The Ninth Circuit Holds that Enforcing a Security Interest is Not Necessarily Debt Collection

On October 19, the Ninth Circuit, in an opinion by Judge Kozinski, held that merely enforcing a security interest is not “debt collection” under the federal Fair Debt Collection Practices Act (“FDCPA”).  Ho v. ReconTrust Co., Case: 10-56884 (Oct. 20, 2016). In so holding, the Ninth Circuit disagreed with earlier decisions by the Fourth and Sixth Circuits, creating a split that might eventually be resolved by the U.S. Supreme Court.  See e.g. Piper v. Portnoff Law Associates Ltd., 396 F.3d 227, 235-36 (3d Cir. 2005); Wilson v. Draper & Goldberg PLLC, 443 F.3d 373, 378-79 (4th Cir. 2006); Glazer v. Chase Home Finance LLC, 704 F.3d 453, 461 (6th Cir. 2013).

In Ho, a borrower sued several foreclosure firms after she defaulted on her mortgage loan, alleging that the defendant-companies had violated the FDCPA by sending her default notices stating the amounts owed. The district court dismissed that claim, finding the trustee was not a debt collector engaged in debt collection under the FDCPA. On appeal, the Ninth Circuit affirmed the dismissal. The Court observed that a notice of default and a notice of sale may state the amounts due, but they do not in fact demand payment. Moreover, in California, deficiency judgments are not permitted after a non-judicial foreclosure sale, so no money can be collected from the homeowner. Notably, the notices complained of in Ho are required by California law prior to exercising the right to non-judicial foreclosure.

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Florida Supreme Court Holds That Each Default Resets Foreclosure Suit Clock

In an opinion issued Thursday in Bartram v. U.S. Bank Nat’l Ass’n, Nos. SC14-1265, SC14-1266, SC14-1305, 2016 Fla. App. LEXIS 16236 (Dist. Ct. App. Nov. 3, 2016), the Florida Supreme Court ruled that a mortgagee is not precluded by the five-year statute of limitations for filing a subsequent foreclosure action based on payment defaults occurring subsequent to the dismissal of the first foreclosure action, as long as the alleged subsequent default occurred within five years of the subsequent foreclosure action. In so holding, the Court affirmed the lower appellate court’s decision and reinstated litigation.

The dispute in Bartram began with a 2006 foreclosure lawsuit against Bartram after he stopped making payments on his mortgage. In April 2011, with Bartram’s suit still pending, his ex-wife filed a declaratory judgment action to quiet title to the property, naming her ex-husband, the bank and the homeowners’ association as defendants. When the original foreclosure suit against Bartram was dismissed on procedural grounds one month later, he sought declaratory judgment that the 5-year statute of limitations had passed. Specifically, he argued that the limitations period began to run when he defaulted in January 2006 and the bank accelerated the loan. Although the trial court sided with Bartram, the Florida Fifth District Court of Appeal reversed the ruling and certified the question to the Florida Supreme Court. Florida’s high court narrowly construed the question, framing the issue as: “Does acceleration of payments due under a residential note and mortgage with a reinstatement provision in a foreclosure action that was dismissed . . . trigger application of the statute of limitations to prevent a subsequent foreclosure action by the mortgage based on payment defaults occurring subsequent to dismissal of the first foreclosure suit?” As noted above, the Florida Supreme Court held it does not.

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HUD OIG: Mortgage Servicing Issues Cost FHA $2.23 Billion

On October 14, the HUD Office of Inspector General (HUD-OIG) published a report on HUD’s monitoring and payment of conveyance claims upon termination of FHA-insured mortgages. According to the report, mortgage servicers’ failure to foreclose on properties or meet conveyance deadlines may have cost the FHA an estimated $2.23 billion in unreasonable and unnecessary holding costs. HUD-OIG concluded that deficiencies in 24 CFR Part 203 did not “enable HUD to provide effective oversight and HUD monitored only a small percentage of servicers after the claim had been paid.” As a result of its findings, HUD-OIG recommended that HUD (i) amend 24 CFR Part 203 to include “a maximum period for filing insurance claims and disallowance of expenses incurred beyond established timelines”; (ii) develop an IT plan that that ensures significant operational changes to how HUD monitors single-family conveyance claims; and (iii) establish and implement controls to identify noncompliance with 24 CFR 203.402.

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District Court Issues Orders Against False Mortgage Relief Operation

The District Court for the Middle District of Florida recently ruled in favor of the FTC in the FTC’s complaint for equitable relief against several Florida-based companies and individuals (collectively, defendants), effectively banning the defendants from the mortgage loan modification and debt relief business. The FTC took this action against the defendants in 2014, alleging that they, acting in concert, ran a deceptive mortgage relief operation. According to the FTC, the defendants falsely promised consumers that, by paying an upfront fee of $1,000 to $4,000, and in some cases additional monthly fees, consumers would receive loan modifications or legal representation to prevent foreclosure of their homes. The Court’s final order imposes a judgment of more than $13.5 million against the defendants, subject to a separate stipulated order imposing an $8 million judgment on a subset of the defendants who had previously reached a settlement with the FTC in November 2015.

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Ninth Circuit Holds Nevada HOA Statute Unconstitutional

On August 12, the Ninth Circuit vacated  a district court’s summary judgment and held that Nevada Revised Statutes section 116.3116 et seq. (the Statute) violates the Fourteenth Amendment’s Due Process Clause. Bourne Valley Court Trust v. Wells Fargo Bank, No. 15-15233 (9th Cir. Aug. 12, 2016). In a 2-1 decision, the Ninth Circuit held that the Statute’s “opt-in notice scheme” unconstitutionally degraded the mortgage lender’s interest in the property because it required an HOA to alert a mortgage lender of its intention to foreclose only if the lender had affirmatively requested notice.

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