Filed under: mortgages
By Zarksis Daroga, Attorney
Please be advised that the State of Indiana recently revised two statutes that deal with unrecorded assignments and the rights of an assignee in a foreclosure case, where the assignment is not recorded. The revised statutes will take effect July 1, 2013.
The revised Indiana Code 32-29-8-2 states that a person who acquires an interest in a property via an assignment of mortgage but fails to properly record the assignment, is bound by the court’s judgment or decree, in a subsequent foreclosure proceeding, as if he/she was named as a defendant in the case.
The revised Indiana Code 32-29-8-3 states that any person who buys a property at sheriff sale in Indiana, pursuant to a foreclosure proceeding, holds the property free and clear of any lien of an assignee if the assignment was not properly recorded. The time to redeem the property from the sheriff sale, by the assignee, has been eliminated by this revised statute.
Hence, it is important for lenders/assignees to timely and properly record an assignment of mortgage in the county where the property is located, as to receive notice of subsequent foreclosure cases or at minimum, to protect from being defaulted out, if not named in the foreclosure case.
If you have any questions on this matter, please contact Mr. Zarksis Daroga, Esq. Zarksis is an attorney in the Real Estate Default Group of Weltman, Weinberg & Reis Co., LPA who can be reached at 513.333.4075 and zdaroga@weltman.com.
Filed under: mortgages
by David W. Cliffe, Attorney
On January 30, 2013, House Bill No. 9 was introduced in the Ohio General Assembly. Sponsored by Representative Peter Stautberg of Cincinnati, the goal of the legislation is to clarify and add to the powers of a receiver as it relates to real property. If enacted, the legislation creates the most substantive changes to Ohio law concerning receivers since the 1950′s.
The proposed bill includes changes to who must consent to the appointment of a proposed receiver who happens to hold an interest in the property, an expansion and clarification of the duties of a receiver and the establishment of a procedure for the receiver to sell the real property, subject to court approval. With regard to the appointment of an “interested” receiver, the statute widens the pool of those who must consent to that appointment to include all parties in the action as well as those persons holding either a recorded ownership interest or a financial lien on the premises. Another modification is that, in addition to a corporation, the statute now specifically provides for the appointment of a receiver for a partnership, limited liability company or related entity created under Ohio law. Although the court is not bound to appoint the person nominated by the movant for the receivership, that individual will receive priority consideration for the role.
Along with the statutory changes concerning the receiver’s appointment, the legislation further broadens the situations in which a receiver may be appointed. In some ways, this legislation constitutes legislative recognition of powers that courts in some jurisdictions have already provided to a receiver. This legislation, however, allows for a more uniform process, county by county. One specific change includes the empowerment of a court to appoint a receiver for purposes of enforcing the contractual assignment of rents and leases.
In addition to an expansion of the situations in which a court elects to appoint a receiver, the proposed statute also clarifies the powers that the receiver enjoys upon appointment. Those powers include the prosecution and defense of actions as a specific party, the control of any real or personal property and the right to receive rents, collect payments and negotiate both receivables and payables. Moreover, the receiver may execute contracts of sale, lease or improvements to receivership property, including deeds, leases and other conveyances for real or personal property. Finally, the receiver, whose fees are charged as court costs as a priority administrative expense, may establish and maintain deposit accounts as receiver and otherwise act as specifically empowered by the court.
Under one of these specified rights of the receiver, namely court-sanctioned sales of the real property, the receiver could sell that receivership property by means of a private sale free and clear of liens through a private auction, public auction or in a manner deemed by the court to be fair and reasonable to all parties. The receiver shall seek to maximize the return on sale while considering the ongoing costs of property maintenance. The decision of the receiver to sell the premises is subject to judicial review and approval, with or without condition, and the court may then deem the premises sold free and clear of all liens. The statute’s proposed “free and clear” language will assist with insuring that good title passes to the buyer of the premises from the receivership. Finally, the court’s order approving the sale must set a date, at least three days hence, at which point the owner must exercise its right of redemption or be barred from asserting that right.
Upon the bill’s passage, Lenders will more likely utilize receiverships as they benefit from the increased uniformity as well as the greater efficiency and certainty that good title will pass to the buyer at the end of the process. Given that this proposed legislation would represent the most substantial changes to this area of receivership law in at least a half-century, interest groups will likely provide significant input in the coming months as the legislation works its way through the process. Hopefully, the resulting statutes will provide a clearer, broader and more uniform role for receivers appointed in the various common pleas courts in Ohio.
David is an attorney focused on foreclosure and eviction services within the Real Estate Default Group of Weltman, Weinberg & Reis Co., LPA located in the Cincinnati office. He can be reached at 513.333.4064 and dcliffe@weltman.com.
Filed under: mortgages
By Daniel E. Best, Partner
In a published decision on February 20, 2013, the Michigan Court of Appeals clarified what can be included in a deficiency after foreclosure of a mortgage. In the case of Citizens v. Boggs, the Michigan Court of Appeals reviewed a mortgage deficiency action that sought recovery of strictly insurance premiums and taxes on the property. In the case, the mortgagee bid the full amount of principle, interest and costs of the sale. The Court of Appeals defined the bid as a Full Debt bid, but that did not end its analysis.
Prior to the foreclosure sale, the mortgagee had paid for insurance premiums in accordance with the terms of the mortgage. In addition, taxes had become due but were not paid until after the sheriff’s sale was complete. It also paid additional insurance premiums after the sheriff’s sale. The mortgagee sought recovery of the amount it ultimately paid in taxes, as well as the insurance premiums paid both prior to and subsequent to the sheriff’s sale. The trial court denied any recovery, and the mortgagee appealed.
On appeal, the mortgagee argued that as it paid the insurance premiums and taxes in accordance with the terms of the note and mortgage, it is entitled to recover all of these monies. The debtor argued that as the mortgagee did a full debt bid, no further monies could be owed.
The appellate court reviewing the matter acknowledged that a full debt bid was done, but indicated that it was not the end of the analysis. That court identified the key date as being the day of the sheriff’s sale. Basically, that court allowed recovery of any monies actually expended as of the date of the sheriff’s sale. In the case at hand, that meant the monies the mortgagee had actually paid at the time of the sheriff’s sale could be recovered. However, the amount subsequently paid for taxes and additional insurance, even if those obligations accrued prior to the sheriff’s sale, could not be recovered.
For a mortgagee seeking to recover a deficiency balance, the rule is simple. If you want to recover taxes, insurance or other expenditures made pursuant to the mortgage, then actually pay those prior to the foreclosure sale. Under this decision, the deficiency is calculated as of the day of the sheriff’s sale. It is simply the total balance owed under the terms of the mortgage and mortgage note (including principle, interest, paid taxes, paid insurance and paid other allowable expenses) plus the allowable costs of the foreclosure less the bid amount.
If you have any questions on this matter, please contact Mr. Daniel E. Best, Esq. Dan is the managing partner of the Detroit office of Weltman, Weinberg & Reis Co., LPA, and can be reached at 248.362.6139 and dbest@weltman.com.
Filed under: mortgages
By Carolyn M. Artus, Attorney
On February 8, 2013, Illinois Governor Pat Quinn signed into law legislation which will reduce the overall foreclosure process for abandoned residential property throughout Illinois to a period of 90 to 180 days. The law becomes effective June 1, 2013.
Abandoned Residential Property Defined
The new law defines abandoned residential property as residential real estate that is not legally occupied and where two or more of the following conditions exist:
- Any construction work has been discontinued for at least 6 months and the property is not in habitable condition;
- The property has multiple broken or boarded windows or multiple broken window panes;
- The property has broken or continually unlocked doors;
- The property has been stripped of materials or has had fixtures removed;
- Gas, electrical or water services are terminated;
- The mortgagor indicates in writing a clear intent to abandon;
- Law enforcement receives a report of trespassing, vandalism, or other illegal acts committed at the property within the prior 6 months;
- A court or municipality declares the property unfit for occupancy and orders the property to remain vacant;
- The police, fire department or code enforcement authority asks that the property be secured and winterized for health and safety reasons;
- The property is open and unprotected and in reasonable danger of significant damage due to exposure to the elements, vandalism, or freezing; or
- There is other evidence indicating a clear intent to abandon.
Vacant does not necessarily mean abandoned. If vacant property is secure and in substantial compliance with applicable ordinances, codes, regulations, and laws, the property is not considered abandoned for the purposes of this law.
If a lender or its agent determines in good faith that the mortgaged real estate meets the definition of abandoned residential property, then the lender or its agent may enter, secure, and maintain the abandoned residential property without being subject to liability for civil or criminal trespass.
Expedited Foreclosure Process
The new law provides that the lender may file a motion to request an expedited foreclosure based on abandonment at the time that the foreclosure complaint is filed or any time thereafter. The court must give this type of motion priority, and rule on the motion within a specified time period depending on when the motion was filed. The motion must set forth facts demonstrating that the property constitutes abandoned residential property and must be supported by affidavit. If the lender complies with certain notice requirements and the court makes a finding that the mortgaged real estate is abandoned residential property, then the court should grant the motion and proceed immediately to a trial of the foreclosure claim. If the lender prevails, the mortgagor’s right to reinstatement or redemption expires 30 days from the date the court enters the judgment of foreclosure and sale. Upon expiration of the 30 day redemption period, the abandoned residential property shall be sold at judicial sale at the earliest practicable time. The judicial sale is still subject to confirmation by the court.
Additional Filing Fees
The new law will require lenders to pay additional filing fees for foreclosure actions through the end of 2017. The additional fees will be based on a sliding scale depending on how many foreclosures the lender and its affiliates or servicers filed in the preceding calendar year. If it filed more than 175 foreclosures, the additional fee is $500.00 per foreclosure; if it filed between 50 and 175 foreclosures, the additional fee is $250.00 per foreclosure; and if it filed less than 50 foreclosures, the additional fee is $50.00 per foreclosure. The additional fees will be paid into the Foreclosure Prevention Program Fund and the Abandoned Residential Property Municipality Relief Fund. According to the Governor’s Office, these additional fees will provide millions of dollars annually statewide for housing counseling assistance and to local governments to maintain and secure abandoned residential properties.
In order to benefit from this expedited foreclosure process for abandoned residential property, lenders and its affiliates or servicers need to document account files diligently with any evidence that supports a finding of abandonment.
If you have any questions on this matter, please contact Ms. Carolyn M. Artus, Esq. Carolyn practices in Real Estate Default, focusing on foreclosure and eviction services. Based in the Chicago office of Weltman, Weinberg & Reis Co., LPA, she can be reached at 312.253.9622 and cartus@weltman.com.
By David A. Wolfe, Attorney
Paper billing is a predictable expense and credit unions are understandably eager to go paperless for their member communication, however, many members cling to traditional payment methods. Online banking and bill pay initiatives require a significant investment, but as credit unions switch to electronic statements, they are experiencing increased traffic to their websites and immediate, hard cost reductions.
The E-SIGN Act, enacted in June 2000, provides a general rule for validity of electronic records and allows credit unions to send customers electronic mortgage statements where the member has affirmatively consented to receiving these statements in electronic form. The statute requires credit unions to provide members clear and conspicuous statements of their right to have the record made available on paper and the right to withdraw consent, including any conditions, consequences and fees in the event of such withdrawal; whether the consent applies only to the particular transaction that triggered the disclosure; describing the procedures the consumer must use to withdraw consent and to update information needed to contact the consumer electronically; and informing the consumer how they may request a paper copy of a record and whether any fee will be charged for that copy.
Prior to consenting to the use of an electronic record, under the E-SIGN Act, the credit union must provide the member with a statement of the hardware and software requirements for access to and retention of electronic records. Finally, if the member consents electronically or confirms their consent electronically, it must be in a manner that reasonably demonstrates the member can access information in the same electronic form that will be used to provide the information.
Pursuant to the Dodd-Frank legislation, the Consumer Financial Protection Bureau, (CFPB), has proposed a new rule to allow credit unions to send electronic mortgage statements if the member consents and the full E-SIGN Act consent process would not be required. Section 128(f)(2) of the Truth in Lending Act (TILA), provides that periodic statements “may be transmitted in writing or electronically,” and the CFPB’s proposal would allow credit unions to meet this requirement by sending the member an e-mail notification that the statement is available instead of e-mailing the actual statement. The credit union would only have to obtain affirmative consent by the member to receive their periodic mortgage statements and not full compliance with E-SIGN verification procedures.
The CFPB is currently considering public comments, and its final rule is due January 21, 2013.
David is an attorney in the Consumer Collections unit of Weltman, Weinberg & Reis Co., LPA, in the Michigan office. He can be reached at 248.362.6142 and dwolfe@weltman.com.
By Cheryl D. Cook, Esq.
Student loan debt was recently identified as the “leading source of U.S. household debt outside of mortgages,” approximately $150 billion of which represents private loans. At $904 billion as of the end of March 2012, the total amount of student loan debt is more than the amount of credit card debt in the United States, according to the New York Fed Quarterly Report (May 2012). Of the total amount of student loan debt, more than $8.1 billion is in default.
Richard Cordray, Director of the Consumer Financial Protection Bureau (“CFPB”), and United States Secretary of Education, Arne Duncan, recently presented their findings[1] to various Congressional committees, concluding that a significant number of student loan borrowers “simply did not understand what they signed up for.”
At a July 24, 2012, hearing before the U.S. Senate Banking subcommittee, Rohit Chopra, student loan ombudsman for the Consumer Financial Protection Bureau, testified that borrowers struggling with private student loan debt would benefit from refinancing options.
The CFPB’s “Know Before You Owe” program (discussed in the Winter 2012 Newsletter) includes a project to help consumers “Know Before You Owe” about private student loans. In connection with this project, they have developed a new online tool called the Student Loan Debt Collection Assistant, along with a Financial Aid Shopping Sheet, that can be accessed on the CFPB website. The goal is that colleges and universities will use the tools, especially the Financial Aid Shopping Sheet, to assist student loan borrowers in understanding and evaluating the types of loan products available, based on their own qualifications.
The CFPB has asked for feedback about the tools, asking responders to rank items in their order of usefulness. Both the CFPB and the Department of Education plan to use the feedback to improve the tools. In addition, the Department of Education plans to publish a model form that schools could use to provide clear student loan and financial aid information to prospective students. International credit rating agency, Fitch Ratings, also pointed out that analysis of post-graduation outcomes may prove useful in underwriting, as borrowing and earning potential tend to influence default and delinquency rates.[2]
While declining to speculate about what the CFPB may do to regulate private loan terms, Cordray, Duncan and Chopra emphasized greater transparency in the lending process, greater coordination between schools and lenders to educate student loan borrowers, and mandatory school certification of private student loans.
Cheryl is an attorney in Bankruptcy of Weltman, Weinberg & Reis Co., LPA located in the Detroit office. She can be reached at 248.989.3089 and chcook@weltman.com.
[1] Report to the Senate Committee on Banking, Housing, and Urban Affairs, the Senate Committee on Health, Education, Labor, and Pensions, the House of Representatives Committee on Financial Services, and the House of Representatives Committee on Education and the Workforce., July 20, 2012, CFPB.
[2] Fitch Report, July 20, 2012.
Filed under: mortgages
by David Cliffe, Attorney
On July 17, 2012, the Tenth Appellate District in Columbus, Ohio, issued a decision that, while not groundbreaking from a legal standpoint, could result in about a three to four-week delay in the granting of default judgments for a significant percentage of foreclosure cases in Franklin County.[1] In the case, the borrower requested and attended a mediation hearing through the county program with unsuccessful results. The lender filed a motion for default judgment, which the trial court granted seven days later without a hearing.
On appeal, the appellate court reversed the judgment granted by the trial court. The appellate court, citing the language of Civil Rule 55 and Franklin County Local Rule 55.01, determined that the borrower’s request for mediation constituted an appearance under those Rules, thus requiring a hearing to be set on the motion for default with prior notice to the borrower.
As a result of this decision, the trial courts in Franklin County will now set a hearing and send out notice to the borrower upon the filing of any lender’s motion for default judgment in a foreclosure case where the borrower previously requested mediation. While it appears likely that the hearings will be non-oral in nature and not require the lender’s attorney to make a personal appearance before the court, the addition of this hearing will likely add about three to four weeks to the process of obtaining judgment in these circumstances. In the future, the lender’s attorney will add a request for a non-oral hearing to any motion for default matching this scenario.
One concern this decision causes is that borrowers, who in prior, similar cases were defaulted, will now seek to have the default judgments against them set aside. While there may be a few borrowers who will attempt it, those borrowers will need to allege a meritorious claim for relief and also incur the expense associated with filing a motion for relief under Civil Rule 60B. Based on those factors, borrowers seeking relief will likely be few in number.
In conclusion, lenders involved in foreclosure proceedings in Franklin County should anticipate up to four additional weeks for the date of recovering a default judgment when a case submitted to mediation failed to result in a complete resolution.
If you have any questions on this matter, please contact Mr. David Cliffe, Esq. Dave is an attorney in the Real Estate Default Group of Weltman, Weinberg & Reis Co., LPA focused on foreclosure and eviction services. He can be reached at 513.333.4054 and dcliffe@weltman.com.
[1] Union Savings Bank v. Duffy, 2012-Ohio-3232
Filed under: mortgages | Tags: Homeowner Assistance Settlement Act, Senate Bill 1433
By Benjamin Hoen, Esq. and Patrick Thomas Woodman, Esq.
On June 22, 2012, Governor Corbett signed into law Senate Bill No. 1433, known as the Homeowner Assistance Settlement Act. This new law establishes a special fund known as the Homeowner Assistance Settlement Fund to finance the Homeowner’s Emergency Mortgage Assistance Program, which previously ran out of funding on August 27, 2011. The Act also addresses the failure to comply with notice requirements of the Homeowner’s Emergency Mortgage Assistance Program, commonly referred to as the Act 91 notice.
The purpose of the new law is to limit the damaging effect of the recent Pennsylvania Superior Court decision in the case of Beneficial Consumer Discount Company v. Pamela Vukmam 2012 PA Super 18 (PA Superior Ct. 2012), in which the Court found that the failure of the mortgagee to comply with the Act 91 notice requirements deprived the Court of jurisdiction in the foreclosure.
Following the Vukmam decision, any foreclosure judgment predicated upon a deficient Act 91 notice (in effect between June 5, 1999 and September 8, 2008) was deemed to be void because the deficient Act 91 notice deprived the court of jurisdiction to render the judgment. This new law however, specifically provides that retroactive to June 5, 1999, the failure of a mortgagee to comply with the Act 91 notice requirements does not deprive the Court of jurisdiction over the foreclosure action, and does not impair the subsequent conveyance or other transfer of title of property through the foreclosure proceeding.
The new law grants a Court the right to dismiss a foreclosure action without prejudice, impose a stay on the action, or impose any other appropriate remedy to address the interests of a mortgagor who has been prejudiced by the failure of the mortgagee to comply with the Act 91 notice provisions, but limits the rights of the mortgagor seeking to overturn a foreclosure judgment rendered against them. Under the new law, the mortgagor must affirmatively raise in the action, the mortgagee’s failure to comply with the Act 91 notice requirements, before the delivery of a Sheriff’s Deed or Marshal’s Deed, or the delivery of a deed by the mortgagee.
The Pennsylvania Legislature and Governor Corbett enacted Senate Bill No. 1433, ensuring that title to properties acquired by lenders through foreclosures affected by the deficient Act 91 notice will remain marketable and insurable. WWR anticipates that the Act 91 notice requirements will be reinstated shortly by the Pennsylvania Housing Finance Agency, and we will continue to monitor and report on any new developments arising as a result of this new law. In the meantime, thanks to the passage of the Homeowner Assistance Settlement Act, the mortgage industry has dodged what could have been an imminent “Armageddon” of claims challenging the validity of title to foreclosed properties in Pennsylvania, which were affected by the Vukmam decision.
If you have any questions on this matter, please contact Mr. Benjamin Hoen, Esq. or Mr. Patrick Thomas Woodman, Esq. of Weltman, Weinberg & Reis Co., LPA. Ben is an associate in the Real Estate Default Group (REDG) focused on foreclosure & eviction services based in the Cleveland office. He can be reached at 216.685.1164 and bhoen@weltman.com. Tom is an associate in REDG focused on foreclosure & eviction services based in the Pittsburgh office and can be reached at 412.338.7106 or pwoodman@weltman.com.
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.
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
