On August 17, 2017, the Eleventh Circuit issued an opinion in Steven Bivens v. Select Portfolio Servicing, Inc. (No. 16-15119), holding that a borrower must send requests for information to a mortgage servicer’s designated addressed before a servicer’s duty to respond under the Real Estate Settlement Procedures Act are triggered. Lenders should take note of this decision because it indicates that the Eleventh Circuit will require plaintiffs to strictly comply with the terms of that statute before holding banks or mortgage servicers liable under that statute.
The Consumer Financial Protection Bureau (CFPB) recently finalized various updates to its mortgage disclosure rule, often referred to as “Know Before You Owe” or the TILA-RESPA Integrated Disclosures (TRID). The updates were proposed approximately one year ago. They include technical corrections, formal guidance, and a few substantive changes. Some of the changes include:
- Adding tolerance provisions for total payments that track existing TILA requirements regarding finance charges
- Expanding the scope of certain exemptions for housing assistance loans
- Applying TRID to all cooperative units, regardless of whether the cooperative units are classified as real property under state law
- Providing guidance on sharing information with third parties
The new rule takes effect 60 days after publication in the Federal Register, but compliance is not mandatory until October 1, 2018. A copy of the final rule is available here.
Notably absent from the final rule is guidance on the “black hole”—the period of time between issuing the Closing Disclosure and the actual closing date when, in certain instances, lenders may be prevented from resetting tolerances (and passing on closing cost increases to the borrower). The amendments as originally proposed included a potential fix for this problem. However, the CFPB decided not to adopt the fix based on conflicting comments that it received. Instead, the CFPB issued a new proposed rule (with a new comment period) to address the “black hole” issue. A copy of the proposed rule is available here.
The Eleventh Circuit recently clarified that sending periodic mortgage statements following a debtor’s bankruptcy discharge is not misleading to the “least sophisticated consumer.” In Helman v. Bank of America, 15-13672, 2017 WL 1350728 (11th Cir. April 12, 2017) Gayle Helman filed suit, alleging that Bank of America violated the Fair Debt Collections Practices Act (FDCPA), Florida Consumer Collection Practices Act (FCCPA), and other state laws when it sent Ms. Helman periodic mortgage statements after her mortgage loan was discharged in bankruptcy. She claimed that the statements unlawfully attempted to collect a discharged debt and that such communications would be misleading to the least sophisticated consumer because it suggested she remained liable for the debt.
In a victory for defendants, the Eleventh Circuit recently agreed that a mere procedural violation—the kind of injury that has become the favorite of the plaintiffs’ bar—is insufficient to confer Article III standing. More specifically, the Eleventh Circuit concluded that a certified return receipt will satisfy a lender’s obligation under Regulation X to provide written acknowledgment of a request for information within five days. Though this decision is unpublished, it is persuasive authority that may guide the district courts within the Eleventh Circuit.
In Meeks v. Ocwen Loan Servicing, LLC, No. 16-15536, Charles Meeks sent a Request for Information to his mortgage servicer via certified mail. The servicer’s agent signed the return receipt the same day the request was received. The receipt was then returned to the Meeks’ counsel. Several months later, Meeks sued the servicer and attached the certified receipt to his complaint.
Meeks asserted two claims against the servicer: (1) the servicer violated Regulation X by not sending him written acknowledgment of the Request for Information within 5 days and (2) that the servicer had shown a reckless disregard for the requirements of Regulation X. After the case was removed, the district court dismissed the first count for failure to state a claim and the second count for lack of standing. On appeal, the Eleventh Circuit affirmed.
The Court pointed out that no other circuit court has considered whether a certified receipt satisfies the written response obligation under Regulation X. Rather than engage in a lengthy legal analysis, the Court focused on the undisputed facts. Because there was no serious dispute that Meeks had received the certified receipt, Meeks had failed to state a claim under Regulation X. Put another way, a failure to send a notice of acknowledgment is unnecessary when the undisputed evidence shows that the borrower knew the request had been received.
More important, the Court concluded that Meeks lacked standing to bring a pattern or practice claim. Pointing to the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548-49 (2016), the Court noted that an injury must be both concrete and particularized in order to confer Article III standing. Meeks had not suffered an injury because it was undisputed that he had received the return receipt. Even though Meeks argued that this receipt was deficient under Regulation X, the Eleventh Circuit held that this deficiency was nothing more than “a bare procedural violation” that was insufficient to create a “real, concrete injury.”
Meeks is important for two reasons. First, it holds that a procedural deficiency alone—here, the failure to send a written acknowledgment within five days—is insufficient to confer standing when the undisputed evidence shows that the deficiency caused no injury to the plaintiff. On this point, Meeks is in tension with another unpublished Eleventh Circuit decision, Church v. Accretive Health, Inc., 654 F. App’x 990 (11th Cir. 2016), which held that the FDCPA creates a statutory right to receive certain information and that a failure to include this information in the debtor’s letter to the plaintiff was a sufficient injury to confer standing. Because neither opinion is published, neither will be binding on a subsequent Eleventh Circuit panel. Moreover, it may be possible to reconcile the holdings in Meeks and Church. In Meeks, it was undisputed that the plaintiff had received the benefit established by the procedural right while in Church it was not clear that the plaintiff had actually received the information that the statute required. It is also worth pointing out that many post-Spokeo courts have declined to extend Spokeo to its logical conclusions. At the very least, this apparent contradiction signals that the law on this issue is evolving. The Eleventh Circuit is likely to address this issue in a published opinion in the future.
Second and for purposes of Regulation X specifically, Meeks holds that a certified return receipt can satisfy a lender’s obligations under Regulation X when there is no dispute that the borrower received the return receipt. This holding may be somewhat limited however because plaintiffs’ counsel may not attach the receipts to their complaints or will deny receiving them. Meeks also leaves open the question of what happens if the receipt is received by the borrower more than five days after the lender signs it. Still, lenders should look for ways to bring their case within Meeks as doing so will create a strong argument for dismissal in district courts within the Eleventh Circuit.
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.
On December 2, 2016, Florida’s Fifth District Court of Appeal filed an opinion overturning a foreclosure sale on grounds that the foreclosing bank failed to meet with the borrower in person prior to filing suit, as required by HUD regulations. See Palma v. JPMorgan Chase Bank, N.A., et. al., Case No. 5D15-3358 (Fla. 5th DCA Dec. 2, 2016). The promissory note at issue in Palma contained a clause expressly incorporating HUD regulations into the terms of the loan, including 24 C.F.R. § 203.604(b) which requires, among other things, that “the mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three monthly installments due on the mortgage are unpaid. . . .” While the bank alleged generally that it complied with all conditions precedent to foreclosure, as the bank was permitted to do under Fla. R. Civ. P. 1.120(c), the borrower answered the complaint by specifically denying that the bank complied with the face-to-face interview requirement. At trial, the bank did not present evidence of its compliance with 24 C.F.R. § 203.604(b), or any of the enumerated exceptions thereto. The borrower moved to dismiss at the end of the bank’s case in chief, but the trial court ruled that the borrower’s specific denial was an affirmative defense requiring proof from the borrower. The borrower promptly recalled the bank’s representative who testified that she did not have information on whether the required interview was offered or refused. The borrower then testified that she would have participated in the face-to-face interview, but that the bank never offered her that opportunity. Although the borrower renewed her motion for involuntary dismissal, the trial court found in favor of the bank and entered a foreclosure judgment.
The borrower appealed to the Fifth District Court of Appeal, which had recently held that a borrower bears the burden of demonstrating that HUD regulations apply to a loan before a 24 C.F.R. § 203.604(b) argument can be considered. See Diaz v. Wells Fargo Bank, N.A., 189 So. 3d 279, 284 (Fla. 5th DCA Apr. 8, 2016). In the instant case, however, the appellate court had no difficulty finding the HUD regulations applied, as they were specifically incorporated into the loan documents by reference. The appellate court held that a specific denial of a condition precedent is not an affirmative defense and that the bank, as plaintiff, bears the burden of proving that a specifically denied condition was satisfied or excused. The appellate court reversed the judgment and remanded the case finding that the bank had not provided any evidence that it engaged in a face-to-face interview before filing the complaint or that any of the enumerated exceptions to 24 C.F.R. § 203.604(b) applied.
There are multiple lessons to take from Palma at different stages of the mortgage servicing process. To name a few, it is good practice for banks, servicers and foreclosure counsel, alike, to: (i) carefully review the note and mortgage to identify any regulations that might modify the obligations of the parties at the time of boarding and the time of default; (ii) determine whether all applicable regulations and contractual conditions are satisfied or otherwise excused before notices are sent to the borrower and especially before a complaint is filed; and (iii) to inform the bank or servicer’s litigation specialists and witness of any contested conditions precedent well before trial so that the servicer can assess whether to escalate the matter or proceed to trial.
Last week, after much anticipation and speculation, the Florida Supreme Court decided Bartram v. U.S. Bank National Association, No. SC14-1265 (Fla. Nov. 3, 2016). To the relief of lenders, the Court rejected the borrower’s attempt to use Florida’s five-year statute of limitations for mortgage foreclosures to avoid the mortgage on his home based on the bank’s earlier unsuccessful attempt to foreclose. This decision means that Florida courts will be less likely to find that subsequent attempts to foreclosure are time-barred.
In early 2005, Bartram obtained a $650,000.00 loan secured by his Ponte Vedra home. One day later, Bartram granted a $120,000.00 second mortgage on the home to his ex-wife. Bartram stopped making payments on the first mortgage in January 2006 and never made payments on the second mortgage.
In May 2006, U.S. Bank N.A., as assignee (the “bank”), sued to foreclose the first mortgage based on Bartram’s failure to make installment payments. In the complaint, the bank claimed it was accelerated the note and declared that all amounts under the note were due. Almost five years later, the bank’s foreclosure action was involuntarily dismissed because the bank failed to appear at a case management conference.
About a year later, Bartram’s ex-wife sued to foreclosure her second mortgage. Bartram filed a crossclaim against the bank to cancel the first mortgage based on the statute of limitations. Bartram argued that any claim by the bank under the mortgage would be time-barred because over five years had passed since he defaulted, the bank accelerated the loan, and the bank attempted to foreclose the mortgage. The trial court agreed with Bartram and entered an order that, in effect, released the bank’s lien on the property. The bank appealed to the Fifth District Court of Appeal, and the Fifth District reversed. The Florida Supreme Court later granted review of the Fifth District’s decision.
The Florida Supreme Court held that the dismissal of the previous foreclosure action returned the parties to their “prior contractual relationship,” meaning that (1) Bartram had the opportunity to restart making his installment payments and (2) the bank had the right to accelerate the loan through a foreclosure action if Bartram subsequently defaulted. Because Bartram failed to make any installment payments after the prior case’s dismissal, the court determined that there were new defaults within the statute of limitations that entitled the bank to accelerate the loan and foreclose the mortgage.
Note that the court based its determination that the previous case’s dismissal returned the parties to their prior contractual relationship, at least in part, on the fact that the mortgage at issue was a standard residential form mortgage that grants the right to reinstate after acceleration to the borrower if the borrower meets certain conditions. It is unclear whether a judge in the future will decide that a different result should occur where the mortgage at issue does not grant a right to reinstate to the borrower.
The Eleventh Circuit recently held in Nicklaw v. CitiMortgage, Inc.(No. 15-14216) that a plaintiff lacks standing to sue a creditor where the plaintiff merely alleges that the creditor failed to timely record a mortgage satisfaction, as it is statutorily required to do, but does not allege any additional concrete injury.
In a recent decision, the Eleventh Circuit (Lage v. Ocwen Loan Servicing, LLC, No. 15-15558 (11th Cir. Oct. 7, 2016)) held that a loan servicer is not required to evaluate a completed loan modification application if that application is submitted less than 37 days before a foreclosure sale is originally scheduled to occur. The Court held that this applies even when the foreclosure sale on the property is rescheduled to a later date, making the loan modification application fall outside the 37-day window.
Continue Reading Eleventh Circuit Holds That Reg. X Does Not Require Mortgage Servicers to Evaluate Untimely Loan Modification Plans Even If the Foreclosure Is Rescheduled So That the Sale Actually Occurs Beyond Reg. X’s 37-day Window
In Sims v. JPMC Specialty Mortgage, LLC, No. 2150437, a borrower had been involved in two previous lawsuits arising out of a mortgage servicer’s foreclosure upon the borrower’s property. The servicer obtained summary judgment in the trial court based on the doctrine of res judicata. The Alabama Court of Civil Appeals reversed, finding that genuine issues of material fact precluded summary judgment based on res judicata.