Category Archives: Legislative Developments

Third Circuit Affirms Dismissal of RESPA Class Action against Bank of America

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By: Louise Bowes Marencik

In Riddle v. Bank of America Corporation, et al., the United States Court of Appeals for the Third Circuit recently affirmed a lower court’s dismissal of a putative class action suit against Bank of America because the borrowers’ claims under Section 8 of the Real Estate Settlement Procedures Act (“RESPA”) were time-barred. 2014 U.S. App. LEXIS 19730 (3d. Cir. Oct. 15, 2014).

The putative class plaintiffs purchased homes in 2005 with mortgages obtained from Bank of America, and were required to obtain private mortgage insurance in connection with their loans. In 2012, the borrowers received advertisements from their legal counsel regarding possible causes of action they may have related to their private mortgage insurance. Although the borrowers had not previously investigated the reinsurance arrangement in connection with their mortgage insurance, they brought suit against Bank of America, alleging that the reinsurance arrangement between the bank and the insurer was in violation of RESPA.

The United States District Court for the Eastern District of Pennsylvania held that the plaintiffs’ claims were time-barred by RESPA’s one-year statute of limitations. The District Court also held that their claims did not meet the requirements for equitable tolling because the borrowers did not exercise reasonable diligence in investigating their claims, and the defendants did not mislead the plaintiffs.

On appeal, the Third Circuit affirmed the District Court’s decision, on the basis that the plaintiffs did “absolutely nothing” to investigate the reinsurance of their mortgage insurance during the seven-year period between when their claims arose and when they brought suit. The Court also noted that although the plaintiffs’ lack of reasonable diligence was a sufficient basis on which to deny equitable tolling, there was also inadequate evidence that the defendants misled the plaintiffs.

“Totality of the Circumstances” Standard Used in New York to Sanction Mortgagee for Lack of “Good Faith” Negotiation in Foreclosure Matter

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By: Jill E. Alward and Timothy W. Salter

New York’s Appellate Division, Second Department, recently ruled that a mortgagee’s conduct in evaluating a borrower’s loan modification application should be judged using the “totality of the circumstances” standard to determine whether the mortgagee negotiated in good faith during mandatory foreclosure settlement conferences. Applying that standard in US Bank N.A. v. Sarmiento, 2014 NY Slip Op 05533 (2d Dep’t July 30, 2014), the Appellate Division affirmed a lower court’s holding that a foreclosing plaintiff failed to negotiate in good faith.

In Sarmiento, the plaintiff, over the course of a series of settlement conferences, offered the borrower an in-house loan modification but denied the borrower’s HAMP application four times. The borrower, after refusing to accept the in-house modification, moved for sanctions, which sought to bar the plaintiff from collecting any interest, costs, or attorneys’ fees from the date of the first settlement conference (December 1, 2009). In addition, the borrower asked the court to direct the plaintiff to review the borrower’s loan for HAMP “using correct information and without regard to interest or fees that have accrued on the subject loan since December 1, 2009.” The lower court granted the borrower’s motion in its entirety.
On appeal, the plaintiff argued that the lower court lacked the authority to impose sanctions for violating the good faith requirement of CPLR 3408(f) and further applied the wrong standard in support of its holding. The Second Department rejected both arguments.

In summarizing the offending conduct, the Second Department held that “[w]here a plaintiff fails to expeditiously review submitted financial information, sends inconsistent and contradictory communications, and denies requests for a loan modification without adequate grounds…such conduct could constitute the failure to negotiate in good faith to reach a mutually agreeable resolution.” The court further held that while “any one of the plaintiff’s various delays and miscommunications, considered in isolation, [did] not rise to the level of lack of good faith,” the plaintiff’s conduct, when reviewed using the “totality of the circumstances” standard, “evidenced a disregard for the settlement negotiation[,]” regardless of whether the borrower ultimately qualified for a HAMP modification.

While the court warned that its holding should be construed as a deviation from the principal limiting a court’s role in a foreclosure action “to interpretation and enforcement of the terms agreed to by the parties,” it ultimately alters and expands the standard of review for determining a mortgagee’s “good faith” during the foreclosure settlement process. The court’s holding has already been cited by at least one court, and does not appear to be an isolated ruling.

New Foreclosure Rules In New Jersey Concerning the Foreclosure of Vacant and Abandoned Properties

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By: Daniel A. Cozzi

On July 22, 2014 the Supreme Court of New Jersey adopted amendments to the Rules Governing the Courts of the State of New Jersey. The majority of the amendments became effective on September 1, 2014, the remaining amendments take effect on January 1, 2015. Among the amendments is a new rule governing the foreclosure of vacant properties, N.J. Rule 4:64-1A, “Foreclosure of Vacant and Abandoned Residential Property.” A full copy of the new rules and amendments can be found Here. Rule 4:64-1A sets out the rules and requirements for summary foreclosure of vacant and abandoned property.

In order to proceed summarily the mortgagee must file a Verified Complaint and Order to Show Cause which establish the vacancy of the property. Vacant and abandoned properties are defined by N.J.S.A. 2A:50-73. Real property shall be deemed “vacant and abandoned” if:

The court finds that the mortgage property is not occupied by a mortgagor or tenant as evidenced by a lease agreement entered into prior to the notice of intention to commence foreclosure … and at least two of the following conditions exist:

(1) overgrown or neglected vegetation;
(2) the accumulation of newspapers, circulars, flyers or mail on the property;
(3) disconnected gas, electric, or water utility services to the property;
(4) the accumulation of hazardous, noxious, or unhealthy substances or materials on the property;
(5) the accumulation of junk, litter, trash or debris on the property;
(6) the absence of window treatments such as blinds, curtains or shutters;
(7) the absence of furnishings and personal items;
(8) statements of neighbors, delivery persons, or government employees indicating that the residence is vacant and abandoned;
(9) windows or entrances to the property that are boarded up or closed off or multiple window panes that are damaged, broken and unrepaired;
(10) doors to the property that are smashed through, broken off, unhinged, or continuously unlocked;
(11) a risk to the health, safety or welfare of the public, or any adjoining or adjacent property owners, exists due to acts of vandalism, loitering, criminal conduct, or the physical destruction or deterioration of the property;
(12) an uncorrected violation of a municipal building, housing, or similar code during the preceding year, or an order by municipal authorities declaring the property to be unfit for occupancy and to remain vacant and unoccupied;
(13) the mortgagee or other authorized party has secured or winterized the property due to the property being deemed vacant and unprotected or in danger of freezing;
(14) a written statement issued by any mortgagor expressing the clear intent of all mortgagors to abandon the property;
(15) any other reasonable indicia of abandonment.

N.J.S.A. 2A:50-73. Additionally, a residential property shall not be considered “vacant and abandoned” if, on the property:

(1) there is an unoccupied building which is undergoing construction, renovation, or rehabilitation that is proceeding diligently to completion, and the building is in compliance with all applicable ordinances, codes, regulations, and statutes;
(2) there is a building occupied on a seasonal basis, but otherwise secure; or
(3) there is a building that is secure, but is the subject of a probate action, action to quiet title, or other ownership dispute.

Id.

An important provision of the new rule is the procedure for the Entry of Judgment. If the court determines that residential property is vacant and abandoned as established by N.J.S.A. 2A:50-73, the court may enter final judgment on the return date of the Order to Show Cause. Rule 4:64-1A(c)(3). Ordinarily, an application for final judgment in uncontested matters must be made, “on motion with 10 days notice if there are no other encumbrancers and on 30 days notice if there are other encumbrancers.” Rule 4:64-1(d)(2).

In addition to N.J. Rule 4:64-1A, several other New Jersey Rules have been enacted or amended. Any party interested in Consumer Finance Litigation should review the changes to Rules 4:64-1 (Foreclosure Complaint, Uncontested Judgment Other Than In Rem Tax Foreclosures); 4:64-2 (Proof; Affidavit) and 4:64-9 (Motions in Uncontested Matters).

Mortgagees Face Increased Penalties for Failure to Remedy Municipal Violations on New Jersey Properties in Foreclosure

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By:  Donna Bates and Rachel Packer

As a result of the recent changes in New Jersey law, mortgagees and servicers should review their practices and procedures to ensure timely response to notices of municipal code violations on abandoned or vacant properties in foreclosure in New Jersey.  Click here for further discussion of these changes.

House Passes Mortgage Choice Act Proposing Amendment to Qualified Mortgage Rule

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By:      Michael Meehan

On June 9, 2014, the United States House of Representatives passed the Mortgage Choice Act of 2014, which, among other things, revises the definition of “points and fees” under the Truth in Lending Act’s qualified mortgage rule to exempt both affiliated and unaffiliated title fees.

Under the Dodd-Frank Act, a qualified mortgage may not have points and fees that exceed three percent (3%) of the loan amount. “Points and fees” is a defined term in the statute, which currently encompasses fees paid to affiliated title companies (those companies with which the lender has an affiliated business arrangement) but not unaffiliated title companies. According to the Act’s proponents, Representatives Bill Huizenga (R-Mich) and Gregory Meeks (D-NY), the current definition precludes many affiliated loans from meeting the qualified mortgage rule’s points and fees threshold, further restricting consumer access to mortgage credit, or at a minimum, increasing the cost of such credit. The Act amends the definition under the rule to also exclude affiliated title fees, which its proponents believe will result in a greater number of qualified mortgage loans and expanded credit opportunities for low and moderate income homebuyers.

The Act has been widely supported by financial services and housing trades, including the Mortgage Bankers Association, National Association of Federal Credit Unions, National Association of Home Builders, and the National Association of Realtors. However, opponents of the Act, such as the Center for Responsible Lending and Consumer Federation of America, worry that the amendment will allow lenders to charge excessive title fees to affiliated entities while remaining within the protections that the qualified mortgage rule affords.

The Act passed the House by unanimous vote and awaits a determination in the Senate. If passed, the Act instructs the Consumer Financial Protection Bureau to finalize regulations implementing the new definition within 90 days.

 

New York State Appellate Court Confirms that Failure to Raise Condition Precedent Defense Results in Waiver of that Defense

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By: Shane Biffar

A recent decision from New York’s Appellate Division, Second Department, confirms that a foreclosure Plaintiff’s failure to comply with a condition precedent to foreclosure does not constitute grounds to vacate a foreclosure judgment obtained on default.   In Deutsche Bank Trust Co. Ams. v. Shields, 2014 N.Y. App. Div. LEXIS 2201, 2014 NY Slip Op 2254 (N.Y. App. Div. 2d Dep’t 2014), the defendant borrower appealed from a judgment of foreclosure and sale which had entered after the borrower defaulted in appearing or answering the complaint.   At the trial court, the borrower moved to vacate the foreclosure judgment, arguing that the plaintiff’s failure to provide thirty (30) days’ written notice of the loan payment default, which was listed as a condition precedent in the mortgage, prevented the trial court from entering the judgment of foreclosure and sale. The trial court agreed with the borrower and vacated its own judgment of foreclosure and sale.

On appeal, the Second Department reversed and held that “the plaintiff’s alleged failure to satisfy a condition precedent . . . even if true, did not deprive the Supreme Court of jurisdiction to enter the judgment of foreclosure and sale.”  This case confirms prior decisions which have held that the defense of failure to comply with notice requirements, including those stated in the terms of the mortgage and those prescribed by statute (see RPAPL §§ 1303 and 1304), is waived if the borrower fails to raise it in the answer or in opposition to plaintiff’s motion for summary judgment on the complaint.[1]  In essence, “[a] judgment of foreclosure and sale entered against a defendant is final as to all questions at issue between the parties, and concludes all matters of defense which were or might have been litigated in the foreclosure action.” [2]

The Deutsche Bank Trust Co. Ams. decision is significant due to the procedural posture of the case. In general, a motion to vacate a prior judgment or order is addressed to the trial court’s “sound discretion, subject to reversal only where there has been a clear abuse of that discretion.”[3]  Accordingly, the Deutsche Bank Trust Co. Ams. decision, which is consistent with the Second Department’s previous holding in Signature Bank v. Epstein, 95 A.D.3d 1199, 1201 (N.Y. App. Div. 2d Dep’t 2012), appears to firmly establish the Court’s position that “condition precedent” defenses are not only waived if not asserted, but that a trial court abuses its discretion by vacating a default judgment on grounds of plaintiff’s failure to comply with notice requirements. 

[1] See Signature Bank v. Epstein, 95 A.D.3d 1199, 1201 (N.Y. App. Div. 2d Dep’t 2012); Pritchard v. Curtis, 101 A.D.3d 1502, 1504-1505 (N.Y. App. Div. 3d Dep’t 2012).

[2] Long Is. Sav. Bank v. Mihalios, 269 A.D.2d 502, 503 (N.Y. App. Div. 2d Dep’t 2000).

[3] Maddux v. Schur, 53 A.D.3d 738, 739 (N.Y. App. Div. 3d Dep’t 2008)..