Filed under: foreclosure, mortgages | Tags: foreclosure, kenton county, kentucky, mortgage, philip ratliff
By: Philip Q. Ratliff, Esq.
Kenton County, Kentucky Circuit Court, Kentucky’s second-largest in terms of foreclosure filings, has issued a general order affecting the documentation required in all new foreclosure complaints filed after November 15, 2010. These changes may significantly affect foreclosure timelines in this county, including the first legal date. Given that this is a relatively large county and that other counties often follow Kenton County’s lead, the possibility exists that this requirement could spread to other counties within Kentucky. These changes in Kenton County, Kentucky are similar to the requirements adopted by many Ohio Courts in recent years.
Effective November 15, 2010 and thereafter, all new foreclosure complaints must include a copy of the note and all endorsements, a recorded copy of the mortgage, and a copy of any and all assignments of the note and mortgage. Most importantly, the assignment of the note and mortgage to the named plaintiff must be executed prior to the filing of the complaint. The assignment need not be recorded prior to the filing of the complaint, although it must be recorded prior to filing a motion for judgment.
In addition to the foregoing, the complaint must include an affidavit by plaintiff, its representative, its attorney or servicer (a) documenting that the named plaintiff is the holder of the note and mortgage at the time the complaint is filed, and (b) identifying the plaintiff as either the original note and mortgage holder, or as an assignee, trustee or successor-in-interest of the original. Further, the order requires the complaint to include documentation establishing any succession of interest, such as a corporate merger, if applicable.
These rule changes magnify the importance of providing foreclosure counsel with copies of any and all endorsements, allonges, and executed assignments of mortgage with any foreclosure referral in Kenton County, as well as copies of any pertinent corporate merger documents (assuming the merger documentation does not readily appear on state or federal websites).
On foreclosure referrals received by our firm for Kenton County, we will notify you promptly upon receipt of the preliminary title report of the need for an assignment or assignments before proceeding and, if requested by our client, will prepare and send the necessary assignment(s) for execution to our client.
For a copy of the General Order, go here.
If you have any questions on this matter, please contact Mr. Philip Q. Ratliff, Esq. Phil is an associate focused on foreclosure and eviction in the Real Estate Default Group at Weltman, Weinberg & Reis Co., LPA. He can be reached at 513.723.2215 or via email at email@example.com.
Filed under: mortgages, SAFE Mortgage Licensing Act | Tags: florida office of financial regulation, lenders, loan underwriter, mortgage, mortgage loan originators, S.A.F.E. Act
On August 17, 2010, an Assistant General Counsel for the Florida Office of Financial Regulation (OFR) issued an informal opinion clarifying whether underwriters employed by Florida-licensed mortgage lenders will be required to be licensed as “mortgage loan originators” beginning October 1, 2010.
Florida’s Senate Bill 2226, which substantially amended Chapter 494, Florida Statutes, was enacted in 2009, to bring Florida into compliance with the Federal S.A.F.E. Act requiring “loan originators” to be licensed. “Loan originators” is defined fairly broadly in the Act to include employees who deal directly or indirectly with the public, by soliciting or offering to solicit a mortgage loan, accepting offers to accept mortgage loan applications, negotiating the terms, processing the application, or negotiating or offering to negotiate the sale of an existing mortgage loan to a non-institutional investor.
The statute expressly excluded persons who perform only administrative or clerical tasks, including quoting available interest rates, physically handling a completed application, or transmitting a completed form to the lender on behalf of a prospective borrower.
Will a loan underwriter be deemed a “loan originator,” who needs a license, or one who performs only administrative or clerical tasks, who does not need a license? The opinion clarifies that underwriters who are W-2 employees of licensed mortgage lenders are not required to obtain loan originator licenses with the OFR. However, in-house underwriters who work for a licensed lender must be supervised by a licensed loan originator in order to comply with the S.A.F.E. Act and Chapter 494, Florida Statutes.
The opinion emphasized that it is only an informal opinion of the Assistant General Counsel, and is not binding on the OFR. Florida State Law and the Florida Administrative Code provide procedures to request a declaratory statement, which would be legally binding on the OFR.
Weltman, Weinberg & Reis (WWR) is scheduled to open its Ft. Lauderdale office in September, which will be managed by Junior Partner Lisa Rogers, and will provide real estate foreclosure and bankruptcy representation throughout the state. Florida makes the Firm’s seventh state in which it will provide direct state-wide representation with regard to these matters and the tenth office for WWR.
For a complete copy of the opinion letter issued by the OFR Assistant General Counsel, go here.
For more information about the issues discussed in this advisory, or for representation in Florida, please contact Lisa Rogers, Junior Partner in the Real Estate Default Group at WWR. Lisa can be reached at (954) 459-0209 or via e-mail at firstname.lastname@example.org. You may also contact Larry Rothenberg, a partner-in-charge of the Cleveland real estate and foreclosure department of WWR. Larry can be reached at (216) 685-1135 or via e-mail at email@example.com. He is the author of the Ohio Jurisdictional Section contained within the treatise, “The Law of Distressed Real Estate”, published by The West Group. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan, with Florida opening soon.
Filed under: bankruptcy, mortgages | Tags: bankruptcy, chapter 7, lien, mortgage, real property, unsecured
By: Karina Velter, Esq.
August 23, 2010
Following the trend of a majority of the Circuit Courts, the United States Bankruptcy Court for the District of New Jersey concludes that a Chapter 7 debtor may not void a lien under §506(d) where the claim is wholly unsecured. This is an important decision for creditors as it solidifies the principle that a wholly unsecured lien on real property will survive a Chapter 7 bankruptcy unaffected. For example, a Chapter 7 debtor owns real property with a fair market value of $125,000, which is encumbered by two liens. The first mortgage is in the amount of $150,000 and the second is in the amount of $35,000. Based on the ruling of a majority of jurisdictions, the second mortgage (which is wholly unsecured) would survive the bankruptcy unscathed.
In this New Jersey case, a Chapter 7 debtor filed a motion to reclassify a wholly unsecured second mortgage on his primary residence from a secured claim to unsecured, relying on §506(a) and (d). Section 506(a) bifurcates and reclassifies claims into secured and unsecured status. The claim is secured to the extent of the value of the creditor’s interest in the property, and unsecured to the extent that the amount of the claim exceeds the value of the creditor’s interest in the property. Section 506(d) provides for a mechanism to avoid a lien that secures a claim that is not an allowed secured claim.
The court observed that although the debtor’s motion was styled as a motion to “reclassify,” the debtor was actually attempting to void the lien under §506(d). Citing to the Supreme Court’s decision in Nobelman v. American Savings Bank and the Third Circuit’s ruling in In re McDonald, the Chapter 7 debtor attempts to draw a distinction between “stripping off” and “stripping down” a wholly unsecured lien. However, the court rejects the debtor’s argument, concluding that the Supreme Court’s decision in Dewsnup v. Timm, precludes the voiding of a lien under §506(d) in a Chapter 7 case where the claim is wholly unsecured.
To reach this conclusion, the court analyzes several Supreme Court and Circuit Court decisions. In Dewsnup, a Chapter 7 debtor sought to avoid the unsecured portion of a mortgagee’s lien. Reading §506(a) and §506(d) together, the debtor argued that because under §506(a), a claim is secured only to the extent of the judicially determined value of the real property on which the lien is fixed, a debtor can void the lien pursuant to §506(d) to the extent the claim is no longer secured and thus is not an “allowed secured claim.” The Supreme Court disagreed and held that §506(d) does not allow debtor’s proposed “strip down,” because the mortgagee’s claim is secured by the lien and has been fully allowed pursuant to §502, and therefore, cannot be classified as “not an allowed secured claim” for the purposes of §506(d). The Court rejected the debtor’s position that the words “allowed secured claim” must take the same meaning in 506(d) as in 506(a), that is to be read as allowed “secured claim.” The Court reasoned that Congress must have had a full understanding of the pre-Code rule that liens pass through the bankruptcy unaffected, and, “given the ambiguity in the text, the Court was not convinced that Congress intended to depart from that rule. 502 U.S. 410, 112 S. Ct. 773, 116 L.Ed. 2d 903, (1992). “The words in 506(d) need not be read as indivisible terms of art defined by reference to 506(a) but should be read term-by-term to refer to any claim that was, first, allowed—as in the case at hand has been pursuant to 11 U.S.C 502—and second, secured, thereby voiding liens only when the claims they secure have not been allowed.” Id. at 417.
In Nobelman v. American Savings Bank, a Chapter 13 debtor, relying on §506, sought to bifurcate an understated claim, make regular payments toward the “secured” portion of the claim, while paying zero to unsecured creditors, which included the bifurcated “unsecured” portion of the claim. Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L.Ed.2d 228 (1993). The Supreme Court held that the debtor’s proposed plan is prohibited under §1322(b)(2), which provides that a Chapter 13 plan may “modify the rights of holders of secured claims, other than a claim secured by a security interest in real property that is the debtor’s principal residence.” In other words, this section prohibits the modification of an undersecured claim against a debtor’s principal residence. Id. at 328. The court again looked at the wording of the statute and concluded that the use of the phrase “claim secured …by” instead of “secured claim,” in §1322(b)(2), indicates an intent to “encompass both portions of the undersecured claim.” Id. at 331.
Thus, under Nobelman, if there is some value in the debtor’s principal residence to which the creditor’s lien may attach, the antimodification provision in §1322(b)(2) will protect the creditor’s rights as they relate to both the secured and unsecured portions of the claim.
The question presented by this New Jersey debtor is whether a “strip off” rather than a “strip down” of a wholly unsecured lien is permissible in a Chapter 7 case. A majority of courts addressing this issue concluded that there is essentially no distinction between “stripping off” and “stripping down” wholly unsecured liens, and that both actions are prohibited by the Supreme Court’s decision in Dewsnup.
The vast majority of courts do not allow the avoidance of wholly unsecured or undersecured liens in Chapter 7 proceedings. However, a minority of courts still reason that Dewsnup is limited by its facts to the application of cases of partially secured claims, and, therefore, allow the avoidance of wholly secured claims.
In Ryan v. Homecomings Fin. Network, 253 F.3d 778 (2001), the Fourth Circuit Court of Appeals held that although junior lien holders have limited opportunity to recover their unsecured claims, the parties bargained for their positions with knowledge that a superior lien existed. Nonetheless, “under a Chapter 7 proceeding, they are entitled to their lien position until foreclosure or other permissible final disposition is had.” Id.
In In re Talbert, 344 F.3d 555, the Sixth Circuit set forth three bases for the Supreme Court’s holding in Dewsnup: “(1) any increase in the value of the property from the date of the judicially determined valuation to the time of the foreclosure sale should accrue to the creditor” (otherwise it would create a “windfall for debtors); “(2) the mortgagor and mortgagee bargained that a consensual lien would remain with the property until foreclosure; and (3) liens on real property survive bankruptcy unaffected.”
Applying these principles, the court held that to allow a “strip off” would be in contradiction to the pre-Code rule that real property liens pass through the bankruptcy unaffected. Additionally, a “strip off would rob the mortgagee of the bargain it struck with the mortgagor”, i.e., that the consensual lien would remain with the property until foreclosure.
In In re Laskin, the Ninth Circuit Bankruptcy Panel drew a distinction between the application of §506(d) in a Chapter 7 and that in a Chapter 13. The court noted that unlike in a Chapter 13, where the claim must be allowed or disallowed to determine what is paid through the plan, and where the determination of a creditor’s secured status is relevant, “the allowance of a secured claim, or determination of secured status is meaningless in a Chapter 7 where the trustee is not disposing of putative collateral.” In re Laskin, 222 B.R. 872 (B.A.P. 9th Cir. 1998).
Rejecting the debtor’s argument that Nobelman and McDonald compel the voiding of a lien in a Chapter 7 where the lien does not attach to some existing value in the property, the New Jersey Bankruptcy court reasoned that the question of voiding a lien on a wholly unsecured claim depends on whether the debtor’s case is filed under Chapter 7 or Chapter 13. In Chapter 13, there must first be a determination whether a junior lien holder has a secured claim for purposes of §1322(b)(2). In a Chapter 7 context, determination of the value in the collateral is irrelevant for purposes of §506(d), as long as the claim is allowed under §502. Thus, the court concluded that in the instant matter, the claim sought to be avoided is both allowed and secured by the debtor’s property.
A major policy consideration in rejecting the debtor’s position is the implication “strip down or strip off” would have on the creditor’s right in the property. The courts conclude that even the “fresh start” policy cannot justify an impairment of the creditors’ property rights because the fresh start does not extend to a claim against the property, but rather, is limited to a discharge of personal liability of the debtor. Another consideration for disallowing the relief sought by the debtor is the potential windfall a “strip off” would create. Because the unsecured creditor would lose any increase in the value of the property by the time of the foreclosure sale, the increase in value would accrue to the benefit of the debtor.
This is an important decision because it precludes debtors from divesting the creditors’ of their rights in the property. This decision supports the principle that wholly unsecured liens pass through the Chapter 7 bankruptcy unaffected.
As more and more courts consider this issue, Weltman, Weinberg & Reis Co., LPA will continue to monitor the status of the lien avoidance cases and keep you apprised of the trends and new developments in the law.
If you have any questions on this matter, please contact Ms. Karina Velter, Esq. Karina is an associate in the Bankruptcy Group of the Weltman, Weinberg & Reis Co., LPA Philadelphia office. Karina can be reached at (215) 599-1500 or via email at firstname.lastname@example.org.
Filed under: Uncategorized | Tags: appraisal, consumer protection act, cpa, default, dodd-frank wall street reform, foreclosure, HUD, larry rothenberg, modification, mortgage, protecting tenants at foreclosure act of 2009, ptaf
By: Larry R. Rothenberg, Esq.
President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, (the “Dodd-Frank Act”) in reaction to the financial crisis. In furtherance of the stated objective of insuring financial stability, the Dodd-Frank Act, which is effective immediately, imposes requirements for oversight and regulation of activities such as appraisal activities, mortgage resolution and modification, etc.
Tucked into the Dodd-Frank Act is an Amendment to the Protecting Tenants at Foreclosure Act of 2009 (“PTAF”). That amendment may greatly increase the number of leases and tenancies that can qualify for protection under the PTAF, to the detriment of REO owners.
Since 2009, the PTAF provided protection to tenants who entered into bona fide leases or tenancies prior to the “notice of foreclosure.” In order to qualify as a bona fide lease or tenancy, the tenant could not be the mortgagor, or the child, spouse, or parent of the mortgagor, and the lease or tenancy must have been the result of an arms-length transaction for rent that is not substantially less than fair market rent for the property, unless the rent is reduced or subsidized due to a federal, state or local subsidy.
The term “notice of foreclosure” was not defined in the PTAF, and was therefore ambiguous. Did it mean the lis pendens date, which in Ohio is the date the foreclosure complaint was filed, or did it mean the date of service of the summons on the mortgagor, the date the notice of the sale was filed in the case, the date the notice of the sale was served on the mortgagor, the date of the sheriff’s publication of the sale, the date of the court’s entry of the order confirming the sale, or even actual notice of the foreclosure to the tenant?
In any event, the REO owner acquired title to the property subject to the rights of a “bona fide tenant” under a bona fide lease or tenancy entered into prior to the date that the particular judge would deem to be the “notice of foreclosure.” In order to recover possession of the property through legal action, the REO owner was required to provide a qualifying tenant with written notice, at least 90 days prior to the effective date of the notice, to vacate the premises.
The Dodd-Frank Act’s amendment to the PTAF clarifies the ambiguity to a large extent by stating: “For purposes of this section, the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or a person as a result of an order of a court or pursuant to provisions in a mortgage, deed-of-trust, or security deed.”
Therefore, it can no longer be argued, for example, that the PTAF is only applicable to leases or tenancies entered into prior to the lis pendens date. While some ambiguity still remains, the PTAF as now amended, will likely be interpreted to apply to leases or tenancies entered into any time prior to the recording of the sheriff’s deed or other conveyance resulting from the foreclosure. In other words, the PTAF will now apply to a tenant, other than the mortgagor, or the child, spouse or parent of the mortgagor, who enters into a lease or tenancy even after the sheriff’s sale, and probably even after confirmation of the sheriff’s sale, until the sheriff’s deed is recorded, as long as the lease or tenancy appears to be an arms-length transaction for an amount not substantially less than fair market rent, unless subsidized.
The amendment does not provide an express exception even if the tenant had actual knowledge of the foreclosure proceedings, as long as the lease or tenancy otherwise qualifies. This opens the door wider than before to potential fraudulent leases or tenancies through the use of straw-man tenants or others, as a strategy to significantly delay the REO owner from recovering possession of the property. It may be difficult to prove that such a lease or tenancy was not an arms-length transaction. “Strategic renting” may now join “Strategic defaults” in our lexicon.
It is also unclear as to whether this change will be imposed retroactively to pending eviction actions or those not yet commenced, where the sheriff’s deed was recorded prior to the Dodd-Frank Act. Although ordinarily, statutes such as this would provide only prospective relief and not be applied retroactively, the clear intent of the Dodd-Frank Act can easily influence a court to interpret the prior ambiguity in the PTAF more favorably to the tenant.
The Dodd-Frank Act also creates a HUD sponsored program to provide funding for legal assistance not only to mortgagors in default, but to tenants at risk of eviction as a result of a foreclosure. This will enable tenants, to a much greater extent than in the past, to retain attorneys to engage in legal proceedings to delay or prevent the REO owner’s from gaining possession of the property.
As originally enacted, the PTAF contained a sunset provision terminating the Act on December 31, 2012. The Dodd-Frank Act extends the sunset provision to December 31, 2014.
For a copy of the original PTAF, go here.
For a copy of the Dodd-Frank Act’s Amendment to the PTAF, go here.
If you have any questions or would like to discuss this issue in more detail, please contact Larry Rothenberg at 216-685-1135 or via email at email@example.com. Larry is the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section contained within the treatise, “The Law of Distressed Real Estate”, published by The West Group. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan.
Filed under: foreclosure, loss mitigation | Tags: foreclosure, HAFA, HAMP, loan modifications, loss mitigation, mortgage
On April 5, 2010, the Home Affordable Foreclosure Alternative (“HAFA”) will go into effect. This new program is the Obama administration’s latest attempt to help homeowners avoid foreclosure.
HAFA is a new program that will allow borrowers to sell their home for less than the mortgage balance, commonly known as a short sale. Borrowers will receive preapproved short sale terms from their lender prior to putting the home on the market. Eligibility is limited to loans which:
- Are on a person’s primary residence
- Are originated before January 1, 2009
- Are delinquent or in imminent danger of default
- Do not exceed $729,750
- Create homeowner hardship
- The Borrower’s total monthly housing payment exceeds 31 percent of gross income
- Are serviced by Fannie Mae, Freddie Mac, or servicers who have voluntarily signed on to the HAMP program
HAFA comes as a response to the Home Affordable Modification Program (“HAMP”). According to government statistics published in January 2010, of the 3 million plus eligible loans, lenders/servicers have offered, started, or placed loans into trial or permanent modifications to 28% of eligible borrowers. HAFA is one response to the remaining borrowers who have not received a modification. Under the new program, when a borrower does not qualify under HAMP, the lender /servicer must offer a short sale in writing to the borrower within 30 days, and the borrower must respond within 14 days. There are monetary incentives for lenders/servicers who participate in the program. The program is set to expire December 31, 2012.
Critics of the program are concerned with the potential for fraud. To combat such fraud, lenders will require the borrowers, realtors, and buyers to sign affidavits that the sale is an arm’s length transaction. Other concerns include investors making low offers to lenders, buying the property and then selling the property on the open market at a higher rate. To avoid this scheme, lenders can require that offers only come from licensed real estate agents.
HAFA brings more change to the growing loss mitigation industry. Lenders and servicers must keep abreast of the various programs, as well as prepare for the upcoming changes. Weltman, Weinberg & Reis Co., L.P.A. will continue to monitor this situation and provide updates with respect to loss mitigation issues.
If you have any questions on this information, please contact Jennifer M. Monty, Esq. or Matthew G. Burg, Esq. Jennifer and Matt are both Associates in the Litigation & Defense department in the Cleveland office of Weltman, Weinberg & Reis Co., L.P.A. Jennifer can be reached at (216) 685-1136 or via e-mail at firstname.lastname@example.org and Matt can be reached at (216) 685-1111 or email@example.com.