On March 16, 2017, the Florida Supreme Court solidified the position of its November 3, 2016 opinion in Bartram v. U.S. Bank, N.A., SC14-1266, 2016 WL 6538647 by denying the motions for rehearing filed in response to the Court’s holding that an involuntary dismissal unwinds acceleration, returning lender and borrower to their previous positions and allowing lender to pursue foreclosure on future defaults.   The finality of the Bartram opinion brings relief and some clarity to many residential lenders, especially with standard form residential mortgages with reinstatement provisions, that a failed attempt at foreclosure will not bar subsequent attempts to foreclose for missed installment payments.

While Bartram provides relief for Florida lenders, the battleground over the statute of limitations on Florida mortgage debt continues to shift.  Even before the Court denied rehearing, the foreclosure defense bar was already crafting new defenses based on the gaps in the law left unfilled by the Bartram opinion.  For instance, in new foreclosures filed after an involuntary dismissal, some borrowers are challenging the use of default dates that predate the dismissal date for the earlier foreclosure suits.  Lenders should expect borrowers with continuing defaults and prior foreclosure lawsuits to challenge subsequent foreclosures on the collectability of time barred installment payments, Collazo v. HSBC Bank USA, N.A., No. 3D14-2208 (Fla. 3d DCA Apr. 2016)(withdrawn on rehear’g) and time barred default dates. Bollettieri Resort Villas Condo. Ass’n, Inc. v. Bank of New York Mellon, 198 So. 3d 1140 (Fla. 2d DCA 2016), review granted, SC16-1680 (Fla. Nov. 2, 2016).

Late December, the Fourth Circuit Court of Appeals (Fourth Circuit), in Lovegrove v. Ocwen Home Loans Srvs., upheld summary judgment in favor of a mortgage servicer against allegations under the Fair Debt Collection Practices Act (FDCPA), under which courts generally apply a “least sophisticated consumer” standard. The plaintiff in Lovegrove alleged that monthly mortgage statements he received from the servicer violated the FDCPA because they attempted to collect a debt which had been discharged in a recent bankruptcy. The notices, however, contained the familiar and—here, exposure limiting—disclosures that “if the debt is in active bankruptcy or has been discharged through bankruptcy, this communication is not intended as and does not constitute an attempt to collect a debt.” In following its own recent case law, the Fourth Circuit applied a “commonsense inquiry” into whether these notices, in light of the quoted disclaimer, attempted to collect debt, ultimately deciding that they did not. Of further note is the passing comment by the Fourth Circuit that “there is an argument that sophisticated and high-dollar loan arrangements should not be analyzed under the least sophisticated consumer standard. Perhaps, sophisticated consumers should not get the benefit of the lenient standard when they are part of a complex relationship or situation that may be confusing to less sophisticated individuals.”

The clear take away is that disclaimers that can be easily disregarded as boilerplate still have significant meaning, and, as in this case, may form the basis for escaping liability altogether. Further, while debt collectors still have to strictly comply with all requirements under the FDCPA, the wildly lenient “least sophisticated consumer standard” may give way under certain circumstances.

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.

In a case of first impression for the Court, the Eleventh Circuit recently addressed whether federal district courts retain original subject matter jurisdiction over state law claims included in a class action filed pursuant to the Class Action Fairness Act (“CAFA”) even after all class claims have been dismissed.  In Wright Transportation, Inc. v. Pilot Corporation, No. 15-15184, ___ F.3d ___ (Nov. 22, 2016), the Court sided with the other Circuits that have addressed this question, holding that CAFA confers original jurisdiction over state law claims that qualify as CAFA claims, and that this jurisdiction survives the dismissal of class claims.

Pilot Corporation contracts with long-haul trucking companies to sell diesel fuel at discounted rates. In 2013, Wright Transportation, Inc., an Alabama company and Pilot customer, filed a putative class action in the Southern District of Alabama, alleging that Pilot employees withheld discounts without their customers’ knowledge or approval. Wright asserted claims under the federal RICO statute, as well as various state law claims which, Wright alleged, qualified as CAFA claims, thereby vesting the district court with subject matter jurisdiction.

The district court eventually dismissed several of Wright’s claims, including the RICO claims and the class claims. Specifically, the district court dismissed the class claims because, while the case was pending, a rival class-action in the Eastern District of Arkansas reached a court-approved settlement.  Both Wright and Pilot acknowledged that judicial approval of the settlement would divest Wright of standing to pursue the class claims. However, state law claims for breach of contract and unjust enrichment, both of which originally qualified as CAFA claims, survived for Wright individually.

The case was then consolidated with six similar lawsuits into one multidistrict-litigation proceeding in the Eastern District of Kentucky. However, soon thereafter, the MDL court discovered information showing that Pilot was an Alabama citizen, therefore depriving the court of diversity jurisdiction as to Wright’s claims. Without deciding the question of whether original jurisdiction still existed over those claims pursuant to CAFA, the MDL court remanded the case to the Southern District of Alabama.

On remand, Wright asked the district court to dismiss the remaining claims without prejudice so that it could re-file them in Alabama state court. Pilot opposed Wright’s motion, asserting that the district court retained CAFA jurisdiction over Wright’s state law claims notwithstanding the dismissal of all class claims. Ultimately, the district court granted Wright’s motion, holding that the dismissal of the class claims (and the RICO claims) had stripped it of original jurisdiction, and declining to exercise supplemental jurisdiction over the remaining state law claims.

Pilot appealed to the Eleventh Circuit, arguing that CAFA conferred original jurisdiction over all of Wright’s claims, including the state law claims, at the time that Wright actually filed them such that jurisdiction could not have divested when the class claims were dismissed. The Court agreed with Pilot, concluding that CAFA effectively serves as an extension of diversity jurisdiction, which is not destroyed by post-filing changes to a party’s citizenship. Thus, a post-filing change in circumstances does not remove subject matter jurisdiction under CAFA, even when the class claims are dismissed. In other words, original subject matter jurisdiction for claims brought under CAFA cannot be divested unless the trial court determines that it did not actually possess original subject matter jurisdiction at the time of the initial filing. Because there was no allegation that the district court lacked subject matter jurisdiction at the time Wright’s claims were originally filed, the Court concluded that CAFA continued to confer original federal jurisdiction over the remaining state law claims despite the dismissal of Wright’s class claims.

Although Wright provides support for class action defendants who wish to remain in federal court following the dismissal of CAFA claims, it is important to note that this ruling is relatively narrow. First, and most importantly, the Court suggests that, although a plaintiff who originally filed its class action in state court cannot amend its complaint after removal to federal court in order to divest the federal court of CAFA jurisdiction, a plaintiff who originally filed its lawsuit in federal court is free to amend its complaint in order to remove claims upon which the court’s original jurisdiction is based. Second, in Wright, all of the remaining state law claims qualified for CAFA jurisdiction; therefore, the Court did not have to analyze the issue of supplemental jurisdiction. Litigants who wish to remain in federal court following the dismissal of class claims will still have to establish the district court’s jurisdiction over any remaining non-CAFA claims.

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.

 

In Turner v. Wells Fargo, N.A., No. 2150230, Wells Fargo foreclosed on a home after the homeowners tendered a bad check and attempted to send catch-up payments that did not include required penalty fees.  Wells Fargo, which purchased the home in foreclosure, obtained summary judgment in the trial court after initiating an ejectment action against the former owners. On appeal, the Alabama Court of Civil Appeals affirmed the summary judgment, holding that Wells Fargo had substantially complied with the terms of the mortgage and was therefore entitled to initiate the foreclosure.

In 2006, Donna Turner and Trenton Turner, Jr. executed a promissory note and mortgage for the purchase of a home. The note was eventually sold to Wells Fargo, and Carrington Mortgage Services serviced the loan.  In 2011, the Turners tendered checks to Carrington that were returned due to insufficient funds. The Turners ultimately satisfied the principal and interest payments, but Carrington assessed several penalty fees for the bad checks.  The Turners repeatedly sent checks that were sufficient to pay the principal and interest, but Carrington returned these checks because they were not sufficient to pay the mounting penalty fees.

In late 2011, Carrington notified the Turners of its intent to foreclose, and in early 2012, Wells Fargo accelerated the mortgage and sent the Turners a notice of foreclosure.  Wells Fargo ultimately purchased the home at a foreclosure sale. Because the Turners refused to vacate the home, Wells Fargo filed a complaint for ejectment. The trial court entered summary judgment in favor of Wells Fargo, and the Turners appealed to the Alabama Court of Civil Appeals.

Specifically, the Turners contended that Carrington caused the default by returning the checks that were tendered in 2011, that Wells Fargo failed to provide sufficient notice pursuant to the terms of the mortgage contract, and that Wells Fargo failed to show it was the holder of the note. The Court rejected all three arguments. First, the Turners admitted that they neglected to send Carrington checks that were sufficient to cover the penalty fees that accrued in 2011, and they did not dispute that the note allowed for such fees. Thus, the Court held that, under the terms of the note, Carrington was entitled to return the insufficient checks, and the Turners failed to cure their default.  Second, the Turners asserted that, because the notice of foreclosure sent by Wells Fargo did not contain the precise notice language included in the mortgage contract, the foreclosure was void.  The Court disagreed, holding that the notices substantially complied with the mortgage’s notice requirements. Therefore, the Court held that there was no genuine issue of fact supporting the Turner’s claim that they did not receive proper notice. Finally, the Turners contended that Wells Fargo did not produce substantial evidence that it was the holder of the note and mortgage. However, Wells Fargo presented to the trial court an executed assignment of the mortgage and note, which was recorded in the probate court prior to the foreclosure. Thus, the Court held that Wells Fargo did, in fact, present substantial evidence that it was the holder of the mortgage and was entitled to foreclose. Accordingly, the Court affirmed the trial court’s judgment.

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 Alabama Supreme Court recently held in Hanover Insurance Company v. Kiva Lodge Condominium Owners’ Association, Inc. (No. 1141331) that where a dispute is governed by a contract that requires arbitration the arbitrator must determine whether particular claims are time barred under the contract, not the courts.

Continue Reading Alabama Supreme Court Enforces Arbitration Clause That Provides For Arbitration “At the Election of Either Party”

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.

Continue Reading Citing Spokeo, Eleventh Circuit Rejects Class Action Over Late Mortgage Satisfaction Recordation, Holding Plaintiff Had Not Alleged Concrete Injury-In-Fact Due to Statutory Violation

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