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The Alabama Court of Civil Appeals recently held in Pittman v. Regions Bank that questions about the propriety of a foreclosure may be raised more than one year after the foreclosure as an affirmative defense to an ejectment action, even if that party did not challenge the original foreclosure.

In 2008, Windham and Rhonda Pittman—along with their company Land Ventures for 2, LLC—obtained a $650,000 loan from Access Mortgage Corporation to purchase several parcels of property in Daleville, Alabama, including a parcel where the Pittmans’ house was located. The Pittmans signed a loan modification agreement with Access in 2009, and the loan was transferred to Regions Bank in 2010. The Pittmans ultimately fell behind on their monthly payments and Regions eventually foreclosed on the property.

After ignoring several requests from the Pittmans asking that the properties be sold off individually rather than together, Regions sold the property to itself en masse for $367,500 in 2013. The Pittmans refused to vacate the property on which their house was located, however, and Regions filed an ejectment action in 2014. The Pittmans contested the action, contending that they had not received proper notice of their default on the loan, of Regions’ intent to accelerate the loan, or of Regions’ intent to foreclose. They also argued that Regions had improperly denied their requests to sell the property off by lot rather than en masse. The trial court granted summary judgment to Regions.

On appeal, however, the Alabama Court of Civil Appeals reversed, holding that in order to prevail on its ejectment claim, Regions must show that it held proper title to the property and that the Pittmans unlawfully remained on the property. The Court held that while there was no dispute that the Pittmans remained on at least one of the properties, the Pittmans were entitled to raise the issue of improper foreclosure as an affirmative defense to Regions’ ejectment. As such, the Court disagreed with Regions’ assertion that all contentions of an improper foreclosure must be raised within one year of the foreclosure because the ejectment action required Regions to prove that it held legal title.

Further, the Court held that Regions’ refusal to sell non-contiguous parcels of property could indicate that Regions violated its duty of fairness and good faith, thereby voiding the foreclosure sale. According to the Court, the Pittmans had presented substantial evidence that they had asked Regions to sell the properties separately and that they had been prejudiced when Regions refused to do so. Specifically, the Court held that the Pittmans had presented evidence that they could have redeemed the lot containing their home without redeeming the other properties if Regions had sold the lots separately, and that the properties might have sold at a higher price if Regions had sold them separately. Therefore, the Court held that the trial court should not have granted Regions’ motion for summary judgment.

This ruling should serve as a reminder to loan servicers and investors that all foreclosures must be handled in good faith, seeking not to prejudice a homeowner any more than necessary. In Pittman, Regions’ refusal to consider selling the Pittmans’ property in individual lots may have kept the Pittmans from receiving the full value of their property, and made it more difficult for the Pittmans to redeem the property—issues that the Pittmans raised prior to foreclosure. Further, counsel for loan servicers should bear in mind that the one-year bar to challenging a foreclosure on its face does not necessarily extend to a party’s ejectment defenses. Therefore, counsel should take care not to oversell the importance of the one-year bar when evaluating a client’s claims for ejectment or a similar action.

The text of the opinion is available here.

Following the Eleventh Circuit’s decision in Bishop v. Ross Earle & Bonan, P.A., No. 15-12585, creditors and debt collectors should immediately review their practices to ensure that any communication to a debtor or a debtor’s attorney complies with the Fair Debt Collection Practices Act (FDCPA). This is especially true for FDCPA § 1692g(a)’s requirement that the debtor has a right to dispute the debt and that such dispute must be in writing.

Continue Reading Eleventh Circuit holds that debt collection letters sent to a consumer’s attorney qualifies as a communication with a consumer under the Fair Debt Collection Practices Act.

Following the Eleventh Circuit’s decision last month in McGinnis v. American Home Mortgage Servicing, Inc., No. 14-13404, mortgage servicers should be aware that failing to recognize and correct miscalculations of a borrower’s payment may subject them to liability for extreme and outrageous conduct in certain circumstances.

American Home Mortgage Servicing, Inc. took over the servicing of mortgages on several rental properties in Georgia owned by Jane McGinnis. American’s welcome letter to McGinnis stated that her monthly payment had risen over $200 from the amount she had been paying the previous servicer. Believing she did not owe this additional amount, McGinnis continued paying the original amount, and American charged her additional fees for the apparent deficiency. Eventually, American conceded that it had miscalculated the payment amount, but insisted that McGinnis pay the previously incurred late fees. American eventually foreclosed on one of McGinnis’s properties due to nonpayment of these late fees and related charges. McGinnis sued America for wrongful foreclosure, intentional infliction of emotional distress, and conversion, among others.

Continue Reading Eleventh Circuit Affirms Jury Verdict Against Mortgage Servicer for Extreme and Outrageous Conduct

Following the Alabama Supreme Court’s decision last Friday in Moore-Dennis v. Franklin, Nos. 1131142, 1131176, Alabama lenders should immediately review their account agreements to ensure any amendments to those agreements will survive judicial scrutiny. This is especially true for any lenders who have used electronic means to notify account holders of an amendment.

When Joseph Franklin became a customer of PNC Bank, he received an account agreement in the mail. This agreement did not contain an arbitration provision, but it did provide that PNC could unilaterally amend the agreement by providing proper notice to Franklin. In 2013, Franklin’s niece, Tamara Franklin, suspected a PNC employee was stealing from him. At PNC’s urging, Tamara was added to Franklin’s account. At that time, Tamara changed Franklin’s email address but, according to her, did not consent to receive online notifications from PNC. Shortly after Tamara was added, PNC unilaterally amended the account agreement to add an arbitration provision. PNC communicated this change to Franklin and Tamara by posting a notice to Franklin’s online-banking profile. Later, when Franklin sued PNC for theft among other things, PNC moved to compel arbitration. The trial court denied this motion.

On appeal, Chief Judge Moore authored an opinion affirming the trial court. Judge Moore concluded that electronic notification of an arbitration agreement is insufficient to show that a customer was aware of the arbitration provision and had agreed to be bound by it. Instead, a bank must show that customer actually accessed the specific e-mail or visited the specific web page containing the arbitration provision. Though PNC had sent Tamara emails stating that Franklin’s bank statements were ready for review electronically, none of the e-mails contained the text of the arbitration provision, a link to the provision, or any indication that the message was important and would impact Franklin’s legal rights. Because PNC Bank had not proved that Tamara or Franklin had accessed an e-mail or visited a web page containing the arbitration provision, it had failed to show that there was a binding agreement to arbitrate Franklin’s claims.

Importantly, only one judge (Judge Parker) joined Chief Judge Moore’s opinion. Seven judges concurred in the result only. Judge Shaw, writing specially, explained that PNC’s account agreement appeared to require PNC to provide notice of an amendment by mail. Therefore, PNC’s electronic notice to Franklin was insufficient to amend that agreement and add the arbitration provision.

Because Chief Judge Moore’s opinion was only joined by one other justice, it is not binding upon lower courts. Still, lower courts that are already hostile to arbitration may adopt its reasoning and require lenders to show that a customer specifically accessed the email or webpage containing the arbitration provision. For that reason, lenders should review whether they could make this showing if required to do so. Even if Chief Judge Moore’s opinion is not followed by lower courts, Judge Shaw’s concurrence is a reminder that an amendment must be made according to the terms of the controlling account agreement. Thus, if a lender has used electronic means to notify its customers of an amendment to an account agreement, that lender should review the controlling agreement and determine whether such notice was effective. If there is doubt, it may be appropriate for the lender to resend proper notice to ensure the amendment will withstand judicial scrutiny.

The text of the opinion is available here.