On May 10, the New York Court of Appeals affirmed the lower court’s decision that consolidated mortgages qualify as the first mortgage of record under Real Property Law article 9-B (the Condominium Act) when the mortgages were consolidated years prior to unpaid common charges (or charges lien) being filed. Plotch v. Citibank, N.A., No. 57, slip op. at 3 (N.Y. May 10, 2016). In this case, the plaintiff purchased a condominium unit subject to “‘[t]he first Mortgage of record against the premises’” in a foreclosure action in 2010. Prior to the plaintiff’s purchase, the defendant had entered into a consolidation agreement with the unit’s previous owner, whereby the former owner’s two separate mortgages of $54,000 and $38,000 “were consolidated ‘into a single mortgage lien’ for $92,000, which the owner and [defendant] intended to be treated as a single mortgage.” Citing Societe General v. Charles & Co. Acquisition (157 Misc 2d 643 [Sup. Ct., NY County 1993]), the plaintiff contended that the initial mortgage of $54,000 is, pursuant to Real Property Law § 339-z, the first mortgage of record and, therefore, the defendant’s common charges lien against the unit for unpaid charges are unlawful. Read more…
On June 10, the OCC released Bulletin 2016-20 to inform national banks, federal savings associations, and federal branches and agencies of foreign banks (OCC-supervised institutions) of recent temporary amendments to the Servicemembers Civil Relief Act (SCRA). As previously covered in InfoBytes and as outlined in the OCC’s Bulletin, the Foreclosure Relief and Extension for Servicemembers Act 2015 extends through December 31, 2017 the SCRA provision that protects servicemembers against sale, foreclosure, or seizure of property based on a breach of a secured obligation without a court order or waiver for one year following completion of their service. The OCC’s Bulletin notes that HUD updated its “Servicemembers Civil Relief Act Notice Disclosure” (Form 92070) to reflect the temporary extensions.
New York Supreme Court Reverses Lower Court’s Ruling in Foreclosure Case; Observes eNote and Transfer History Sufficient under ESIGN
On April 13, the New York Supreme Court, Appellate Division, Second Department issued an opinion reversing a lower court order dismissing a foreclosure action against a borrower who signed a mortgage note electronically (“eNote”). New York Community Bank v. McClendon, 2016 N.Y. Slip Op. 02790 (N.Y. Supp. April 13, 2016). In the proceedings below, the lower court had granted the borrower’s motion to dismiss the foreclosure complaint for lack of standing, accepting the argument that the plaintiff mortgagee lacked standing because it could not produce a chain of valid assignments of the eNote from the original lender to itself. In opposition to the motion to dismiss, the mortgagee had submitted, among other things, a copy of the eNote and a print out of an electronic record of the transfer history of the eNote (“Transfer History”) showing a chain of transfers from the original lender to itself. The court observed that the eNote qualified as a “Transferable Record” under Section 201 of the Electronic Signatures in Global and National Commerce Act (“ESIGN”) and that a person is in “control” of a Transferable Record if “a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.” Citing the UCC, the court further observed that the holder of the eNote would have standing to foreclose and that any person with “control” of the eNote is its holder. After establishing this legal framework, the court concluded that the Transfer History, together with the eNote, were sufficient to establish that the plaintiff mortgagee had control of the eNote under ESIGN and therefore had standing to foreclose as the holder. According to the court, because these rules governing Transferable Records applied to the eNote, the failure of the plaintiff mortgagee to produce proof of assignment was “irrelevant” and the complaint should not have been dismissed for lack of standing.
On March 21, the U.S. House of Representatives passed S.B. 2393, which extends through 2017 the provision of the Servicemembers Civil Relief Act’s (SCRA) that protects servicemembers against foreclosure without a court order or waiver for one year following completion of their service. On January 1, 2016, the foreclosure protection provision reverted back to the period of active duty military service plus 90 days, rather than the period of active duty military service plus one year. Upon the President’s signature, the SCRA’s protection against foreclosure without a court order or waiver will return to the period of active duty military service plus one year through December 31, 2017.
Eleventh Circuit Dismisses Plaintiff’s Complaint: Assignee Not Liable under TILA for Servicer’s Failure to Provide Payoff Balance
On March 1, the U.S. Court of Appeals for the Eleventh Circuit held that, as an assignee, Fannie Mae is not liable under TILA for a servicer’s failure to provide a borrower with a payoff statement. Evanto v. Federal Nat’l Mortg. Ass’n. No. 14-cv-61573 (11th Cir. March 1, 2016). The plaintiff alleged that, after foreclosure proceedings began, his servicer failed to provide the payoff balance of his mortgage within seven business days, as required under TILA 15 U.S.C. § 1639(g). Relying on the “plain meaning” of 15 U.S.C. § 1641(e), the court ruled that for an assignee of a creditor to be held liable under TILA, the violation must be apparent in the face of the “disclosure statement,” which, according to the court, the payoff statement requested by the plaintiff was not because it is provided after consummation. The court opined that “[t]here is no way that the failure to provide a payoff balance can appear on the face of the disclosure statement . . . . we reject [the plaintiff’s] argument that we should fix a supposed ‘loophole’ in the statute.” Id. at *4.
Notably, the court relied in part on informational statements from the CFPB’s website and Black’s Law Dictionary to define “disclosure statement” under TILA.