By Monette W. Cope, Esq.
The mortgage industry is under tremendous scrutiny from the Attorney General and the States’ Attorney Generals, as well as the new Consumer Financial Protection Bureau which just announced it will be drafting rules to regulate all servicers. In response, most in the industry are stepping up and being more transparent in their communications with borrowers. A lesser thought of, but important way to do this is in Notices of Default in Chapter 13 bankruptcies.
In Chapter 13, motions for relief from stay are commonly resolved by a provisional order for relief. Essentially, the debtor agrees to repay a post-petition default in a manner and by a date certain, and simultaneously maintain current payments to a secured creditor. If the debtor defaults on any of the terms, the stay is automatically lifted should the debtor fail to cure the default within a certain period of time after a Notice of Default is sent.
In some jurisdictions, it is acceptable to give a lump sum for the default in the Notice with no other details. Going forward, the best practice will be for lenders and servicers to provide their attorneys with a detailed payment history showing the default. Attorneys, in turn, should then provide detailed information in the Notice as to the dates, amounts and nature of the default.
If the default is not cured, and the court requires an Affidavit of Default or Notice of Default to be filed to spring the relief from stay, the best practice is to include the same detail as in the Notice.
This detail in the Notice will show good faith towards the borrower and alleviate any challenge to the Notice for lack of detail and disclosure, while putting the lender or servicer in a good light.
If you have any questions on this matter, please contact Ms. Monette W. Cope, Esq. Monette is a junior partner in the bankruptcy department of Weltman, Weinberg & Reis Co., LPA located in the Chicago office. She can be reached at 312.253.9614 and mcope@weltman.com.
Filed under: collections
By Amanda R. Yurechko, Esq.
In a perfect world, when you go to trial on a collection or other matter, you would present one witness who was involved in every aspect of the transaction at issue. For example, one witness who was involved in the negotiating, signing and payment on a promissory note over its life. However, it is unlikely one person was assigned responsibility for the account for its entire life, or that this person remains employed and able to attend the trial. Often times the person who is going to appear at trial had no interaction with the debtor or with the account at all, but is bringing with them your records to show the handling of the account from its inception. The rules of evidence recognize that business records kept by an entity should be admissible, despite the fact that the person who created that record- the person who processed the payment, took the phone call or negotiated the terms of the promissory note, is not available to testify.
To qualify for the business records exception to the hearsay rule, a record must meet the following criteria[1]:
- The record must be one recorded regularly in a regularly-conducted activity;
- A person with knowledge of the act, event or condition recorded must have made the record;
- It must have been recorded at or near the time of the act, event or condition; and
- The party who seeks to introduce the record must lay a foundation through testimony of the record custodian or some other qualified witness.[2] Even when these prerequisites are met, however, the trial court may exclude a record “if the source of information or the method or circumstances of preparation indicate [a] lack of trustworthiness.”[3]
A qualified witness must “demonstrate that he or she is sufficiently familiar with the operation of the business and with the circumstances of the preparation, maintenance, and retrieval of the record in order to reasonably testify on the basis of this knowledge that the record is what it purports to be, and was made in the ordinary course of business.”[4] However, the Rule does not require this witness to have personally participated in the creation of the document. To do so, “would eviscerate the business records exception, since no document could be admitted unless the preparer (and possibly others involved in the information-gathering process) personally testified as to its creation.”[5]
Going further, a recent Ohio Tenth District Court of Appeals decision makes clear that even a business record prepared by another business, that was incorporated into the business records maintained by your company, can be introduced by a qualified holder of the business records from your company.[6] In this case, the Court considered whether an estimate prepared by a third party repair shop could be introduced as a business record of State Farm, where only a witness from State Farm testified to create a foundation for its introduction. The Tenth District Court of Appeals looked to Federal Court precedent, acknowledging that Ohio’s business records rule was nearly identical to the Federal version. In each case reviewed, the records prepared by a third party were admissible as the business records of another entity, where that entity can establish through a qualified holder of the business records that: (1) the business integrated the document into its records; (2) relied upon the record, and; (3) there exists circumstances indicating the document’s trustworthiness.
In cases where Courts have allowed this type of third party created business record, under what has been called the adopted business record rule, the Court has found some indicia of the trustworthiness of the record. For example, a record created under circumstances where criminal penalties for a false record exist[7], or one created where there is an ongoing business relationship between the business that created the record and the incorporating business.[8]
While this recent Tenth District Court ruling is specific to an estimate created by an auto body shop adopted as the business record of an insurance company, the Court also reviewed the Ohio First District Court of Appeals decision in Great Seneca Financial v. Felty.[9] In that case, the credit card application and statements created by the prior owner of the account were admissible as a business record of Great Seneca Financial, where the account at issue had been assigned to Great Seneca Financial. Great Seneca established by affidavit that the records had been transferred to Great Seneca, were kept by Great Seneca in its regular course of business, had been certified by an intermediary of the first owner, and had been relied upon by Great Seneca. Though the Great Seneca employee had no first hand knowledge of the creation of the documents by the first owner or it procedure for their creation, where Great Seneca showed its adoption and reliance on the first owner’s business records, and where there appeared evidence of the records trustworthiness as a result of the certification, the records met the adopted business records exception to the hearsay rule.
You should send a witness to trial who is prepared to testify that the records they are seeking to introduce meet the business records rule. They should be sufficiently familiar with your policies and procedures that they can testify not just that the record is kept in the ordinary course of business, but also to how and when it was created, retained and retrieved. If the records you are seeking to introduce contain records provided to you by a third party, your witness will need to be prepared to describe your company’s adoption and reliance upon those records as well as why those records in particular are trustworthy.
[1] Under Ohio Evid.R. 803(6), which is nearly identical to Fed.R.Evid 803(6)
[2] See State Farm Mut. Auto. Ins. Co. v. Anders, 2012 Ohio 824 (10th Dist., Franklin County, Mar.1., 2012) citing State v. Davis, (2008) 116 Ohio St.3d 404.
[3] Id., quoting Evid.R. 803(6).
[4] State Farm Mut. Auto. Ins. Co. v. Anders, 2012 Ohio 824 (10th Dist., Franklin County, Mar.1., 2012) quoting Keeva J. Kekst Architects, Inc. v. George, 8th Dist. No. 70835, 1997 Ohio App. LEXIS 2077 (May 15, 1997); see also Discover Bank v. Poling, 10th Dist. No. 04AP-1117, 2005 Ohio 1543, ¶ 12.
[5] State Farm Mut. Auto. Ins. Co. v. Anders, 2012 Ohio 824 (10th Dist., Franklin County, Mar.1., 2012) citing State v. Goines, 10th Dist. No. 89AP-916, 1990 Ohio App. LEXIS 5731 (Dec. 20, 1990), quoting United States v. Keplinger, 776 F.2d 678, 693-94 (7th Cir.1985).
[6] State Farm Mut. Auto. Ins. Co. v. Anders, 2012 Ohio 824 (10th Dist., Franklin County, Mar.1., 2012)
[7] Air Land Forwarders, Inc. v. United States, 172 F.3d 1338 (Fed. Cir. 1999).
[8] White Industries, Inc. v. Cessna Aircraft Co., 611 F.Supp. 1049 (W.D.Mo. 1985)
[9] 170 Ohio App.3d 737, 2006 Ohio 6618
By Larry R. Rothenberg, Esq.
Due to inadequate staffing in the sheriffs’ offices of certain counties in Ohio, you can experience long delays in the scheduling of foreclosure sales. In view of these delays, now might be the time to explore the use of a private auctioneer in lieu of a sheriff, to conduct the sale.
The county sheriff, as an officer of the court, typically is the person who conducts foreclosure sales in Ohio. However, two Ohio statutes[1] also authorize the court to order that the sale be conducted by a licensed auctioneer. The request for the sale to be conducted by an auctioneer can be made by motion and/or can be included in the foreclosure complaint.
In asking the court to authorize an auctioneer to conduct the sale, we would be including a request that the property be sold without a sheriff’s appraisal, in order to avoid the usual delay. Because this would likely have an impact on the entitlement to a deficiency judgment, we would recommend proceeding in this fashion only in cases where the borrower is bankrupt or deceased, or where waiving the entitlement to a deficiency judgment is not deemed detrimental.
The court, in its discretion, may or may not grant a request for a sale by an auctioneer. Some judges might not be willing to grant the request if they believe, despite our arguments, that all foreclosure sales should be conducted by the sheriff, or if they are unwilling to authorize a sale without a sheriff’s appraisal. Some judges might be willing to grant the request only if it is unopposed. There could also be some delay while waiting for the judge’s ruling. However, any such delay would likely be much less than the delays that we see in having sheriff’s sales scheduled in certain counties.
Ohio law[2] provides that the auctioneer shall receive such compensation and reimbursement for the expenses of advertising the public auction as the court finds reasonable and proper, and that such compensation and advertising expenses shall be charged as costs in the case. The actions needed to seek the appointment of an auctioneer, and the monitoring of the auctioneer’s completion of the sale, will also require additional attorney’s fees plus any hearing coverage fees, as they fall outside the routine services covered by the flat fee.
It is well-known that properties tend to deteriorate drastically while waiting for a sheriff’s sale to be scheduled. Using an auctioneer will not be cheap, and the courts’ granting of such a request will not be automatic. However, if it results in a more expeditious completion of the sale, it may enhance the recovery while reducing the timeline.
If you have any questions on this matter, please contact Mr. Larry R. Rothenberg, Esq. Larry is the partner in charge of the Real Estate Default Group in the Cleveland office of Weltman, Weinberg & Reis Co., LPA who focuses on complex foreclosures, evictions and title insurance issues. He is the author of the Ohio Jurisdictional Section within the treatise, “The Law of Distressed Real Estate”, and was a contributing author to “Ohio Foreclosures, What You Need To Know Now”, published by The West Group. He can be reached at 216.685.1135 or lrothenberg@weltman.com.
[1] R.C. §2329.151 and 2335.021
[2] R.C. §2335.021
Filed under: credit unions
By Anne M. Smith, Esq.
We all use pronouns, and we know they substitute for nouns. Although the English language provides pronoun options for masculine nouns (he, him), for feminine nouns (she, her), and for non-human nouns (it), there is no choice for gender-neutral singular nouns (the nurse, an athlete). While most of us learned in elementary school that masculine pronouns (he, his, him) should be used as the “default” in situations where the person or thing to which you’re referring could be either male or female, that usage is now considered unacceptable, and often offensive. Even worse is assuming the gender of the noun, e.g. nurses are women, or attorneys are men.
Some authors have suggested the use of strange substitutions, such as “zhe” or “zher” to replace “he” or “she.” Sweden has officially added the gender-neutral pronoun “hen” to its National Encyclopedia (http://www.ne.se/om/encyklopedi). Americans have never settled on an acceptable gender-neutral pronoun, but here are some suggestions to help neutralize your writing:
1. Use “they”
This option is currently much debated by grammar experts, but most agree that it works well in several kinds of situations. Keep in mind that “they” is traditionally used only to refer to a plural noun.
“Jimmy Carter and Bill Clinton were both American presidents during the 20th century. They were also both Democrats.”
To use “they” to refer to a singular noun has traditionally been taught as incorrect grammar. Many Americans use “they” in conjunction with a singular noun while speaking, but find it awkward when reading or writing it.
“When an attorney attends a court hearing, they stand to address the court.”
Purists consider this bad grammar, but use of “they” and “their” have been used for centuries as gender-neutral pronouns by good writers from Chaucer onward. Another alternative, using the neutral term “one,” as in “one’s money,” is proper, but has a stilted sound to American ears, and may seem awkward.
2. Use he or she or he/she
Another option the gender-savvy writer can use to deal with situations where a pronoun needs to refer to a person whose gender isn’t known, include both pronoun options as “he or she” or “he/she.” Using this form opens another can of worms, however. Should it be he/she or she/he?
“Each attorney in our firm is encouraged to donate time to a charity. He or she may select the cause of his/her choice.”
3. Alternate genders and pronouns
You may also choose to alternate gendered pronouns. Changing from masculine to feminine pronouns in the same paragraph may cause some reader confusion, and may be distracting. I’ve heard the use of alternating feminine and masculine pronouns described as “whiplash grammar.”
4. Eliminate the pronoun altogether
You could also simply eliminate the pronoun. “Attorney Smith formerly taught writing and literature at Highlands High School. This teacher and lawyer also served as the mock trial coach for the school.”
An easy fix is to remember that if the original noun can be made plural, the pronoun can also be made plural. “When attorneys succeed, they can thank their mentors.”
Don’t forget about the odd or unexpected words. Although “man” may have originally been intended to mean “adult human,” it is now more acceptable to remove the masculine connotation. Use “humanity” rather than “mankind,” and “synthetic” rather than “man-made,” for example.
These suggestions may seem feminist or radical to some, but using traditional masculine pronouns often appears gender-biased. Along the same lines, using strictly feminine pronouns can be interpreted as sexist or patronizing. By keeping pronouns neutral with regard to gender, we focus the reader on what we are saying, rather than the words we are using.
Anne Smith practices in the Real Estate Default Group of Weltman, Weinberg & Reis Co., LPA, focused on foreclosure services in the states of Ohio and Kentucky. She is based in the Cincinnati office. Anne can be reached at 513.333.4012 and ansmith@weltman.com.
Filed under: Uncategorized
Starting my morning off with CU Times like I often do, I see that there appears to be some government wide fallout from the Vegas junket that the GSA held 2 years ago. Like most people, all I can do is compare it to my own situation. I travel a lot for my job. Anyone who works for credit unions will tell you that the events are not extravagant. Are some of them held at nice places? Of course. Do they feature mind readers and clowns? Not unless a vendor booth has a mind reader/clown motif. Note to self, that’s not a bad idea: next time at the Ohio Credit Union League Convention booth we should dress up as mind-reading clowns. Except I hate clowns, but that’s another story.
And I digress. Why do I feel bad for NCUA workers? Because canceling a reception does not help moral. I would bet you that there were no clowns scheduled to appear at the NCUA reception. I have been to NCUA receptions. They are not wild parties. Look, NCUA has to compete with private employers to recruit bright and honest people. Are there perks in being an employee of the federal government? Sure, good benefits, nice holidays, what have you, but in Washington D.C. private industry pays more and NCUA has to compete with that. Having a modest reception for hardworking employees in any industry is a good idea.
The GSA seems, at the moment, to have ruined such things for everyone. The recent secret service debacle didn’t help either. Most government workers aren’t like this and most government employee events are not extravaganzas. If it turns out that being a government employee means you are never allowed to appear to be having fun ever, it may make good people who work for the government consider updating their résumés.
By Matthew D. Urban, Esq.
The issue of whether or not a credit union, or any creditor for that matter, should issue a 1099-C after an account has been charged off is always a topic of great discussion, particularly when the creditor is interested in continuing collection efforts. As many know, pursuant to IRS regulations governing the issuance of a 1099-C, one of eight identifiable events that trigger the filing of a 1099-C occurs when a creditor makes a decision to discontinue collection activity and discharge the debt. While this would appear to prevent a credit union from issuing a 1099-C and then continuing to collect on the debt, a 2009 decision out of the US Bankruptcy Court for the Western District of Pennsylvania says otherwise.
In the case of In Re: Stephen M. Zilka, Debtor, Eric Bononi, Trustee of the Bankruptcy Estate of Stephen Zilka, movant v. Bayer Employees Federal Credit Union, Respondent, 407 B.R. 684; 2009 Bankr. LEXIS 1855 (hereinafter “Zilka”), Bayer issued four separate 1099-C forms in relation to Zilka’s four accounts with the credit union, which were included as part of his bankruptcy petition. During the pendency of the bankruptcy, a personal injury claim of Zilka’s was settled for an amount sufficient to pay all of Zilka’s unsecured claims. Zilka subsequently objected to the trustee paying the claims of Bayer on the basis that the credit union issued a 1099-C and as a result argued that the debt was discharged, collection efforts could no longer be pursued and that Bayer’s claims should not be paid.
Bankruptcy Judge M. Bruce McCulough, however, disagreed after conducting a detailed review of the regulations surrounding the issuance of a 1099-C. Specifically, Judge McCullough laid out several basis to support his conclusion that the issuance of a 1099-C did not serve to discharge a debt and preclude further collection efforts. Initially, the court found that the IRS has consistently held the view that Form 1099-C was not an admission by the creditor that it has discharged its debt and can no longer pursue collection. Second, a Form 1099-C can not constitute an admission by the creditor that is has discharged its debt on the basis that a Form 1099-C is sometimes filed in error and can and are typically amended or corrected. Third, while citing several court decisions across the country, the court found that a 1099-C itself does not, as a matter of law, operate to legally discharge a debt. Last, the court also held that under Pennsylvania’s Uniform Commercial Code, the 1099-C again does not itself operate to legally discharge a debtor from liability. Ultimately, Judge McCullough required Bayer to file a corrective 1099-C to reflect that Zilka’s debts had since been paid. By doing so, he found that any tax benefit received by Bayer or tax burden incurred by Zilka upon the issuance of the 1099-C could be rectified as a result of the payment on the previously outstanding debt.
As a matter of practice, the issuance of a 1099-C as a collection tool should be carefully looked at as part of an overall collection strategy. The court’s decision in Zilka certainly gives further support to the position of creditors that the issuance of a 1099-C does not discharge a debt and also does not preclude them from pursuing continued collection efforts. However, if a credit union chooses to issue a 1099-C upon the charging off of an account and then pursues and subsequently collects on the outstanding debt, the credit union must be aware of the court’s requirement in Zilka to issue a corrective 1099-C upon that occurrence. Ultimately, it may also be in the credit union’s best interest if immediately issuing a 1099-C including a separate notice to the debtor that they plan to continue debt collection activities, and that the 1099-C does not serve to cancel the debt. Ultimately, no mater how a credit union decides to pursue its delinquent accounts, it must be aware that no matter the path they choose that those choices have consequences which should be carefully discussed and reviewed.
Matthew Urban is the managing attorney of the Credit Union Group in the Pittsburgh office of Weltman, Weinberg & Reis Co., LPA. He oversees the credit union work across Pennsylvania, as well as practices in Consumer Collections. Matthew can be reached at 412.338.7134 and murban@weltman.com.
Filed under: foreclosure
by Joshua D. Miron, Esq.
A recent Florida Third District Court of Appeal case has once again brought to light what most of us who went to law school take for granted, a “person seeking to enforce an instrument conveying an interest in real property must demonstrate he has directly or indirectly acquired ownership of the instrument”. Why is this a new or novel issue? It isn’t, but in a time where loans are bought and sold sometimes two, three or ten times, lenders must be increasingly aware that each of their respective ducks must be in a row in order to help ensure a proper foreclosure.
Interestingly enough, the majority opinion focused on the issue of Ex-Parte Motions for Substitute Party Plaintiff, specifically that a defendant’s failure to object or otherwise respond to a motion to substitute party plaintiff waives the defense, thereby precluding an argument based upon standing at trial. The dissent, on the other hand, took the opportunity to point out what it believed were glaring deficiencies which would have precluded judgment in favor of the bank.
The original action was initiated in January 2005, by another lender. The sole witness to prove the lender’s ownership of the promissory note (which had been lost) and mortgage, and the default on the loan, was a manager for a separate servicing agent. The manager testified from a file they brought with to trial, but it was clear to the Court that they were not the custodian of those records, were not the servicing agent at the time of default and had no personal, first-hand knowledge of whereabouts of the original Note (the file contained neither the original note nor the original mortgage).
It is indisputable that, absent testimony from a witness with direct first-hand personal knowledge, a suit for foreclosure can not and will not succeed if the Plaintiff does not have the original Note in its possession, is unable to testify as to the transfer and last known whereabouts of the Note and is further unable to testify as to the Defendant’s alleged default. “It is apodictic there can be no cause of action to foreclose a mortgage unless we know where the paper is and that it actually represents something. There is much “sand in the gears” of our property transfer system in these times. However, we cannot bend the rules. A person seeking to enforce an instrument conveying an interest in real property must demonstrate he has directly or indirectly acquired ownership of the instrument.” Excerpt: Judge Sheppard, J., dissenting.
If you have any questions on this matter, contact Mr. Joshua D. Miron, Esq. Josh is an associate in the Real Estate Default Group of based in the Ft. Lauderdale, Florida office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 954.740.5223 and jmiron@weltman.com.
