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HUD issues guidance on HECM assignment claims during Covid-19
On April 14, HUD issued Mortgagee Letter 2020-12 to inform mortgagees of alternative documentation options and delayed documentation delivery deadlines for submitting Home Equity Conversion Mortgage (HECM) claims for during the Covid-19 related closures. In particular, alternative documentation is permitted to document that taxes are current, HOA and condominium dues are not delinquent, and the borrower will occupy the property as a principal residence. The guidance addresses delayed delivery of original notes, mortgages, and assignments to the Secretary. It also reminds mortgagees of the required repurchase of the HECM if the HECM did not meet all criteria at the time of assignment claim payment.
Maryland court of appeals: state consumer protection act covers HOA collections
On January 27, the Court of Appeals of Maryland affirmed the dismissal of a homeowners association’s (HOA) confessed judgment complaint against a consumer, and stated that the HOA could not file an amended complaint. According to the opinion, the consumer owned a home that is part of an HOA, which makes annual assessments to cover the costs of general upkeep of the common areas. When she fell behind in paying her HOA assessments, the HOA drafted and the consumer signed, a promissory note (note) that contained a confessed judgment clause. The consumer defaulted on the note and the HOA filed a complaint for judgment by confession along with the note and an affidavit that stated the note did not involve a consumer transaction. The district court entered judgment for the HOA. The consumer filed a motion to vacate the judgment, claiming that the note arose from a consumer transaction, and the confessed judgment clause was prohibited under the Maryland Consumer Protection Act (MCPA). The district court agreed that the note evidenced a consumer transaction and vacated the confessed judgment and set the matter for trial. After the consumer received a notice regarding the trial on the issue, she filed a motion to dismiss, which was denied, and she appealed to the circuit court. The circuit court held that the confessed judgment was prohibited and that the complaint was required to be dismissed. The HOA filed a petition for writ of certiorari, which the Court of Appeals granted.
Upon review, the Court of Appeals found that under the MCPA (i) the HOA assessments are consumer debt; (ii) the HOA’s note was an extension of consumer credit; and (iii) confessed judgment clauses in contracts involving consumer transactions are prohibited. Further, the Court of Appeals determined that the HOA could not “circumvent the protections afforded to a debtor under the [M]CPA by inserting language into a confessed judgment clause which purports to preserve a debtor’s legal defenses.” The Court of Appeals also rejected the consumer’s assertion that the note was void as a result of the confessed judgment clause, finding instead that though the HOA should not be allowed to file an amended complaint in the current action, the HOA could file a separate action for breach of contract if the unlawful clause was severed from the note. Accordingly, the Court of Appeals stated that the current action should be dismissed without prejudice.
Nevada Supreme Court Holds that HOA "Superpriority" Statute Does Not Violate Due Process, Declines to Follow 9th Circuit
On January 26, in Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage, No 68630, (Nev. Jan 26, 2017), the Nevada Supreme Court reaffirmed its interpretation of the state statute granting priority lien status to unpaid condo assessments (Nev. Rev. Stat. § 116.3116 et seq.); specifically that foreclosure of such liens extinguishes prior-recorded mortgages. The Nevada Supreme Court declined to follow a 2016 ruling by the Ninth Circuit holding that the statute violates the Due Process Clause of the 14th Amendment. Rather, the Nevada Supreme Court stated that the Due Process Clause protects individuals from state actions, and a foreclosing HOA cannot be deemed to be a state actor. In doing so, the court specifically notes that “[w]e acknowledge that the Ninth Circuit has recently held that the Legislature's enactment of NRS 116.3116 et seq. does constitute state action. . . . However, for the aforementioned reasons, we decline to follow its holding.”