Nevada Supreme Court Holds that HOA “Superpriority” Statute Does Not Violate Due Process, Declines to Follow 9th Circuit

On January 26, in Saticoy Bay LLC Series 350 Durango 104 v. Wells Fargo Home Mortgage, No 68630, (Nev. Jan 26, 2017), the Nevada Supreme Court reaffirmed its interpretation of the state statute granting priority lien status to unpaid condo assessments (Nev. Rev. Stat. § 116.3116 et seq.); specifically that foreclosure of such liens extinguishes prior-recorded mortgages. The Nevada Supreme Court declined to follow a 2016 ruling by the Ninth Circuit holding that the statute violates the Due Process Clause of the 14th Amendment. Rather, the Nevada Supreme Court stated that the Due Process Clause protects individuals from state actions, and a foreclosing HOA cannot be deemed to be a state actor. In doing so, the court specifically notes that “[w]e acknowledge that the Ninth Circuit has recently held that the Legislature’s enactment of NRS 116.3116 et seq. does constitute state action. . . . However, for the aforementioned reasons, we decline to follow its holding.”

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Prudential Regulators Fine Mortgage Company Over “Significant Deficiencies” in Foreclosure-Related Services

On January 24, the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency filed an amended Consent Order fining a foreclosure services provider $65 million for “improper actions” conducted by the company’s predecessor. The fine replaces all obligations to complete the “Document Execution Review” required in the original 2011 consent order between the same agencies and the servicer’s predecessor.  In the 2011 order, the agencies claimed, among other things, that the predecessor company’s actions resulted in significant deficiencies in the foreclosure-related services it provided to mortgage servicers.

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NYDFS Unveils Consumer Bill of Rights for Mortgage Foreclosures; Announces New Regulations for “Zombie Properties”

On December 7, Governor Andrew M. Cuomo announced the publication of the NYDFS Residential Foreclosure Actions Consumer Bill of Rights – intended to offer guidance to homeowners facing foreclosure in New York. Concurrently, the New York Governor also announced new NYDFS regulations intended to curb the threat to communities posed by vacant and abandoned properties (“zombie properties”) by “expediting foreclosure proceedings, improving the efficiency and integrity of the mandatory settlement conferences, and obligating banks and mortgage servicers to secure, protect and maintain vacant and abandoned properties before and during foreclosure proceedings.”

The Consumer Bill of Rights acts as guidance for homeowners facing foreclosure, and specifies that homeowners have certain rights and obligations, including, among others: (i) the right to stay in the home unless and until a court orders the homeowner to vacate the property; (ii) the right to be represented by an attorney; (iii) the right to be free from harassment and foreclosure scams; (iv) the right to avoid foreclosure by making a full or negotiated payment prior to foreclosure sale; (v) the right to be notified at least 90 days prior to a foreclosure suit being filed; (vi) the right to explore loss mitigation options; and (vii) the right to receive a copy of legal papers in a lawsuit. The Consumer Bill of Rights also outlines various obligations of a homeowner, including to respond to complaints, appearing at court, and negotiating in good faith. Under the law, the court must provide homeowners a copy of the Consumer Bill of Rights at the initial mandatory settlement conference.

With respect to vacant and abandoned properties, the new regulations target blight caused by such zombie properties by, among other things, requiring that bank and mortgage servicers: (i) complete an inspection of a property subject to delinquency within 90 days; (ii) secure and maintain the property where the bank or servicer has a reasonable basis to believe that the property is vacant and abandoned; (iii) report all such vacant and abandoned properties to NYDFS; and (iv) submit quarterly reports detailing both their efforts to secure and maintain the properties and the status of any foreclosure proceedings. The NYDFS Superintendent is authorized under the new regulations to issue civil penalties of $500 per day per property for violations of the new regulations.

Additional information about the new regulations and procedures for complying with the new law’s inspection, maintenance and reporting requirements can be found here.

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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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