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Freddie Mac Issues Numerous Loss Mitigation Policy Updates
On February 15, Freddie Mac issued Bulletin 2013-3, which provides a series of updates and revisions to its loss mitigation policies. The Bulletin reminds servicers of their obligations with regard to various transfers of property even where the only remaining borrower is a trust, and provides additional details about these obligations. Following Fannie Mae’s announcement last week, Freddie Mac similarly revised certain state foreclosure timelines and policies regarding compensatory fee calculations and reimbursement for property inspections. Effective for mortgages that become delinquent as of June 1, 2013, Freddie Mac will no longer provide a list of states in which servicers are required to preserve Freddie Mac’s right to pursue a deficiency. Instead, in all instances where additional attorney fees/costs will not be incurred above the approved expense limits, servicers must preserve Freddie Mac’s right to pursue a deficiency so that Freddie Mac may decide on a case-by-case basis whether to pursue the deficiency. The Bulletin also notifies servicers that Freddie Mac is eliminating a requirement announced in Bulletin 2012-17 that, for servicers participating in state modification programs, the modification include partial principal forbearance. Finally, the Bulletin also (i) revises Guide Form 710, Uniform Borrower Assistance Form, and medical hardship documentation requirement; (ii) revises requirements related to the verification of alimony, child support and separate maintenance income; (iii) expands the Freddie Mac Service Loans application process to enable servicers to obtain a property value and minimum net proceeds for borrowers being considered for a standard short sales and are less than 31 days delinquent; and (iv) updates the Guide to reflect that the Home Affordable Foreclosure Alternatives initiative is no longer an option in the loss mitigation evaluation hierarchy.
First Circuit Holds Massachusetts Borrower Can Challenge the Validity of a Mortgage Assignment, but Holds the Assignment Valid
On February 15, the U.S. Court of Appeals for the First Circuit held a borrower had standing to challenge the assignment of the borrower’s mortgage under certain circumstances, even though the borrower was not a party to the assignment of the mortgage. Culhane v. Aurora Loan Servs. of Neb., 12-1285, 2013 WL 563374 (1st Cir. Feb. 15, 2013). The First Circuit reasoned that because Massachusetts law provides the borrower with the legal right to ensure any attempted foreclosure of her home was conducted lawfully, and because foreclosure is permitted without prior judicial authorization, the borrower had standing to challenge the assignment of a mortgage to the extent such a challenge was necessary to contest the foreclosing entity’s status as the mortgagee. Though MERS was named the legal owner of the mortgage in the original mortgage documents, the plaintiff alleged that MERS had no beneficial interest in the loan and, as such, had no ability to assign the mortgage to the noteholder. The First Circuit affirmed the lower court's ruling, finding the MERS assignment of the mortgage to the defendant was valid because the note and mortgage need not be held by the same entity and MERS had transferred what interest it held - bare legal title. Thus, the court determined, the defendant properly held the mortgage and possessed the authority to foreclose.
Oregon Finalizes Foreclosure Avoidance Mediation Program Rules
On February 1, the Oregon Department of Justice published final rules to implement the foreclosure avoidance mediation program established by legislation enacted in April 2012, which requires beneficiaries to (i) enter into mediation with a grantor for the purpose of negotiating a foreclosure avoidance measure, and (ii) notify a grantor if they are not eligible for any foreclosure avoidance measure or if the grantor has not complied with the terms of a foreclosure avoidance measure. The final rules took effect January 7, 2013, and replaced temporary rules that had been in place since July 2012. The Oregon Department of Justice also updated its Frequently Asked Questions for borrowers and lenders/servicers.
Illinois Enacts Fast-Track Foreclosure Legislation
On February 8, Illinois Governor Pat Quinn signed SB 16, a bill introduced in January 2011, which creates a fast-track foreclosure process for certain abandoned and vacant properties. Effective June 1, 2013, a lender can petition a court seeking expedited foreclosure proceedings on properties that hold six or fewer units that are not legally occupied. The bill also shortens the foreclosure timeframe on those properties to between 90 and 180 days. Lenders will be subject to a sliding scale of additional foreclosure filing fees through 2017, ranging from $50 to $500. The exact fee amount is dependent on the number of foreclosure actions lenders undertake annually. The state expects the fees to generate $120 million over the next three years. A portion of that revenue is earmarked to offset local government costs associated with abandoned homes. Funds also will support HUD-approved housing counseling agencies.
Fannie Updates Foreclosure Time Frames for Twelve States
On February 13, Fannie Mae issued Servicing Guide Announcement SCV-2013-01, which increases the maximum number of allowable days within which routine foreclosure proceedings are to be completed in California, Colorado, Hawaii, Massachusetts, North Carolina, Oregon, Pennsylvania, and Rhode Island, effective for foreclosure sales on or after April 1, 2013. Fannie Mae also decreased the maximum number of allowable days for foreclosure proceedings in Alabama, Iowa, Missouri, and Wisconsin. These time frame reductions will be effective for mortgage loans that become delinquent on or after March 1, 2013. In addition, Fannie Mae (i) announced that on or after April 1, 2013, in New Jersey, allowable delay credit will be given for the actual number of days the mortgage loan is reported in a foreclosure status between December 2010 and April 2012, up to a maximum of 180 days, and (ii) added 90 days to the allowable delay for Military Indulgence, effective for foreclosure sales on or after November 1, 2012. Finally, effective for all foreclosure sales on or after July 1, 2013, those foreclosure sales that result in a third-party sale will be included in the foreclosure time frame compensatory fee billing process for foreclosure delays.
Democratic Lawmakers Seek Information Regarding Independent Foreclosure Review Settlements
On January 31, Senator Elizabeth Warren (D-MA) and Representative Elijah Cummings (D-MD), House Oversight Committee Ranking Member, sent a letter to the Federal Reserve Board and the OCC seeking documents and information regarding the regulators’ decision to enter into settlements with certain mortgage servicers subject to consent orders issued in April 2011 to (i) resolve allegations that the firms engaged in improper mortgage servicing and foreclosure practices and (ii) end the Independent Foreclosure Review process established by the prior consent orders. The lawmakers are seeking (i) all documents regarding the performance of the independent consultants engaged by the servicers to conduct the foreclosure reviews, (ii) all documents created by the servicers or the consultants to update the regulators on the status of the foreclosure review process, (iii) all documents compiled by the regulators indicating the total amount of settlement funds paid to each consultant, (iv) the number of borrowers who requested review, by gender, race, zip code, and property value, (v) the total number of reviews initiated by each contractor, and (vi) the average time each contractor required to complete a review of a borrower’s file.
On the same day, House Financial Services Committee Ranking Member Maxine Waters (D-CA) sent a separate letter requesting that the regulators ensure the final agreements entered in lieu of the foreclosure reviews include certain specific provisions, including (i) reordering of the matrix categories, (ii) requirements that principal reduction be provided as a form of indirect relief, and (iii) appointment of an independent monitor. Representative Waters also seeks information about payments to the consultants and how the regulators decided on the $8.5 billion settlement amount. Finally, a recent report noted that Representative Carolyn Maloney (D-NY) initiated her own inquiry into the settlements and payments to the consultants. According to the report, the letter may be used to support a request that the regulators claw back some of the payments made to the consultants.
State AGs Announce Multistate Robo-Signing Settlement
On January 31, the state attorneys general (AGs) for 45 states obtained an agreement from a mortgage servicing and foreclosure vendor, and its former subsidiary, to resolve allegations that the company “robo-signed” foreclosure documents and engaged in other improper default servicing conduct. (See, e.g., announcements from the AGs for Iowa, Massachusetts, and New York.) The agreements require the company to pay a combined $120 million and finalize substantial revisions to its business and compliance practices. The company also must (i) properly execute documents, (ii) enhance oversight of its default services, and (iii) review of all third-party fees to ensure that the fees have been earned and are reasonable and accurate. The settlement also prohibits various conduct including, for example, (i) surrogate signing of documents; (ii) notarizing documents outside the presence of a notary; (iii) improper interference with the attorney-client relationship between attorneys and services; and (iv) unreasonable mark-ups or other fees on third party providers’ default or foreclosure-related services. The company must review documents executed during the period of January 1, 2008 to December 31, 2010 to determine if any must be re-executed or otherwise corrected. Borrowers also may request review and correction of any documents executed by the company at any time. The Michigan AG announced a separate agreement with the company on the same day, and three other state AGs previously settled similar allegations against the firm (see, e.g., Missouri AG settlement).
HUD, FHFA Extend Foreclosure Protections for Hurricane Sandy Victims
On January 31, HUD and the FHFA announced that the FHA, Fannie Mae, and Freddie Mac will extend for an additional 90 days protections against foreclosure actions for borrowers whose properties were damaged or destroyed due to Hurricane Sandy. Those protections were set to expire on January 31, 2013. For borrowers in certain counties, FHA is extending until April 30, 2013 its foreclosure moratorium and eviction suspension. Fannie Mae, through Lender Letter LL-2013-02, and Freddie Mac, through Bulletin 2013-1, also are extending their foreclosure and eviction moratoriums through the end of April.
Sixth Circuit Holds That Mortgage Foreclosures are Debt Collections Under the FDCPA
On January 14, the U.S. Court of Appeals for the Sixth Circuit held that mortgage foreclosures are debt collections under the FDCPA. Glazer v. Chase Home Finance LLC, No. 10-3416, 2013 WL 141699 (6th Cir. Jan. 14, 2013). The decision rejects the view held by a majority of district courts, including the district court in this case, that mortgage foreclosures are generally outside the scope of the FDCPA because they are enforcements of a security instrument, not attempts to collect money. In this case, the borrower brought suit alleging that the law firm that attempted to foreclose on his property violated the FDCPA, and the district court dismissed the claim, ruling that foreclosures are not debt collections. In reaching its conclusion, the Sixth Circuit reasoned that “whether an obligation is a ‘debt’ depends not on whether the obligation is secured, but rather upon the purpose for which it was incurred.” The court explained that collecting such a debt can occur through personal solicitation or legal proceedings. As such, the court held that “every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment on the underlying debt,” and, therefore, every mortgage foreclosure is a debt collection. Further, the court held that lawyers who meet the general definition of “debt collector” must comply with the FDCPA when engaged in a mortgage foreclosure. The Sixth Circuit reversed the district court’s dismissal and remanded the case for further proceedings.
Massachusetts Supreme Court Holds Standing in Servicemember Proceeding Requires Evidence of Mortgagee Status
On January 14, the Massachusetts Supreme Judicial Court (SJC) reversed a Land Court decision and held that a trustee lacked standing to bring a servicemember proceeding because the trustee was not the clear holder of either the note or the mortgage. HSBC Bank USA, N.A. v. Matt, 464 Mass. 193 (Mass. 2013). As the court explained, under the Massachusetts Soldiers’ and Sailors’ Civil Relief Act, a lender must file a complaint in equity, a proceeding separate from the foreclosure proceeding, to determine if a borrower is entitled to foreclosure protections under the federal Servicemembers Civil Relief Act (SCRA). Failure to bring a such a servicemember proceeding leaves the title vulnerable to a challenge that the foreclosure sale was defective due to the possibility that it violated a borrower’s rights under the SCRA. On appeal, the borrower argued that the Land Court erred in holding that the trustee bringing the servicemember proceeding satisfied general requirements of standing based on its contractual right to become the holder of a mortgage, even though the trustee failed to establish that it was the current holder of the note or the mortgage. Extending its holding in Eaton v. Fannie Mae that a party with an option to become the holder of a mortgage does not have the present authority to foreclose, the court held that the Massachusetts servicemembers act contemplated that only mortgagees would have the requisite standing to bring a servicemember complaint, and parties with an option to hold the mortgage lack standing. As such, the court held that “only mortgagees or those acting on behalf of mortgagees have standing to bring servicemember proceedings.”