Recently the Alabama Court of Civil Appeals held that a mortgagee’s notice of acceleration failed to strictly comply with the mortgage’s notice provisions when it informed the borrower only that she “may” have right to assert defenses against foreclosure, rather than apprising her that she had an affirmative right to bring an action against the mortgagee. This case serves as a cautionary tale for lenders and mortgage servicers who are considering foreclosure.
In In Re: Bay Circle Properties, LLC., No. 1812536, 2020 WL 1696303 (Ala. April 8, 2020), the Eleventh Circuit dismissed an appeal by a guarantor alleging a wrongful foreclosure, because the guarantor did not own the foreclosed property and therefore lacked Article III standing. Here are the facts: Debtor owed for two loans, both secured by real property. Debtor then declared bankruptcy. Guarantor (an affiliate of debtor) had also guaranteed both loans. Creditor then foreclosed on both properties, although both debtor and guarantor allegedly stated their desire to tender the amount owed prior to the sale.
Guarantor then sued the creditor (and added the debtor as a plaintiff in an amended complaint), alleging that creditor did not have a right to foreclose on both properties because the value exceeded the debt balance and because creditor improperly rejected the purported “tender” prior to the sale. The bankruptcy court entered a judgment on the pleadings in favor of the creditor and both the debtor and guarantor appealed. Debtor ultimately settled with creditor and was dismissed from the case. Guarantor remained the lone appellant.
The Eleventh Circuit dismissed the appeal, finding that the guarantor failed to allege the “actual injury personal to him” required for Article III standing. Specifically, the Court noted that the debtor—not the guarantor—was the property owner, therefore any alleged loss by the debtor stemming from the sale of property was purely speculative. The guarantor argued that he was injured because he personally guaranteed the loans at issue and the property could have satisfied or decreased his personal liability to the creditors. The Court found the personal guarantee irrelevant, since the foreclosures satisfied the debt. Even if that were not the case, the Court noted that even if recovery of the lost property value were appropriate, the property was owned by the debtor, and therefore it was unclear how any such recovery would pay off guarantor’s alleged personal liability on creditors’ judgments against him individually. The Court also held that the guarantor failed to meet the more stringent “person aggrieved doctrine” standard for appealing a bankruptcy court order.
This holding should serve as a cautionary warning to any personal guarantors of debt who do not also hold an interest in the property that secures the debt. Personal guarantors should consider obtaining an interest in the property or, at the very least, ensure that they are satisfied with the terms of any loan or repayment agreement on the front end, as they will have little legal recourse should they have later grievances concerning creditors rights and resources in the event of default.
At least two class actions filed in the wake of the COVID-19 pandemic by disgruntled accounting firms allege some of the nation’s largest banks never paid “agent fees” to entities assisting small businesses apply for Paycheck Protection Program (“PPP”) loans under the federal Coronavirus Aid, Relief, and Economic Security (“CARES”) Act – and never intended to.
These lawsuits allege plaintiffs represent a class of financial services and accounting firms that prepared PPP applications on behalf of eligible small business clients. Plaintiffs contend the CARES Act and implementing regulations require lenders to pay them “agent fees” for preparing loan applications. Fees are calculated by tiers according to the amount of the loan – a one percent fee for loans of $350,000 or less, a .50 percent fee for loans of more than $350,000 and up to $2 million, and a .25 percent fee on loans over $2 million.
In Forbes v. Platinum Mortgage, Inc., No. 1180985, 2020 WL 746533 (Ala. Feb. 14, 2020), the Alabama Supreme Court upheld the validity of a home mortgage. There, the husband borrowed $175,000, securing the loan with a mortgage on the couple’s home. The husband signed the mortgage for himself and signed on behalf of his wife – pursuant to a Power of Attorney from his wife. Later, the wife was declared incompetent and ultimately died. The conservator sued, seeking to nullify the loan and contending that the Power of Attorney was forged.
In Williams v. First Advantage LNS Screening Solutions, Inc., 947 F.3d 735 (11th Cir. Jan. 9, 2020), the plaintiff recovered a jury verdict under the FCRA for $250,000 of compensatory damages and $3.3 Million of punitive damages. The defendant was a criminal background report provider. Because of various mistakes and procedures, the plaintiff’s information was mismatched and inaccurately lead potential employers to believe he had a criminal background. Liability was asserted primarily under 15 U.S.C. § 1681e(b), which requires CRAs to follow “reasonable procedures to ensure maximum possible accuracy.”
In a flurry of new class actions filed on behalf of unhappy small business owners, banks are facing suits alleging they unlawfully prioritized processing large loans under the Paycheck Protection Program (PPP) over smaller ones. Two parallel class actions were filed on April 19, 2020 and April 20, 2020 in California federal court accusing two large banks of reshuffling loan applications instead of processing them on a first-come, first-served basis to purportedly maximize the banks’ profit from the federal loan program. Another similar class action was filed in state court in Texas. The class plaintiffs include a frozen yogurt shop, an auto body shop and a flooring company among others.
The story is becoming all too common. A merchant (or consumer) is convinced to wire money to a fraudulent account because of an incorrect belief that they are wiring the money to the real party. A common example is a fraudster convincing a purchaser of a home to wire money in the mistaken belief that they are wiring the money to a closing attorney or agent. Another common example is a fraudster convincing a company to wire money in the mistaken belief that they are paying a valid vendor. These transactions can involve millions of dollars and it is rare that the money can be recovered after it is sent.
Can insurance cover these losses? Recently the Eleventh Circuit decided Principle Solutions Group, LLC v. Ironshore Indemnity, Inc., 944 F.3d 886, (11th Cir. Dec. 9, 2019). There, the insured employer filed an action against insurer, seeking coverage for a wire transfer of funds made by insured’s employee to scammers. The employer claimed coverage under the “fraudulent instruction” provision of its commercial crime insurance policy, and asserted bad faith.
As we have noted in other postings, plaintiffs continue to bring actions regarding bank fees charged for Overdraft or Not Sufficient Funds (“NSF”) fees. While these claims originally challenged posting order, they are now more creative. For instance, the “Authorize Positive Settle Negative” claims noted in an earlier post. One of the newest theories is that a financial institution should charge an NSF fee only once, no matter how many times that transaction or item is processed.
Over the last decade, financial institutions have seen an avalanche of claims regarding overdraft fees, especially in connection with debit card transactions. These claims are almost always brought as class actions. The early cases concerned the practice of posting “high to low” during nightly processing, allegedly for the purposes of generating more overdraft fees. The lead case was Gutierrez v. Wells Fargo, 704 F.3d 712 (9th Cir. 2012). Eventually, an MDL was created in the Southern District of Florida against a large number of banks, leading to a number of settlements. At about the same time, the Federal Reserve altered Regulation E, requiring deposit institutions to obtain express consent to charge overdraft fees on “everyday” debit card transactions, and providing far greater understanding by consumers of overdraft fees on electronic transactions.
Earlier this week, two Alabama businesses sued their insurers for refusing to pay losses related to COVID-19. The first lawsuit, Wagner Shoes v. Auto-Owners Insurance Co., No. 7:20-cv-465 (N.D. Ala. Apr. 6, 2020), was brought by a shoe store in Tuscaloosa. The second suit, Ollie Irene v. Farmers Insurance Exchange, No. 01-CV-2020-901319 (Jefferson County Cir. Court April 7, 2020), was filed by nationally recognized Mountain Brook restaurant, Ollie Irene.