff’s argument that the private right of action was “implied” prior to the 2010 because there was no evidence Congress intended to create one under the SCRA’s predecessor, the Soldiers’ and Sailors’ Civil Relief Act. The court held that because a private right of action was not provided until 2010, the four-year catch-all provision of 28 U.S.C. § 1658(a) applied, and the plaintiff’s claim under the SCRA was time-barred.

    Courts Ninth Circuit SCRA Foreclosure Statute of Limitations Appellate

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  • New Jersey appeals court says statute of limitations does not apply in allegedly fraudulent mortgage application

    Courts

    On July 13, the Superior Court of New Jersey Appellate Division reversed a trial court’s decision, ruling that a deceased homeowner’s family (defendants) had provided sufficient evidence to show that a division of a national bank (lender) had knowingly engaged in predatory lending practices when it approved a fraudulent mortgage application in violation of the New Jersey Consumer Fraud Act (Act). According to the opinion, in 2007 when the now deceased homeowner purchased a house, the lender may have been complicit in creating and approving a fraudulent loan application that, among other things, stated falsely that (i) the homeowner was a small business owner with a monthly income of $30,000 rather than $1,500, and (ii) the down payment came from the homeowner, when it supposedly came from a second mortgage offered to him from the same lender. The homeowner defaulted on payments in 2010 and passed away in 2012. In 2015, the defendants responded to a foreclosure complaint filed by the bank, alleging that the Act barred plaintiff’s claims due to the lender’s fraudulent actions, including the aforementioned material misrepresentations. However, the trial court granted summary judgment to the lender on the grounds that claims of fraud brought by the defendants were “untenable” and outside the statute of limitations. The appellate court disagreed and remanded to allow for discovery, ruling that the defendants were permitted to introduce evidence of fraud in defense of the homeowner’s estate even through the statute of limitations had expired. “The doctrine of equitable recoupment permits a defendant to assert an otherwise stale claim and avoid the statute of limitations, where the defendant uses the claim as a shield instead of a sword,” the appellate court stated.

    Courts Appellate Mortgages Foreclosure Fraud State Issues

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  • Florida Supreme Court: Lender may file second suit for deficiency claim provided foreclosure court has not adjudicated the claim

    Courts

    On July 5, the Florida Supreme Court held that Section 702.06, Florida Statutes (2014), allows a lender pursuing a deficiency claim in a foreclosure action in one court to bring a separate action against the homeowner in another court provided the foreclosure court that has reserved jurisdiction has not yet adjudicated the deficiency claim. Section 702.06 provides in part that, “In all suits for the foreclosure of mortgages . . . . [t]he complainant shall also have the right to sue at common law to recover for such deficiency, unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment.” At issue was a residential property that was foreclosed by final judgment. In the judgment, the foreclosure court expressly reserved jurisdiction to rule on any future deficiency claim, although no one tried to adjudicate the claim in that forum. The mortgage loan purchaser filed a separate action against the homeowner in a different court and obtained a deficiency judgment. On appeal from that action, the First District Court of Appeal disagreed with several other Florida appellate courts and concluded that the trial court lacked subject-matter jurisdiction because the original foreclosure court had previously reserved jurisdiction. The high court unanimously disagreed, holding that a “reservation of jurisdiction is not a grant or denial of the claim. The foreclosure court would have only ‘granted or denied’ the deficiency judgment if it had adjudicated the claim. Therefore, [§ 702.06, Fla. Stat.] plainly precludes the separate action only where the foreclosure court has actually ruled on the claim—as held by the Second, Third, Fourth and Fifth District Courts of Appeal.” In issuing its ruling, the high court quashed the decision of the First District Court of Appeal and approved the certified conflict decisions of the four other appellate courts.

    Courts State Issues Foreclosure Lending Deficiency Claim

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  • 9th Circuit holds that judicial foreclosure proceedings to collect unpaid HOA fees is debt collection under FDCPA

    Courts

    On June 25, the U.S. Court of Appeals for the 9th Circuit held that judicial foreclosure proceedings to collect delinquent assessments and other charges that were owed to a homeowners association (HOA) represented by a law firm that was also a defendant in the case constitute “debt collection” under the Fair Debt Collection Practices Act (FDCPA). The decision results from unpaid assessments owed to the HOA that had previously been settled in two prior suits. However, the homeowner (plaintiff-appellant) defaulted on both settlement agreements, and foreclosure proceedings commenced due to an acknowledgment contained within the second agreement, which recognized the HOA’s right to collect the debt by foreclosing on and selling her property. According to the order, the 9th Circuit first drew a distinction between judicial foreclosures and nonjudicial foreclosures. Nonjudicial foreclosures, the 9th Circuit opined, are not debt collections under the FDCPA because, under California law, they present no possibility of a deficiency judgment against the homeowner and recover nothing from the homeowner. However, the Court held that in this case, the judicial foreclosure created the possibility for a deficiency judgment against the homeowner and subsequent collection of money. Furthermore, since the law firm regularly collected debts owed to others, it was a debt collector, and the lower court’s contrary decision “cannot be reconciled with the language of the FDCPA.” The 9th Circuit reversed the lower court’s ruling that the defendants were not engaged in “debt collection” as defined by the FDCPA.

    However, because the lower court granted summary judgment to the defendants, it did not assess whether the plaintiff-appellant had suffered any damages from her claim that the defendants “misrepresented the amount of her debt and sought attorneys’ fees to which they were not entitled” during judicial proceedings. The 9th Circuit held that the law firm’s application for a writ of special execution included “accruing attorney fees,” implying that the fees had been approved by a court, as required by state law, when they had not. The 9th Circuit noted that the state trial court’s subsequent approval of the fee request did not mean the representation was accurate when it was made. The 9th Circuit remanded to allow the lower court to determine what damages, if any, were due the homeowner due to this violation.

    In a separate memorandum disposition, the 9th Circuit, however, affirmed in part the lower court’s order granting the defendants’ motion for summary judgment concerning the plaintiff-appellant’s time-barred claims, holding that “even the ‘least sophisticated debtor’ would not likely be misled by the communication—and lack of communication—at issue here, as Plaintiff cannot have reasonably believed that she had paid off the debt in question.”

    Courts Appellate Ninth Circuit Debt Collection Foreclosure FDCPA

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  • OCC releases 2018 first quarter mortgage performance results

    Federal Issues

    On June 19, the OCC announced the release of the “OCC Mortgage Metrics Report, First Quarter 2018,” its quarterly report of the performance of seven national bank mortgage servicers, which includes data for over one third of all outstanding U.S. residential mortgages. As explained in the Report, foreclosure activity for the first quarter of 2018 increased by 8 percent from the previous quarter but was down 21.5 percent compared to the first quarter of 2017. Overall, mortgage performance remained unchanged from the first quarter of 2017, with 95.6 percent of mortgages current and performing as of the end of the quarter. Servicers initiated 37,300 new foreclosures in the first quarter of 2018 and completed 23,427 mortgage modifications, with most modifications involving a reduction in borrower monthly payments. The OCC further noted, among other things, that the number of home forfeiture actions during the quarter—completed foreclosure sales, short sales, and deed-in-lieu-of-foreclosure actions—decreased by 32.5 percent compared to the first quarter of 2017.

    Federal Issues OCC Mortgages Foreclosure Mortgage Modification

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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

    Courts

    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

    Courts

    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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