On December 15, the FTC announced stipulated court orders banning four individuals from selling debt relief products and services. According to the FTC, the individuals “promised consumers help getting their mortgages modified, but instead stole their mortgage payments, leading some to foreclosure and bankruptcy.” The FTC’s April 2015 complaint states that the defendants targeted homeowners facing foreclosure and “engaged in a course of conduct to advertise, market, sell, provide, offer to provide, or arrange for others to provide [Mortgage Assistance Relief Services], including loan modifications.” The complaint further alleged that consumers never received modifications, lenders did not receive their trial payments, and consumers’ payments were never refunded. The court orders prohibit the individuals from engaging in the practices they respectively exploited, such as telemarketing, selling credit-related financial products and services, using aliases, and using material misrepresentations and unsubstantiated claims to sell financial products and services. Combined, the individuals will pay more than $6,250,000 in monetary judgments.
On January 25, Massachusetts AG Maura Healey announced that she was expanding her Abandoned Housing Initiative (AHI) in response to an increasing number of cities and towns seeking assistance to revitalize their neighborhoods. Under the AHI, the AG’s office seeks to have delinquent owners bring their distressed and abandoned residential properties into code compliance. If the owner refuses, a court-approved receiver completes repairs on the property and receives compensation, utilizing funds from the nationwide state-federal settlement over unlawful foreclosures, once the property is sold. According to Helen Zucco, Executive Director at Chelsea Restoration Corporation, the program “gives banks an incentive to approve construction loans, allows funds to be loaned to receivers at very low interest, and creates a streamlined process for receivers to obtain the funds they need to achieve their important role in [the] process.”
On December 2, a Florida court of appeals issued a decision reinforcing and clarifying the state’s lien priority law. U.S. Bank Nat’l Ass’n v. Grant, No. 4D14-979 (Fla. Dist. Ct. App., Dec. 2). At issue in the case was whether a homeowner’s association (HOA) lien on real property took priority over a mortgagee’s lien on the same property, where the mortgage was recorded prior to the association’s delinquency lien against the homeowners, but after the recording of the Declaration of Covenants and Restrictions for the HOA. The court held that the HOA lien did not take priority over the mortgage lien because, under Florida common law applicable to liens filed prior to July 1, 2007, the HOA lien could only relate back to the filing of the earlier declaration if the declaration “contain[s] specific language indicating that the lien relates back to the date of the filing of the declaration or that it otherwise takes priority over intervening mortgages.” In this case, the declaration did not contain the required language to put parties on notice of ongoing, automatic liens until the payment of periodic HOA fees. Therefore, the HOA lien did not relate back to the filing of the declaration to give the HOA lien priority over the mortgagee’s lien.
New York Attorney General Announces Joint Initiative to Protect Consumers from Foreclosure Rescue Scams
On December 7, New York Attorney General Eric Schneiderman announced a joint initiative with three New York media associations to curtail unlawful advertisements for foreclosure rescue scams. The three media associations sent letters to their members requesting that each member participate in the joint initiative and encouraged community media outlets “to review ads placed by foreclosure rescue companies to ensure that they comply with state disclosure laws.” Noting that scammed homeowners have frequently reported to the Attorney General’s office and local housing counseling partners that they were lured by ads placed in local media outlets, Schneiderman emphasized that foreclosure rescue ads often violate state and federal laws that “require individuals who advertise foreclosure prevention or loan modification services to include specific disclosures in their advertisements.”
On November 19, the Federal Reserve announced a plan to redistribute unclaimed funds from the Independent Foreclosure Review Payment Agreement (Agreement). Under the Agreement, borrowers whose homes were in any state of the foreclosure process in 2009 or 2010 received payment from Federal Reserve -regulated servicers, resolving allegations of improper mortgage servicing and foreclosure practices. The Fed’s recently announced plan gives borrowers who have yet to cash or deposit their original check until December 31, 2015 to request a replacement check; all checks must be deposited by March 31, 2016. In an effort to distribute the maximum amount of funds to borrowers affected by alleged deficient servicing and foreclosure practices, the Federal Reserve will instruct the paying agent company to redistribute the remaining funds after March 31, 2016 to the borrowers who did cash or deposit their original checks.
NY Governor Says Two Additional Mortgage Companies Will Adopt Set of Best Practices to Combat “Zombie Properties”
On July 9, in an ongoing fight to reduce the amount of “zombie properties” within the state, Governor Cuomo announced that two additional mortgage companies will adopt the New York Department of Financial Services (NYDFS) recommended Industry Best Practices, aiming to help combat the economic damage that vacant and abandoned properties cause certain neighborhoods. The Practices ensure that banks and mortgage companies will regularly inspect properties in a delinquent status to determine if they are vacant, and if they are properly maintained and safe. If a property is determined vacant, banks and mortgage companies will report the property to a state registry, ensuring that NYDFS shares the information with local government officials. Local government officials and the NYDFS will then work together to “address and escalate any concerns about maintenance with the bank or mortgage company that is servicing the loan.” Governor Cuomo’s announcement resonates with Superintendent Lawsky’s May 22 remarks concerning NYDFS’s effort to reform the state’s lengthy foreclosure process, which leaves properties in despair and causes economic blight and safety issues. With the two additional companies joining the state’s efforts against zombie properties, lenders representing nearly 70 percent of the New York mortgage lending market have now agreed to adopt the set of best practices.
OCC to Escheat Funds from Foreclosure Review; Agency Terminates Three Consent Orders and Issues Six Amended Orders
On June 17, the OCC announced that, at year-end 2015, it will escheat any remaining uncashed payments made pursuant to the Independent Foreclosure Review Payment Agreement. Despite the IFR Payment Agreement having already resulted in the distribution of over $2.7 billion to more than 3.2 million eligible borrowers, the OCC anticipates that roughly $280 million from OCC-supervised institutions will remain unclaimed by the end of 2015. By escheating the remaining available funds, eligible borrowers and their heirs will have the opportunity to claim the funds. The agency also announced that it terminated foreclosure-related consent orders against three financial institutions because they have complied with the April 2011 orders and the February 2013 amendments to the orders. In addition, the OCC issued amended consent orders to six banks that did not meet all of the requirements of the consent orders by placing restrictions on the following business activities: (i) acquisition of residential mortgage servicing or residential mortgage servicing rights; (ii) new contracts to perform residential mortgage servicing for other parties; (iii) outsourcing or sub-servicing of new residential mortgage servicing activities to other parties; (iv) off-shoring new residential mortgage servicing activities; and (v) new appointments of senior officers in charge of residential mortgage servicing or residential mortgage servicing risk management and compliance. The limitations placed on the financial institutions were based on each bank’s particular circumstances.
Illinois AG Madigan Announces $1 Million Settlement Regarding Company’s Management of Foreclosed Properties
On June 3, Illinois AG Madigan announced a $1 million settlement with an Ohio-based company that mortgage lenders hire to manage properties throughout the foreclosure process and ensure that the properties retain their value. The settlement resolves a 2013 lawsuit by Madigan that alleged that the company wrongly deemed homes vacant, and instructed its contractors to shut off utilities, change the properties’ locks and illegally remove residents’ personal belongings even though they actively remained in their homes. Under the settlement, the company agreed to overhaul its business practices by using objective standards to ensure that homes are vacant, such as: (i) requiring its inspectors to support their inspections with photographs and an affidavit; (ii) posting notice to the occupant that the property has been deemed vacant; (iii) not misrepresenting the occupants’ rights to stay in their home, even if they are behind on their mortgage payments and in foreclosure; (iv) increasing its oversight and quality control of its subcontractors; (v) providing consumers with access to a 24-hour hotline for submitting complaints; and (vi) unless the company obtains a court order, not removing any personal property prior to foreclosure.
In addition to the $1 million agreement, which will be paid in restitution to consumers who filed complaints with respect to the company’s business practices, the company agreed to adhere to ongoing monitoring by Madigan’s office to ensure compliance with the settlement.
New York Court of Appeals Rules Possession of Note, Rather than Mortgage, Conveys Standing to Commence Foreclosure Action
On June 11, the New York Court of Appeals held that a loan servicer who holds the note has standing to commence a mortgage foreclosure action against a borrower even if the servicer cannot show that it also holds the mortgage. See Aurora Loan Servs., LLC v. Taylor, 2015 NY Slip Op 04872 (Jun. 11, 2015). The court reasoned that the servicer did not need to show possession of the mortgage because “the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law.” In Aurora, the defendant borrowers had executed an adjustable rate note and a mortgage in 2006. The mortgage designated Mortgage Electronic Recording Systems, Inc. (“MERS”) as nominee, but the note was not transferred to MERS with the mortgage. After the borrowers defaulted, the servicer took possession of the note and filed for foreclosure against the borrowers. In reaching its decision, the court disregarded borrowers’ argument that the involvement of MERS somehow impacted the servicer’s standing to foreclose.
On May 19, NYDFS Superintendent Lawsky delivered remarks at the Mortgage Bankers Association’s National Secondary Market Conference & Expo regarding New York’s “broken judicial foreclosure process.” Noting that the state’s average of over 900 days from the date of filing to sale is more than a year longer than the national average, Lawsky stated that the “current system hurts virtually everyone involved in the foreclosure process,” including municipalities, lenders and mortgage investors, the courts and, most importantly, homeowners and their families. In a report issued the same day, NYDFS details the causes of the problems. In response, Lawsky proposed a number of legislative reforms intended to facilitate the “twin goals of protecting homeowners from foreclosure abuses and encouraging the efficient return of foreclosed properties to the market.” Lawsky emphasized that, “contrary to popular belief, these goals are not mutually exclusive. The key to achieving both is having a sound and timely judicial foreclosure process that is fair to both homeowners and the mortgage industry.” The specific reforms include proposals to modify the mandatory settlement conferences that cause much delay early in the litigation process, to improve disclosures to homeowners regarding their rights and obligations, and to expedite the foreclosure process for vacant and abandoned “zombie homes.”
On April 2, the DOJ announced a guilty plea by a Northern California real estate investor to charges of bid rigging and fraud conspiracy at foreclosure auctions in violation of the Sherman Act. The charges are the outcome of the DOJ’s antitrust investigations into bid rigging and fraud at foreclosure auctions in Northern California, during the course of which 52 individuals have pled guilty to criminal charges. According to the DOJ, the Defendant allegedly worked with others to designate one bidder to win the selected properties at public foreclosure auctions and then held second, private auctions with the conspirators. The DOJ also charged the Defendant with conspiracy to commit mail fraud in connection with the bid rigging activities.
On March 31, the office of Massachusetts AG Maura Healey launched a new webpage designed to help eligible homeowners clear property titles in order to refinance or sell their properties. The webpage follows a $2.7 million settlement with four national banks that allegedly foreclosed on Massachusetts property without having the legal authority to do so. Because the alleged unlawful foreclosures affected thousands of Massachusetts titles, the new webpage is intended to “[enable] consumers to file online complaints and have their title issues reviewed by the banks in a single process.”
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)
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.
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.