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West Virginia Removes Mortgage Licensing Exemption, Creates Procedure for Abandoned Personal Property Following Foreclosure
On April 2, West Virginia Governor Tomblin signed into law Senate Bill 336 and Senate Bill 360, both effective June 8, 2012. Senate Bill 336 eliminates an exemption under the states residential mortgage licensing requirement. Prior to the change, mortgage lenders and brokers operating under the regular supervision and examination for consumer compliance by an agency of the federal government were exempt from having to obtain a state license. Those entities now must obtain a license and comply with related state laws. Federally insured depository institutions remain exempt from the licensing requirements. Senate Bill 360 creates a procedure to deem personal property abandoned following the transfer of real property by tax sale or foreclosure. The law requires the purchaser of the real property to provide 30 days notice to the former owner, after which unclaimed personal property will be deemed abandoned.
Washington Enacts New Short Sale and Foreclosure Protections, Adds Escrow Licensing Exemption
On March 29, Washington enacted House Bill 2614, which took effect immediately and created new borrower protections. The bill requires mortgagees that intend to permit a short sale of a residential property to provide written notice to the borrower that it is either waiving or reserving its right to collect the full debt. Mortgagees that reserve the right to collect must initiate a court action to collect within three years of the short sale. House Bill 2614 also amends provisions ofWashington’s Foreclosure Fairness Act, including, among other things, (i) to allow meetings with the borrower to discuss foreclosure avoidance options to be conducted by phone, if the borrowers agrees, (ii) to alter the foreclosure mediation procedures, (iii) to extend the time period for a trustee’s sale, and (iv) to change beneficiary reporting requirements. Lastly, the bill creates a process to rescind a trustee sale under certain circumstances.
Also on March 29, Washington, through Senate Bill 6218, amended its escrow licensing requirements to clarify that attorneys are not required to obtain a license, provided that (i) the escrow transactions are performed by either the lawyer while engaged in the practice of law or any employee of the law practice under direct supervision of the lawyer, (ii) all escrow transactions are performed under a legal entity that is publicly identified and operated as a law practice, and (iii) all escrow funds are deposited to, maintained in, and disbursed from a trust account in compliance with rules enacted by the Washington Supreme Court regulating the conduct of lawyers. These changes take effect June 7, 2012.
Indiana Enacts Foreclosure and Loan Administration Bills
On March 16, Indiana Governor Mitch Daniels signed House Bill 1238, which includes provisions allowing a mortgage creditor to file a petition to have a state court determine whether a property is abandoned. The bill also sets forth criteria and procedures for use by the court in making its determination. A finding from the court that a property is abandoned allows for an expedited foreclosure process.
Recently, Indiana enacted Senate Bill 298. The new law provides that if a mortgage or vendor's lien does not show the due date of the last installment, the mortgage or lien expires 10 years after the date of execution of the mortgage or lien instead of 20 years under the current law. The bill makes exceptions to the expiration period if a foreclosure action is brought prior to the expiration. It also provides for civil actions concerning an omitted party's interest in a property and sets forth factors that the court must consider in determining any rights of redemption. Lastly, the bill provides that: (i) the senior lien on which the foreclosure action was based is not extinguished by merger with the title to the property conveyed to a purchaser at the judicial sale until the interest of any omitted party has been terminated; and (ii) until an omitted party's interest is terminated, the purchaser at the judicial sale is the equitable owner of the senior lien.
West Virginia Establishes Rights for Tenants in Foreclosed Properties
On March 15, West Virginia enacted House Bill 3177, which will permit the owner of a residential rental property purchased at foreclosure to terminate an existing tenancy after giving the tenant 90 days notice, or not less than 30 days notice before the expiration of the lease, whichever is shorter. Tenants with month-to-month leases need only be provided with 30 days notice. The law details the content and method of delivery for the notices. The new provisions take effect January 1, 2013.
Wisconsin Streamlines Foreclosures on Abandoned Properties
On March 21, Wisconsin enacted Senate Bill 307 relating to foreclosures on abandoned properties. Under the new law, the redemption period for abandoned property is reduced from two months to five weeks from the date a judgment of foreclosure is entered. The length of time that a sheriff must publish the notice of a sale in a newspaper is reduced from six successive weeks to three successive weeks before the sale. The law also (i) adds a new provision that provides that in addition to the parties to an action to enforce a mortgage lien, a representative of the municipality where the property is located may also provide evidence or testimony to the court as to whether the property has been abandoned and (ii) delineates the specific factors a court must consider in determining whether a property is abandoned. The changes take effect April 5, 2012.
HUD Issues Guidance Regarding Occupied Conveyance Procedures
On March 16, HUD issued Mortgagee Letter 2012-6 to provide updated guidance for complying with the Protecting Tenants at Foreclosure Act of 2009 (PTFA). The Mortgagee Letter revises the information required in a Notice to Occupant of Pending Acquisition and provides updated sample letters and forms. The Mortgagee Letter also provides guidance regarding (i) reasonable diligence in obtaining possession of the property under PTFA, (ii) rent collection under bona fide leases and tenancies, and (iii) reimbursement for preservation and protection costs due to PTFA compliance.
Federal Court in Oregon Finds Noteholder's Agent Cannot Be Beneficiary Under Deed of Trust
On February 29, the U.S. District Court for the District of Oregon held, in James v. Recontrust Co., No. 3:11-cv-00324-ST (D. Or. Feb. 29, 2012), that under Oregon law the “beneficiary” of a deed of trust (as opposed to a mortgage) in that state is the noteholder – i.e., the lender or the lender’s successor – and therefore cannot be the agent of the noteholder, such as an electronic registry system. Oregon law only permits a trustee to conduct a non-judicial foreclosure where all subsequent assignments are recorded in the proper county recorder’s office. In this case, because the note was subsequently assigned without having been recorded (because the electronic registry system was thought at the time to be the beneficiary and therefore that recordation was not required) the court ruled that the non-judicial foreclosure route was prohibited under Oregon’s statutory regime. However, the court did note that Oregon’s judicial foreclosure process remains available in these circumstances.
Federal Reserve Board Releases Mortgage Servicing Action Plans
On February 27, the Federal Reserve Board (FRB) released final action plans to be implemented by nine financial institutions to correct alleged deficiencies in residential mortgage loan servicing and foreclosure procedures. The FRB also announced that it expects to release plans for additional institutions soon. The plans are required by consent orders issued by the FRB in April 2011, and describe how the institutions will alter their servicing and foreclosure procedures by, among other things, (i) providing each borrower the name of a primary point of contact at the servicer; (ii) establishing limits on foreclosures where loan modifications have been approved; (iii) establishing robust, third-party vendor controls, including local foreclosure counsel; and (iv) strengthening compliance programs. The announcement also included the release of engagement letters between certain servicers and the third-party vendors hired to conduct reviews of foreclosures processed in 2009 and 2010. Those reviews, also required by the April 2011 orders, will determine whether borrowers suffered a financial injury that the institutions will be required to remedy. The release of the action plans follows the agreement by five of the servicers to pay a combined $766.5 million in penalties to the FRB as part of the $25 billion multi-party servicing settlement.
New Jersey Supreme Court Holds That Foreclosures Can Proceed Despite Notice Defects
On February 27, the New Jersey Supreme Court held in U.S. Bank, N.A. v. Guillaume, No. 068176, 2012 WL 603307 (N.J. Feb. 27, 2012), that state trial courts are not required to dismiss foreclosure actions if there are defects in the notice of foreclosure, and affirmed the denial of the borrowers motion to vacate a default judgment of foreclosure. The decision overturned an August ruling from a New Jersey appeals court, Bank of New York v. Laks, 422 N.J. Super. 201 (App. Div. 2011), holding that dismissal was mandatory if a notice did not strictly comply with the requirements of the New Jersey Fair Foreclosure Act. In Guillaume, the borrowers sought to avoid foreclosure in part because the Notice of Intention to Foreclose identified only the servicers name and contact information and not the name and address of the lender. At the trial level, the court gave the lender an opportunity to cure the defects in the Notice in lieu of dismissal. A panel of the New Jersey Appellate Division affirmed the trial court outcome based on its analysis that listing the name of the loan servicer rather than the name of the lender substantially complied with the statutory requirements. The New Jersey Supreme Court disagreed and held that the Fair Foreclosure Act requires that a Notice of Intention to Foreclose include the name and address of the actual lender, in addition to contact information for any loan servicer with responsibility to collect payments and negotiate resolution of a dispute between the lender and homeowner. Nonetheless the New Jersey Supreme Court determined that dismissal without prejudice was not the exclusive remedy for service of a defective notice and upheld the trial's court authority to craft an appropriate remedy for notice defects. The New Jersey Supreme Court also rejected the homeowners argument that their original lender's $120 fee overcharge was a TILA violation that entitled them to rescission and held that courts adjudicating TILA claims have discretion to deny rescission if the homeowner cannot tender the full amount due on the loan.
FHFA Announces First Properties Available for Sale in REO Pilot Program
On February 27, the Federal Housing Finance Agency opened for sale the first pool of foreclosed properties currently owned by Fannie Mae to be sold to private firms under the condition that the firms will manage the properties as rental properties for a specified period of time. This first transaction is part of a recently announced pilot program designed to shift the management of certain foreclosed properties to private entities in an effort to reduce taxpayer losses and stabilize neighborhoods and home values. Interested investors must apply to become pre-qualified in order to bid on the pools of properties. At the start, the properties for sale will be located in the hardest-hit markets including, Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix, and parts of Florida.