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Minnesota Supreme Court Affirms that Foreclosing Parties Must Record Mortgage Assignments Prior to Initiating Foreclosure by Advertisement
On April 17, the Minnesota Supreme Court affirmed an intermediate appellate court ruling that held (i) a strict compliance standard applies to Minnesota’s foreclosure by advertisement process, and (ii) a foreclosure by advertisement is void where the foreclosing party fails to record all mortgage assignments prior to initiating the foreclosure process. Ruiz v. 1st Fidelity Loan Servicing, LLC, No. A11-1081, 2013 WL 1629192 (Minn. Apr. 17, 2013). The case arose after an assignment correcting the name of the assignee was recorded on the same day that the assignee (i) published the first notice of foreclosure sale, and (ii) recorded a notice of pendency of foreclosure. After the assignee foreclosed on the property, the mortgagor brought an action in Minnesota District Court seeking to void the foreclosure by arguing that foreclosing parties must comply strictly with Minnesota’s foreclosure by advertisement process. The district court granted summary judgment in the assignee’s favor, concluding, among other things, that a substantial-compliance standard, rather than a strict compliance standard, applies to Minnesota’s foreclosure by advertisement process. The Minnesota Court of Appeals reversed the district court on appeal, holding instead that a strict compliance standard applies to Minnesota’s foreclosure by advertisement process. On further appeal, the state supreme court analyzed the statutory language containing Minnesota’s foreclosure by advertisement process and determined that the plain language of the statute unambiguously requires all mortgage assignments to be recorded before a foreclosing party has a right to engage in the process of foreclosure by advertisement. As a result, the court determined that the assignee’s foreclosure was void and that the case should be remanded to the district court for further proceedings.
Freddie Mac Announces Numerous Servicing Policy Updates
On April 15, Freddie Mac issued Bulletin Number 2013-6, which announces numerous revisions to servicing requirements. The bulletin updates the allowable amounts for attorney fees for default-related legal services and details changes to the reimbursement process for such fees. Freddie Mac also reminds servicers about changes to foreclosure sale bidding on first lien mortgages. The bulletin explains that because Freddie Mac may need to verify directly with mortgage insurers the presence and nature of mortgage insurance coverage, servicers and sellers are required to direct mortgage insurers in writing to release data to Freddie Mac upon request. In addition, the bulletin (i) reminds servicers of the reporting activities they must undertake after extending trial periods for borrowers who subsequently file for bankruptcy during the trial period plan and provides requirements on reporting the optional interim month, (ii) revises Servicing Success Program requirements related to Servicer Success File Reviews and the Servicer Performance Profile, (iii) updates the Guide to reflect the retirement of the Freddie Mac Home Affordable Foreclosure Alternatives initiative, and (iv) announces other miscellaneous form and Guide updates.
Bank Regulators Announce First Foreclosure Review Payments
On April 9, the Federal Reserve Board and the OCC announced that payments to borrowers impacted by allegedly improper foreclosure practices would begin on April 12, 2013. The planned payments range from $300 to $125,000, and will be sent to certain borrowers whose mortgages were serviced by 11 of the 13 mortgage servicers subject to recently amended consent orders that replaced requirements related to the Independent Foreclosure Review process with $3.6 billion in cash payments and $5.7 billion in other assistance to 4.2 million borrowers. Payments to borrowers with mortgages serviced by two other servicers will be announced later. The payments will be sent in several waves, with the last wave expected to be sent in mid-July 2013. The announcement notes that the regulators categorized borrowers according to the stage of their foreclosure process and the type of possible servicer error. Then, amounts were determined for each category using the financial remediation matrix published in June 2012 as guidance, but also incorporating input from various consumer groups. The Board and the OCC also published a chart of payment amounts and the number of borrowers identified for each category.
Democratic Lawmakers Push Regulators for Independent Foreclosure Review Details
On March 25, Senator Elizabeth Warren (D-MA) and Representative Elijah Cummings (D-MD) sent a letter to Federal Reserve Chairman Ben Bernanke and Comptroller of the Currency Thomas Curry challenging the regulators’ response to the lawmakers request for documents and information regarding the regulators’ decision to amend a group of April 2011 consent orders with mortgage servicers and cease the Independent Foreclosure Review originally required by those orders. The lawmakers detail the responses and state that the majority of their 14 requests went unanswered. The letter notes recent reports that the foreclosure reviews revealed wrongful foreclosures of military members and borrowers who ever missed a payment, and suggests the regulators are shielding the servicers’ “criminal activity.”
Report Blames Servicers for California Foreclosure Problems
Recently, a collection of community advocacy organizations released a report that attacks mortgage servicers for their handling of foreclosures in California. The report argues that foreclosures decrease the value of the foreclosed home, result in residual property value losses in the surrounding neighborhood, and rob governments of tax revenue as a result of the property depreciation. The report also reviews foreclosures in seven California jurisdictions and claims that foreclosure practices disproportionately impact minority neighborhoods. The groups advocate for servicers to halt foreclosures until they (i) commit to a broad principal reduction program and (ii) report data on principal reduction, short sales, and foreclosures by race, income, and zip code.
Senator Seeks DOJ Investigation of Default Servicing Practices
On March 8, Senator Ron Wyden (D-OR) released a letter to Attorney General Eric Holder advising the DOJ about claims made to the Senator’s office by a “long-time professional in the mortgage industry” that banks and mortgage servicers have engaged in a “systematic effort” to double bill borrowers for certain foreclosure-related fees. The letter identifies a major default service provider with whom other banks and servicers allegedly have been complicit in establishing a fraudulent fee structure that increased foreclosure rates and led directly to other servicing problems, including robosigning. Senator Wyden offers that in addition to being potentially fraudulent, the practices described may violate the False Claims Act. The letter explains that Fannie Mae and Freddie Mac, which currently operate under government conservatorship, are improperly being asked to pay fees that the servicers also are passing on to borrowers. The letter, a copy of which also was sent to the federal housing and banking agencies, seeks a DOJ investigation into these allegations, or a report from the DOJ about any investigation conducted to date. The Senator also (i) seeks guidance from the DOJ about actions Congress can take with regard to foreclosure billing transparency, including a “RESPA-like policy,” (ii) asks whether Fannie Mae’s and Freddie Mac’s policies regarding certain of the fees at issue should be implemented industry-wide, and (iii) requests an investigation of competition in the title industry and alleged pricing and market manipulation practices.
Federal Reserve Board and OCC Release Amended Foreclosure Consent Orders
On February 28, the Federal Reserve Board and the OCC jointly released amendments to their enforcement actions against multiple mortgage servicers to resolve allegations that the servicers engaged in improper mortgage servicing and foreclosure processing practices. The amendments resolve consent orders issued in April 2011 by memorializing several recent agreements in principle that provide for $3.6 billion in cash payments and $5.7 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments, to 4.2 million borrowers whose homes were in foreclosure in 2009 or 2010. For the participating servicers, the amendments also replace the requirements related to the Independent Foreclosure Review process set out under the original consent orders. The servicers are also required to undertake loss mitigation efforts focused on foreclosure prevention, and will continue to be monitored by examiners for implementation of corrective actions to address alleged deficient servicing and foreclosure practices.
Illinois Adopts Court Rules Governing Foreclosure Cases
On February 22, the Illinois Supreme Court announced additional rules governing the state’s home foreclosure process. The three rules, respectively, (i) add requirements for mortgage foreclosure mediation programs in state circuit courts and counties (Rule 99.1); (ii) establish required practice, procedure, and notice obligations by the lender as plaintiff (Rule 113); and (iii) require a lender to attest that it has complied with the requirements of any loss mitigation program which applies to the specific home loan (Rule 114). With regard to this final rule, a judge may deny entry of a foreclosure judgment absent the required affidavit. All of the rules take effect on March 1, 2013. Those counties and circuit courts that already have mortgage foreclosure mediation programs in place, including Cook, Will, Peoria, Madison, Bond, McLean and Cane, have until June 1, 2013 to bring their programs into compliance with the new statewide rule on mediation programs.
Florida Supreme Court Limits Discretion to Strike Voluntary Dismissals of Foreclosure Actions
The Florida Supreme Court recently held that when a borrower alleges fraud on the court as a basis for setting aside a lender’s notice of voluntary dismissal of a foreclosure action, the trial court has jurisdiction to sanction the lender by reinstating the dismissed action only when the fraud resulted in the lender securing affirmative relief to the detriment of the borrower before voluntarily dismissing the case to prevent the court from undoing the improperly obtained relief. Pino v. Bank of New York, No. SC11-697, 2013 WL 452109 (Fla. Feb. 7, 2013). In the trial court foreclosure proceeding, the defendant borrower had challenged the plaintiff lender's assignment documents as fraudulent and moved for sanctions, after which the lender voluntarily dismissed the case without prejudice before a decision could be rendered on the motion. The trial court denied the borrower’s subsequent motion to vacate the notice of voluntary dismissal, reinstate the proceeding, and then dismiss it again with prejudice. The Florida Fourth District Appellate Court affirmed, but certified to the Florida Supreme Court the question of whether a trial court has jurisdiction or inherent authority to grant relief from a voluntary dismissal where the motion alleges a fraud on the court but the plaintiff has obtained no affirmative relief. The Florida Supreme Court then affirmed the Fourth District and held that the trial court did not have jurisdiction or inherent authority to reinstate the dismissed foreclosure action because the lender did not obtain affirmative relief before taking the voluntary dismissal, and as such, measures other than reinstatement existed to protect the borrower. Finally, in light of concerns regarding the abuses that can occur from the filing of fraudulent pleadings, the court requested the Civil Procedure Rules Committee to review those concerns and make recommendations for possible amendments to governing rules.
House Financial Services Ranking Member Seeks Additional Information Regarding Foreclosure Review Settlements
On February 15, House Financial Services Committee Ranking Member Maxine Waters (D-CA) sent an amended set of requests to the Federal Reserve Board and the OCC regarding the recent agreements in principle to end the Independent Foreclosure Review (IFR) established by consent orders issued in April 2011. Ms. Waters asks that, in advance of finalizing the terms of the agreements, the agencies produce by March 1, 2013: (i) policies and procedures about how loan files were to be reviewed by the IFR independent consultants, and any checklists used; (ii) calls or reports from the consultants to the agencies regarding error rates of reviewed files, or errors by analysts conducting the reviews; (iii) guidelines issued by the agencies to any consultant related to interpretation of the remediation framework; (iv) correspondence between the agencies and any consultant with regard to the servicing platform identified as “Loss Mitigation Notes,” and inconsistencies between the reported availability of borrower records provided by such a program and records entered into any other part of the servicing platform; and (v) any proposed plan for future reform or modification of servicing platforms or procedures generated or submitted by any consultant to the agencies. This request follows related requests made by Ms. Waters and other Democratic lawmakers seeking details pertaining to the settlement.