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Large National Bank Faces Class Action Suit Over Alleged SCRA Violations
On January 15, an Army Reserve sergeant filed a class action suit against a large national bank for allegedly violating the SCRA limitation on a lender's ability to foreclose on an active duty service member's property. According to the complaint, the bank violated the law by foreclosing on the plaintiff’s home and seizing personal property while the sergeant was on active duty. Wensel et al v. The Bank of New York, No 2:15-cv-00068, (W.D. Penn. Jan. 15, 2015)
President Obama Signs Extension of SCRA's One-Year Foreclosure Protection
On December 18, after passing unanimously in both houses of Congress, President Obama signed into law S.3008, the Foreclosure Relief and Extension for Servicemembers Act of 2014. Previously, the SCRA’s protection for servicemembers against foreclosure for one year after the end of active duty was set to expire at the end of 2014. The Act extends this protection until the end of 2015, at which point the foreclosure protection is scheduled to revert to the period of active duty plus 90 days that was in effect in 2008.
Federal District Court Looks to State Statute of Limitations for SCRA Action
On November 25, 2014, the U.S. District Court for the Eastern District of Michigan applied the state’s three-year statute of limitations for conversion in granting a motion to dismiss a servicemember’s claims of wrongful foreclosure and eviction under the SCRA. Johnson v. MERS, Inc., No. 14-CV-10921, 2014 WL 6678951 (E.D. Mich. Nov. 25, 2014). The plaintiffs argued that, because the SCRA does not explicitly provide its own limitations period within which a suit must be brought, there was no limit for SCRA-based claims; however, the court rejected this argument. Following Supreme Court precedent, the court looked to the most analogous state law and applied its limitations period to the plaintiffs’ SCRA claim. The court considered, and ultimately rejected, plaintiffs’ argument to apply Michigan’s unlimited limitations period for egregious acts under the state’s criminal law. Similarly, the court held that both the ten-year limitations period for breach of contract and the six-year catch-all limitations period did not apply. Ultimately the court concluded that Michigan’s three-year statute of limitations for civil conversion claims was the most analogous to plaintiffs’ SCRA claims. As a result, plaintiffs’ claims were dismissed as time-barred.
Ohio Appeals Court Rules Documents Flawed, Reverses Previous Foreclosure Judgment
On October 22, the Ninth District Court of Appeals reversed a summary judgment decision allowing a trust unit of a bank to foreclose on a home. In this case, the loan servicers were unable to prove who held the promissory note when the trust unit requested a foreclosure order from the trial court. Employees at both servicers failed to attach records relied upon in their respective affidavits, but rather provided copies of the promissory note, mortgage, and the assignment of the mortgage. The Court held that the copies “do not establish when or if the Bank came into possession of the Note or that the Bank was in possession of the Note at the time of the filing of the complaint.” Deutsche Bank Natl. Trust Co. v. Dvorak, 2014-Ohio-4652 29, Ohio. Ct. App., 27120 (Oct.22, 2014)
New York Appeals Court Clarifies Law on Out-of-State Affidavits
Recently, the New York Appellate Division held an affidavit supporting an Oklahoma bank’s motion to foreclose a New York mortgage conformed to New York statutory requirements. An affidavit acknowledged out of state must be accompanied by a certificate of conformity under N.Y. Civil Practice Law and Rules §2309(c), providing that an oath taken outside New York is treated as if taken in New York if accompanied by a certificate required to entitle a deed to be recorded in New York. Oaths acknowledged outside New York by non-New York notaries require a certificate of conformity in substantially the form set out in Real Property Law §309-b. Here, an affidavit of the holder’s senior foreclosure litigation specialist established the mortgage, the default and assignment of the mortgage. It was accompanied by a “Uniform, All Purpose Certificate of Acknowledgment” which substantially conformed to Real Property Law §309-b. The borrowers did not oppose the motion to foreclose; the holder was therefore entitled to judgment. Midfirst Bank v. Agho, 991 N.Y.S.2d 623 (Aug. 13, 2014).
Massachusetts Suit Against Fannie and Freddie Dismissed
On October 21, a federal judge dismissed the claims brought by the State AG that the GSEs violated state law by putting limits on the sale of pre- and post-foreclosure homes. Commonwealth v. Fed. Hous. Fin. Agency, No. 14-12878-RGS, 2014 BL 295733 (D. Mass. Oct. 21, 2014). In this case, the State argued that the GSEs violated a state law by refusing to sell homes in foreclosure to nonprofit organizations who intended to restructure the loan and sell or rent the property back to the original homeowner at a lower price. The 2012 state law forbids banks and lenders from refusing to consider offers from legitimate buyback programs solely because the property will be resold to the former homeowner. The judge dismissed the lawsuit agreeing with the FHFA, conservator of the GSEs, that the Housing and Economic Recovery Act of 2008 (HERA) allows the FHFA to enforce restrictions under its conservatorship mandate authorized by Congress. Further, the judge noted that “Congress, by enacting HERA's Anti-Injunction Clause, expressly removed such conservatorship decisions from the courts' oversight.” The State is expected to appeal the decision.
Nevada Supreme Court Holds Foreclosure Of A Homeowners Association's Assessment Lien Extinguishes A First Mortgage
On September 18, the Nevada Supreme Court decided that a homeowners association may foreclose its assessment lien non-judicially and that the foreclosure extinguishes a first mortgage. SFR Investments Pool v. US Bank (130 Nev. Adv. Opinion 75, September 18, 2014). The lender argued that, because the “superlien” law gives an HOA lien priority over a first mortgage to the extent of nine months of unpaid dues, only nine months of unpaid dues should have priority over a first mortgage, not the entire assessment lien. The Nevada Supreme Court acknowledged competing views of “payment priority” and “lien priority” proponents, but ultimately sided with the lien priority camp because of the language of the superlien statute and general principles of lien priority. The Court suggested that lenders may prevent losses associated with HOA superliens by paying off the liens or by establishing escrow accounts for HOA assessments to avoid using its own funds. The Nevada decision is consistent with an August 28 decision on the same issue by the D.C. Court of Appeals in Chase Plaza Condominium Association v. JP Morgan Chase Bank, No. 13-CV-623 & 13-CV-674 (D.C. Cir. 2014).
NYDFS to Investigate Potential Predatory Practices by Hard Money Lenders
On September 16, the NYDFS announced that they have issued subpoenas to nine “hard money” lenders, groups that originate short-term, high interest loans secured by a borrower’s home or other real estate, as part of a probe into whether such lenders are intentionally structuring loans with the expectation of foreclosing on the property. NYDFS noted that “[w]hile many hard money lenders may be engaged in legitimate financial activities, certain unscrupulous companies appear to be taking advantage of borrowers in tough financial straits by making loans that are designed to fail.” The NYDFS’s investigation is focused on whether the nine lenders are intentionally structuring hard money loans with onerous terms, such as high interest rates, numerous upfront fees, and enormous balloon payments, so that borrowers are driven into to default.
Foreclosure of DC Condominium Association's Lien for Unpaid Assessments Extinguishes First Mortgage
(Chase Plaza Condominium Association, Inv. V. JP Morgan Chase Bank, No 13-CV-623 & 13-CV-674, decided August 28, 2014). In a case of first impression, the District of Columbia Court of Appeals held that a condominium association’s foreclosure of a lien for unpaid assessments extinguished the first mortgage on the unit. The District of Columbia’s condominium “super-priority lien” law (created in 1991) grants super-priority to condominium association liens for up to six months of unpaid assessments. The super-priority lien law does not specify what happens when the condominium association forecloses and the proceeds of the sale are insufficient to pay the first deed of trust. The Court of Appeals looked to general foreclosure law for guidance, finding that foreclosure of a lien with superior priority extinguishes liens with lower priority. Here, the $280,000 purchase money first mortgage was made in 2005, the owner’s assessments became delinquent in 2008, the association foreclosed its $9415 assessment lien in 2010, and the bidder at the foreclosure sale paid $10,000 for the property. The mortgagee sued to have the foreclosure set aside. The Court reasoned that the drafters of the super-priority lien law “understood that foreclosure of a super-priority lien could extinguish a first mortgage … but expected that mortgage lenders would take the necessary steps to prevent that result, either by requiring payment of assessments into an escrow account or by paying assessments themselves to prevent foreclosure,” and rejected the lender’s argument that permitting foreclosure of condominium assessment liens to extinguish first mortgages would be unreasonable as a matter of policy.
Illinois Adds Omitted Subordinate Interest Provisions to Mortgage Foreclosure Law
On August 26, Illinois amended its Code of Civil Procedure by adding Section 15-1603.5 to address situations where a foreclosure sale occurred, but a junior lienholder was not named in the foreclosure complaint. Specifically, the law permits a holder of a certificate of sale who discovers an omitted subordinate interest to file a strict foreclosure complaint naming the person who has the omitted subordinate interest as the defendant. Unless the defendant objects, the court must enter a judgment extinguishing the omitted subordinate interest. If the defendant objects, the court must hold a hearing and order either (i) that the defendant has not agreed to pay the redemption amount, in which case the court must enter judgment; or (ii) that the defendant has agreed to pay the redemption amount. The law also sets forth the items that must and must not be included in the redemption amount, and provides that the defendant has 30 days after the entry of the order to pay the redemption amount. Although the person who has an omitted subordinate interest does not have a right to file a strict foreclosure action, the person does maintain the right to claim surplus proceeds from the foreclosure sale.