In Hayes v. Reverse Mortgage Solutions, Inc., No. 3D17-1603 (Fla. 3d DCA Nov. 21, 2018), a case of first impression, the Florida Third District Court of Appeals considered whether the statute of limitations for enforcing reverse mortgage loans begins on the date the note matures or upon the death of the borrower.
Defendant contended that the foreclosure action, filed in 2014, was time-barred by the Florida statute of limitation because the cause of action accrued on the date the borrower died in 2008, or alternatively, upon the mortgagee’s acceleration of the reverse mortgage when a prior foreclosure action was filed in 2009. Finding that the language in the reverse mortgage at issue (“[l]ender may require immediate payment in full of all sums secured by this Security Instrument if: (i) A Borrower dies …”) confers upon the mortgagee the right, but not the obligation, to accelerate payment of the debt, the Court held acceleration of the debt based on the death of the borrower is optional and therefore does not automatically amount to accrual of the cause for purposes of the statute of limitations.
The Eleventh Circuit recently rejected a defense to foreclosure based on a federal statute governing insurance of reverse mortgages by the Department of Housing and Urban Development (“HUD”).
HUD administers a mortgage-insurance program designed to induce lenders to offer reverse mortgage loans to elderly homeowners. If the loan meets certain conditions, HUD insures against any outstanding balance owed on the loan. One condition, contained in 12 U.S.C. § 1715z-20(j), provides:
The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term “homeowner” includes the spouse of a homeowner.
Borrowers and their estates have argued the statute prevents lenders from seeking repayment of a loan subject to a reverse mortgage until either the sale of the home, or the death of both the borrower and his or her non-borrowing spouse – even if the loan documents provide to the contrary. The Court in Estate of Caldwell Jones, Jr. v. Live Well Financial, Inc., No. 1:17-cv-03105-TWT (decided Sept. 5, 2018) rejected this argument.
In Estate of Caldwell Jones, Jr., former NBA star, Caldwell Jones, Jr., obtained a reverse mortgage secured by his home. Jones lived in the home with his wife and his minor daughter, until he passed away in 2014. Jones’s wife was not a co-borrower.
The Sixth Circuit has issued another opinion regarding loan modifications, following its opinion two weeks ago in Segrist v. Bank of New York Mellon (2018 WL 3773785, August 9, 2018), on which I earlier wrote.
Now, in Pittman v. Experian Information Solutions, Inc. — F.3d —- 2018 WL 4016604, August 23, 2018), the Sixth joins the First, Seventh, Ninth, and Tenth Circuits, in holding that loan servicers are contractually obligated under the terms of their Trial Modification Plan (“TPP”), pursuant to the Home Affordable Mortgage Program (“HAMP”), to offer a permanent modification to borrowers who comply with the TPP by submitting accurate documentation and making trial payments.
The Court relied on language in the TPP that said, “[a]fter all trial period payments are timely made and you have submitted all the required documents, your mortage will be permanently modified.” The court noted hornbook contract law that “the mere fact that an offer or agreement is subject to events not within the promisor’ control … will not render the agreement illusory.”
Additionally, the TPP was sufficiently definite to constitute an enforceable contract, even though it did not set the precise terms for the permanent modification, because HAMP guidelines provide the existing standard by which the ultimate terms of the permanent modification were to be set in order to bring down the monthly payments to 31% of gross income.
In a case with potentially broad implications, the Sixth Circuit becomes the first federal circuit court to hold that the Truth in Lending Act provides no right to rescind a loan modification agreement entered into with a successor creditor. TILA exempts from rescission “refinancing” transactions with “the same creditor secured by an interest in the same property” but not “refinancing” with a different creditor.
The case impacts those borrowers whose loans were assigned after origination (an everyday occurrence), and who seek rescission after receiving a common form of modification that lowered their interest rate, recalculated the principal due to include only the unpaid balance plus earned finance charges and premiums for continuation of insurance, and perhaps even extended their payment schedule.
Regulation Z provides that a “refinancing occurs when an existing obligation … is satisfied and replaced by a new obligation undertaken by the same consumer” and that a refinancing does not include a “reduction in the annual percentage rate with a corresponding change in the payment schedule.”
On July 13, 2018, in Dutta v. State Farm Mutual Automobile Insurance Company, 895 F.3d 1166 (9th Cir. 2018), the United States Court of Appeals for the Ninth Circuit affirmed summary judgment against a plaintiff that lacked Article III standing to assert a claim under the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. (“FCRA”).
The Ninth Circuit relied on Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), and held that the plaintiff lacked standing because he “failed to establish facts showing that he suffered actual harm or material risk of harm.”
This ruling is significant in the Ninth Circuit and elsewhere because it provides construct under which defendants may successfully challenge a plaintiff’s Article III standing to assert claims under the FCRA or other federal statutes.
A dramatic recreation of the fight over corporate authority to file bankruptcy.
The Fifth Circuit recently issued an opinion that federal bankruptcy law does not prohibit a bona fide shareholder from exercising its right to vote against a bankruptcy filing notwithstanding that such shareholder was also an unsecured creditor. This represents the latest successful attempt to preclude bankruptcy through golden shares or bankruptcy blocking provisions in corporate authority documents.
“There is no prohibition in federal bankruptcy law against granting a preferred shareholder the right to prevent a voluntary bankruptcy filing just because the shareholder also happens to be an unsecured creditor by virtue of an unpaid consulting bill. . . . In sum, there is no compelling federal law rationale for depriving a bona fide equity holder of its voting rights just because it is also a creditor of the corporation.”
The Fifth Circuit was careful to limit its holding to the facts of this case. “A different result might be warranted if a creditor with no stake in the company held the right. So too might a different result be warranted if there were evidence that a creditor took an equity stake simply as a ruse to guarantee a debt. We leave those questions for another day.”
In Third Fed. Sav. & Loan Ass’n of Cleveland v. Koulouvaris, No. 2D17-773, 2018 WL 2271112 (Fla. 2d DCA 2018), Florida’s Second District Court of appeal analyzed, in the context of trial exhibit authentication, whether the note for a home equity line of credit (“HELOC”) was negotiable.
The Second District Court of Appeal considered whether it was proper for the Pasco County, Florida trial court to involuntarily dismiss Third Federal’s claim for foreclosure of a HELOC mortgage based on an objection that the HELOC note was nonnegotiable. At trial, Third Federal attempted to admit the note as self-authenticating, endorsed commercial paper. The borrowers countered that because the HELOC note was nonnegotiable, self-authentication did not apply. Because Third Federal made no further effort to authenticate, the trial court sustained the borrowers’ objection, and the borrowers’ subsequent motion to dismiss was granted. Third Federal appealed.
The Second District Court of Appeal sided with the borrowers. It noted that self-authenticating commercial paper is an exception to Florida’s requirement that a document be authenticated prior to its admission into evidence. That rule, however, does not apply where the paper is not an unconditional promise to pay a fixed amount of money. By its own terms, the subject HELOC note only established an obligation for the borrowers to repay whatever they might borrow, without any guarantee that they would ever borrow a single dollar. Thus, the note’s failure to require payment of a fixed amount meant the note was nonnegotiable and, as such, was not self-authenticating. Without proof of authentication, the note was inadmissible, and the trial court’s decision to grant the borrowers’ motion to dismiss was proper.
Although it is fairly obvious, the negotiability attributes of a HELOC are similar to a home equity conversion mortgage (“HECM”) and thus this case would likely apply to reverse mortgages too. It is expected that borrower’s counsel will cite the decision for this purpose. Accordingly, it is recommended that trial counsel in both HELOC and HECM matters be prepared to not rely on an endorsement of the note for authenticity, but rather should elicit live testimony supported by admissible documentary evidence that the note was assigned. A prepared witness should be able to authenticate a HELOC or HECM note.
New York has signed into law an amendment redefining a reverse mortgage as a “home loan.” With this amendment, statutory pre-foreclosure ninety day notices (RPAPL 1304) and a “certificate of merit” (CPLR 3012-b) will be required in all New York reverse mortgage foreclosures. Additionally, New York’s foreclosure settlement conference law (CPLR 3408) now incorporates by reference the new “home loan” definition.
The legislation was signed by Gov. Andrew Cuomo on April 12, 2018 but “shall be deemed to have been in full force and effect on and after April 20, 2017.” However, the pre-foreclosure notice requirement specific to reverse mortgages has an effective date of May 12, 2018.
Under the new legislation, for actions commenced after May 12, 2018, lenders, assignees or servicers are required to provide a pre-foreclosure notice at least 90 days before commencing legal action against the borrower or borrowers at the property address and any other addresses of record. The language of the notice is set by statute.
Although the 90-day waiting period does not apply, or ceases to apply under certain circumstances (i.e. where a borrower no longer occupies the residence as a principal dwelling),the 90 Day Notice is a condition precedent which, if not strictly complied with, may subject a foreclosure action to dismissal. Further, the foreclosing party is required by statute to deliver the notices by first class and certified mail. Relevant case law makes clear that evidencing the proof of mailing may require tracking documentation for first class mail and certified receipts for notices sent by certified mail.
On March 16, 2018, the D.C. Circuit issued its long-awaited opinion on the FCC’s 2015 Declaratory Ruling and Order (“2015 Order”) interpreting various sections of the Telephone Consumer Collection Practices Act (“TCPA”). Of note, the Court specifically rejected and set aside the FCC’s interpretation of what constitutes an Automatic Telephone Dialing System (“ATDS”). The Court also rejected the FCC’s one-call “safe harbor” for re-assigned phone numbers. At first glance, this may seem like a win for those defending TCPA lawsuits; however, the opinion may create more questions than answers.
The Court addressed (i) what types of automatic dialing equipment fall under the TCPA’s definition of ATDS; (ii) whether a dialer violates the TCPA if a number is reassigned to another person who has not given consent to be called; (iii) how a consenting party may revoke consent; and (iv) whether the consent exemption for healthcare-related calls was too narrow. The Court’s scope was limited to whether these aspects of the FCC’s 2015 Order were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). The Court upheld the FCC’s “approach to revocation of consent, under which a party may revoke her consent through any reasonable means” and rejected the one-call “safe harbor” for re-assigned phone numbers as “arbitrary and capricious.”
On January 1, 2018, certain provisions of the California Homeowner Bill of Rights (“HBOR”) expired. But contrary to what many assumed, the January 1, 2018 expiration date did not apply to all of the HBOR’s provisions, and many provisions have been replaced by new regulations. We’ve prepared the below summary of some of the substantial changes to the law and how they will affect HBOR litigation in the future.
The new HBOR removes many of the distinctions between servicers conducting more/less than 175 annual foreclosures. In most but not all respects, all servicers are treated the same going forward.
Changes in the private right of action/relief.
The HBOR still has a private cause of action, but only for material violations of section 2923.5 (pre-NOD notice requirements), 2923.7 (single point of contact), 2924.11 (dual tracking), and 2924.17 (accuracy of NOD declaration; substantiate right to foreclose).
Injunctive relief is available prior to the recording of a trustee’s deed. After a trustee’s deed is recorded, a servicer may be liable for actual economic damage and the greater of treble or actual damages for material violations that are intentional or reckless. Attorney’s fees are still available if the borrower prevails.
However, mortgage servicers who have engaged in “multiple and repeated uncorrected violations” of section 2924.17 are no longer liable for a $7,500 penalty.
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