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C O M M I T T E D T O T H E I N D U S T R Y, I N T E G R I T Y, A N D B E S T P R AC T I C E SQ 1 2 0 1 3

L E G A L L E A G U E

National

Brave New World for ServicersFear not, industry pros. We take a deep peek at some of the CFPB’s soon-to-come mortgage servicing rules, which are set to roll out early next year.

By: Stephen Hladik and Bill Miller, Kerns, Pearlstine, Onorato & Hladik, LLP

On January 17, the Consumer Financial Pro-tection Bureau (CFPB) promulgated two rules designed to amend and create new regulatory provisions to the federal Truth in Lending Act (TILA) and the Real Estate Settlement Proce-dures Act (RESPA). Mandated by the Dodd-Frank Act and slated to take effect January 14, 2014, the rules are sweeping in their coverage and breathtaking in their length. They also con-tain certain important exemptions from coverage.

From the two regulations, there are es-sentially nine areas of key changes: (1) periodic billing statements, (2) interest-rate adjustment notices on adjustable loans, (3) prompt crediting of payments and response to payoff requests, (4) forced-placed insurance requirements, (5) error resolution procedures, (6) servicing policies and procedures, (7) good faith efforts to reach delinquent borrowers, (8) consistent contact with debtors, and (9) adoption of loss mitigation procedures/policies.

Periodic Billing StatementsWith regard to periodic billing statements,

the goal is to provide borrowers with a clear articulation of what is owed on the loan. Periodic

billing statements for each billing cycle must meet particular form/content measures. The billing statement must set forth the payment cur-rently due, payments previously made, explana-tion of fess imposed, and information relating to a delinquency. The statement must provide the servicers’ contact information. There are also ex-emptions to these requirements. If certain condi-tions are met, a fi xed-rate loan can be excluded. In addition, “small servicers” are exempt. A small mortgage servicer would be one that services 5,000 or fewer loans and that services only loans that they or their affi liate originate or own.

Adjustable-Rate LoansOn adjustable-rate loans, services must

provide to the borrower written notice of an interest-rate change between 210 and 240 days before the fi rst adjustment takes place (that is seven to eight months!). Servicers must provide an additional notice of an interest-rate adjust-ment between 60 and 120 days before a payment at the adjusted rate is due. The key part to this provision is that the additional notice is required

National

No Standing with SettlementWhy the National Mortgage Settlement can’t be used as a defense to individual foreclosure actions. By: Adam J. Wilde, Codilis & Associates, P.C.

On March 4, 2012, the federal government and 49 attorneys general (plaintiffs) fi led a com-plaint against fi ve of the largest servicers: Bank of America, GMAC Mortgage, Citibank, JPMorgan Chase, and Wells Fargo. The complaint alleged that the servicers violated numerous laws, including Unfair and Deceptive Practices Acts of the Plaintiffs’ states; the False Claims Act;

the Financial Institution Reform, Recovery and Enforcement Act of 1989; the Servicemembers Civil Relief Act; and the Bankruptcy Code and federal rules of bankruptcy. Rather than engage in protracted litigation, on April 4, 2012, the fi ve servicers agreed to resolve their claims in a Na-tional Mortgage Settlement with the government

“Brave New World” continued on page 12

“No Standing” continued on page 13

National

Borrowers Behaving Badly What happens when lenders/servicers inadvertently encourage borrowers to lie, cheat, and steal?

By: Richard M. Squire, Richard M. Squire & Associates, LLC

This is often answered by two words: not much. Let’s be honest: We have all dealt with bad ap-ples, but courts are generally reluctant to sanction borrowers even when creditors’ attorneys make passionate, cogent, Supreme Court-worthy argu-ments in court pointing out misrepresentations in the record, failure to comply with court orders, violations of laws, and intentional concealment of assets, among other things. From a re-election standpoint, it is not good politically for judges (and borrowers can vote, while lenders and ser-vicers cannot).

However, under appropriate circumstances, lenders/servicers can prevail if they are willing to make the investment in time, money, patience, and resilience.

The following situations are instructive.

1. In a foreclosure case involving a reverse mortgage, a lender fi led a Motion for Sum-mary Judgment after answering the defendant’s discovery and after prevailing in a separate action to quiet title fi led by the defendant against the lender, emphasizing the fact that the defendant (sole heir of the deceased borrower) had alleged several different versions of the loan’s origina-tion in his pleadings, including his pleadings fi led in the action to quiet title. The Motion for Summary Judgment ended up being assigned to a senior judge, who granted the Motion without oral argument. The Summary Judgment Order contained the following admonishment: “Defen-dant has posited several different defenses … defendant has stated under oath that his father did execute the mortgage papers even though defendant now states, again under oath, that he, not his father, signed the mortgage papers … defendant, assisted by his attorney, is attempting to defend this action on the basis of his own con-duct, which would have been, at best, fraudulent and, at worst, criminal.”

“Borrowers Behaving Badly” continued on page 11

2 Legal League Quarterly

Q 1 2 0 1 3

THE FIVE STAR INSTITUTE

2013Calendar

~of Events ~

March 27, 2013 MPACT

Omni Mandalay in Las Colinas, TX

March 28, 2013 LEGAL LEAGUE 100

ADVISORY BOARD MEETING

Omni Mandalay in Las Colinas, TX

April 18, 2013LEGAL LEAGUE 100 SERVICER SUMMIT

Ritz-Carlton in Dallas, TX

April 23, 2013 FIVE STAR GOVERNMENT FORUM

St. Regis in Washington, D.C.

September 8-10, 2013 FIVE STAR CONFERENCE AND EXPO

Hilton Anatole in Dallas, TX

September 9, 2013LEGAL LEAGUE 100 SERVICER SUMMIT

Hilton Anatole in Dallas, TX

(concurrently with the Five Star Conference)

The housing industry breathed a collective sigh of relief upon hearing the mortgage inter-est deduction survived the end-of-year fi scal cliff negotiations, though this long-time staple of American homeownership didn't make it through the halls of Capitol Hill entirely unscathed.

Beginning in 2013, mortgage interest is one of the itemized deductions that is capped for married fi lers who earn $300,000 or more and for single fi l-ers earning $250,000 or more. I am troubled by the fact that lawmakers are limiting deductions of mort-gage interest only for those Americans earning more than their arbitrary threshold, and what's worse is the mortgage interest deduction may be stripped from the tax code entirely as Congress continues its wrangling over the nation's fi scal state.

There is a blatant injustice with curtailing the deduction only for those in a higher tax bracket. This move will undoubtedly drive away higher earners who historically benefi t from the afford-ability the mortgage interest deduction allows. These are the people who take out jumbo loans, some to buy properties in markets where median prices soar into the upper-six digits or higher. Cap-ping the deduction is essentially a punishment for high-income borrowers and for those who aspire to be high-income borrowers.

The sentiment among legislators who support-ed this idea implies that any initiative benefi tting high-income consumers—even if it also aids the rest of the country—must be done away with. This nearsighted approach reduces this crucial issue to little more than a Hatfi eld-McCoy-style standoff between citizens of different income levels. And that’s an attitude that our nation cannot afford to adopt, no matter what tax bracket is under debate.

The imagined battle of haves vs. have-nots is one that will have dire effects on America’s future. One of our country’s core values is the belief that anyone can be a success story if they get an education, work hard, pay their taxes, and earn

an honest living. Since our nation’s founding, we have prided ourselves on providing the creative and entrepreneurial freedom that allowed minds like Andrew Carnegie, Steve Jobs, and Warren Buffett to provide both for themselves and for the common good.

If success is now defi ned, regulated, and even penalized by the government, where does that leave us?

There will come a point when children look at how the successful are labeled and disciplined, and they’ll decide to settle for mediocrity instead of great achievement. Why? Because political rhetoric fueling the feud degrades those whose hard work has made them wealthy by suggesting that success is "unfair." Already, you need look no further than the nightly news to fi nd a pundit characterizing higher earners as shirkers, demand-ing the “rich” fi nally pay their “fair share” in taxes.

Instead of misappropriating the concept of equality and masquerading punishment as “fair-ness,” we should be setting a cultural standard for our young people and the rest of the world that celebrates and nurtures self-starters and profound achievers because greatness is the foundation upon which our country was built—and will be rebuilt.

Last year wasn’t the fi rst time policymakers have eyed cutting the mortgage interest deduc-tion, and it won't be the last. Should the moment eventually arrive when our government commits to doing away with “the third rail of tax reform” altogether, I have no doubt it will undermine the recovery we’ve observed so far. It will remove one of the major incentives to buying a home, and rest assured, the blowback will reach far beyond the housing and mortgage industries. The 11th-hour decision of our Congressional representatives to limit the deduction for more affl uent homeown-ers is already a step in the wrong direction. It puts a tear in the very fabric of what makes America great—the Entrepreneurial Spirit.

Ed DelgadoPresident and CEOThe Five Star Institute

Ed Delgado is president and CEO of the Five Star Institute, a mortgage banking association providing professional education and strategic services to the U.S.

mortgage market. Delgado has more than 20 years' experience in mortgage banking and was previously COO of Wingspan Portfolio Advisors. He was also an SVP at Wells Fargo and represented the bank before Treasury during 2008 and 2009 when federal offi cials were working on their response to the U.S. housing crisis. Prior to that, he spent more than nine years at Freddie Mac in various leadership roles. He currently holds a seat on the National Advisory Council for consumer credit.

Legal League Quarterly 3

National

Headed in ReverseLenders need to gear up their knowledge of reverse mortgages to avoid any related setbacks down the road.By: Bryan Hughes, Freedman Anselmo Lindberg, LLC

The vast majority of home loans are of the familiar kind: conventional mortgages in which real property secures repayment of the note. The features are also familiar. There is a note amount, term, rate, and provisions defi ning default. Re-verse mortgages, on the other hand, are different, and many practitioners are still unfamiliar with this increasingly popular product.

By now, anyone who has suffered even the briefest fi t of insomnia has seen the likes of Fred Thompson, Robert Wagner, or the Fonz promot-ing reverse mortgages on late-night TV. However, few practitioners possess any more knowledge than would be yielded by a quick Google search. The best way to address this is to fi rst provide a basic background on the mechanics of reverse mortgages.

Federally insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs) are the best-known form of reverse mortgages. HUD-sponsored and insured through the FHA., HECMs are intended to benefi t se-

nior homeowners by allowing them to access the equity in their homes. These loans can be used for virtually any purpose the borrower desires. In fact, a borrower may make no payments under an HECM during his or her lifetime. They are called “reverse” mortgages because the lender disburses payments to the borrower over the term of the loan instead of the borrower making pay-ments to the lender.

Like anything else, there is a potential down-side, including a potential snag for lenders and their counsel.

Prepare to QualifyLet’s take a look at what basic qualifi cations

for borrowers to obtain a reverse mortgage. These are, of course, subject to individual lender review and approval, but the general criteria exist across the lending industry.

Information relating to HECMs and their requirements and various caveats can be obtained through the HUD website (www.hud.

gov/buying/rvrsmort.cfm). Borrowers seeking a reverse mortgage must be at least 62 years of age. This immediately and drastically narrows the eligible population for this type of loan. The borrower must either own his or her property outright or must have substantially paid down existing mortgages. The loan can be secured only with a primary residence, and the borrower can have no delinquent federal debt. Finally, prior to origination the borrower is required to participate in an information session with a HUD-approved counselor.

Should the borrower meet the aforemen-tioned criteria and win lender approval, the terms of the loan will be based on four factors: the borrower’s age, current interest rates, govern-ment-defi ned lending limits, and, probably most importantly, the appraised value of the residence.

Borrowers seeking a reverse mort-gage are required, over the tenure of the loan obligation, to stay current on all property taxes, association dues, if any, and hazard insurance. In addition, the residence must continually meet local building standards, as well as HUD building standards. Disbursements from the loan itself can be used to keep these requirements current. Borrowers must also continually occupy the property as their primary residence for the life of the loan. What does or does not constitute continuous occupancy may be determined by state statute.

Provided the borrower continues to honor these obligations, the loan will not become due and owing until after the borrower’s death. That is, unless the borrower moves, sells the resi-dence, or violates any of the other terms.

“Headed in Reverse” continued on page 12


National

Inside Jobs The plusses and perils of promoting from within.By: Liz Lamar, J.D., Affinity Consulting Group

Promoting from within can be one of the most powerful management tools leveraged by a default law firm. Conversely, it can be disastrous and one of the greatest pitfalls if not done with certain care. As studies suggest, promoting from within improves staff productivity and morale. After all, employees are motivated when their firm looks for future talent among the company’s current pool of employees. It also serves as a recruitment tool for attorneys and support staff who wish to pursue a long-term career path within an organization. So why has promoting from within proved to be so challenging for law firms in the default industry?

The Pros and Cons First, let’s examine why it makes sense for

law firms to adopt a policy of inside hiring. The positives include the following:1. Inside hires already understand the

firm’s culture, mission, and inner work-ings. Since they are already a part of the team, the learning curve in this area is less severe.

2. The performance level of an inside hire is often better than an outside hire.

3. It is less expensive to promote from within. Firms save on advertising and orientation costs, for example.

4. Inside hiring acts as a motivator for staff to work harder in order to be promoted. It can also result in multiple promotions since vacancies become available as people are moved up the ladder.

5. Inside hiring sends the message that the firm values loyalty and performance.

6. By promoting from within, external hires are generally kept at entry level. The benefit to this is that entry-level positions are less expensive to fill and the financial impact of a bad hire is significantly less.

7. Promoting from within fosters greater employee retention for those looking for security.

While there are many more benefits to inside hiring than those listed above, there are also downsides to promoting from within. The negatives include:1. If no “suitable” internal candidate

is found, a policy of giving internal candidates preference could result in promoting someone with the wrong skill set for the job. In addition, it may create conflict within the organization when unsuitable internal applicants are passed over because they do not have the right qualifications for the position.

2. Internal placement programs can be slow if management is not electronically distributing lists of available positions within the firm. Posting of positions on boards in office common areas or distrib-uting paper lists are not efficient and do not always reach potential candidates.

3. People can become frustrated if all job postings are not “truly available.” In other words, sometimes managers advertise available positions to comply with firm policy even though they have already made their choice of candidate.

4. Many inside hiring policies are based on seniority, which may not always produce the best hire.

5. Internal promoting can create office poli-tics and jockeying for positions, which can distract staff from production and be bad for staff morale.

6. If there is no good training or develop-ment program available, staff may be slow to reach their full potential.

7. Inside hiring policies can encourage firms to promote the most experienced and skilled person into a position of leadership even though that person does not have management experience or the skills to be a leader.

Common Challenges and Solutions

Just because an employee is a skilled or ex-perienced worker does not mean they can lead. Likewise, just because an employee has a great deal of substantive knowledge does not mean they can manage.

One of the gravest and most common mis-takes made by default law firms is to promote skilled and experienced workers into manage-ment positions, even though these workers do not have management experience or the skills necessary to lead their teams to success. Effec-tive managers understand that managing is both an art and a science. It involves a well-rounded mix of substantive subject-area knowledge, good organizational and leadership skills, and excel-lent people skills.

It is not uncommon for default firms to promote paralegals into management positions simply because they know how to do their current jobs well. Similarly, managing a large department of people is very different from su-pervising a small handful. In order to supervise a small group, it may not be necessary to have the strong leadership skills required of a large-team manager. Soon, a paralegal who once was solely in charge of her own workload, or who

was overseeing a small

group, is

managing her entire department’s workflow. This is an extremely risky practice unless manage-ment knows and is confident that the paralegal candidate has solid management skills to bolster her substantive knowledge.

When considering promoting a skilled worker into a management position, several key skills must be considered:1. Thorough knowledge base of their area

with full understanding of everyone’s roles and tasks.

2. Good “people” skills. Consider what the candidate’s relationship is with their co-workers. Is this person capable of resolv-ing disputes in a manner that encourages cooperation and does not negatively impact production?

3. Ability to lead others to success. Does the candidate have the leadership skills that co-workers respect and admire? Are they confident decision-makers, and are they critical thinkers and problem-solvers?Another challenge for default law firms is

that they often promote paralegals to managers without having a solid training program in place. By not properly training new managers, firms de-lay staff from reaching their full potential. Even in those cases where management promotes a paralegal who has been identified as possess-ing all of the qualities of a manager, training is necessary to ensure a smooth transition into her new role. Part of adapting to a new role involves understanding the new responsibilities that come along with that role.

When developing a training program for new managers, law firms should ensure that the training includes the following, at a minimum:1. An overview of the manager’s new du-

ties; a job description.2. The expectations that accompany the

employee’s new role as a manager.3. Materials and exercises that develop the

skill of setting goals, providing effective feedback, and conducting alignment discussions.

4. Materials and exercises that develop communications skills.

5. Materials on the art of influencing and motivating others.

6. Materials and exercises that develop delegation skills.

7. Sexual harassment and diversity training.

Although promoting from within can be one of the greatest management tools available to law firms, it has its pros and cons. Default firms have long struggled with the challenges that are inherent in inside hiring. While it benefits employee productivity and morale, it can also be disastrous when the wrong candidates are promoted and when promoting is done without a strong training program in place.

By identifying the right skills in good workers and by giving those workers the right training and tools to make them successful once they are promoted, firms can ensure that their opera-

tions remain strong, stable, and prosperous. Regardless of whether organizations

look to within or hire or externally, having the right staff in the right positions is an important component in the foundation of any success-

ful business—and law firms are no different.


National

Code Words Amid today’s evolving legal loopholes, lenders must be sure to voice their right as holder of a negotiable instrument under Uniform Commercial Code Article 3. By: Morgan L. Weinstein, Van Ness Law Firm, PLC

In the wake of the Massachusetts decision in U.S. Bank, N.A., v. Ibanez, 458 Mass. 637 (Mass. 2011) and other like court decisions, courts and parties have begun to question the salience of Article 3 of the Uniform Commercial Code (UCC) in determining whether a plaintiff has standing to sue based on the plaintiff ’s status as holder of the note and mortgage. There have been questions as to whether negotiabil-ity is an outmoded concept that ought to be replaced by U.C.C. Article 9 determinations of status, treating mortgage note exchanges more like sales, rather than treating them as negotia-tions. Article 3 provides numerous safeguards for both lenders and borrowers that are lacking in Article 9. Additionally, Article 3 provides a predictable framework for the enforcement of mortgage notes in foreclosure proceedings, in both judicial and non-judicial foreclosure states. Consequently, it behooves lenders to stress the fact that they acquire a sufficient stake in the outcome of any lawsuit premised on the en-forcement of loan documents pursuant to their status as the holder of a negotiable instrument under UCC Article 3.

Negotiability Under UCC Article 3

The concept of “negotiability,” or allowing parties to affect a transfer of certain instruments by a transfer of possession of those instruments, was ultimately codified in the UCC in Article 3. Negotiability under Article 3 serves as the foun-dational mechanism to establish standing in a foreclosure case, as a plaintiff may gain standing by being the “holder” of an instrument. The term “holder” is defined under U.C.C. § 1-201(b)(21) as “the person in possession of a negotiable instrument that is made payable either to bearer or to an identified person that is the person in possession.” Therefore, if a mortgage note is ne-gotiable, and if a plaintiff is in possession of the mortgage note, then the plaintiff may enforce the mortgage note, provided that it is made pay-able to bearer or to the plaintiff or the entity on whose behalf the plaintiff is servicing the loan.

If the plaintiff pleads that it is a “holder in due course,” as defined in U.C.C. § 3-302, then the plaintiff gains the additional advantage of being shielded from all defenses aside from the “real defenses,” which include infancy, essen-tial fraud, insolvency, duress, incapacity, and illegality. However, not every holder is a holder in due course. Pursuant to U.C.C. § 3-302, only those holders who take negotiable instruments for value, in good faith, and without notice of several enumerated potential defects of said instrument can qualify as holders in due course, provided that they meet additional prescribed requirements. Therefore a plaintiff need not meet the higher-standing burden of establish-ing holder in due course status and may instead

strategically plead as a holder and opt to not reap the benefits of being insulated from many potential defenses to enforcement of the note.

Under Article 3, proof of the ability to enforce a mortgage note is a mandatory element that protects borrowers from the potentiality of having to satisfy redundant obligations stem-ming from the note. Forty-nine states have adopted the latest version of Article 3, which makes Article 3 a substantially uniform means of dealing with any issues that arise regard-ing standing. Lenders, attorneys, and courts are largely prevented from having to reconcile inconsistent and patchwork law in attempting to determine whether a note would be enforceable in a particular region or jurisdiction.

Sales Under U.C.C. Article 9In contrast to the predictability and rigidity

of Article 3, Article 9 contains troubling vague-ness: It relies upon a standard of “commercial reasonableness” in determining how to proceed with sales. Pursuant to U.C.C. § 9-607(c), “A secured party shall proceed in a commercially reasonable manner if the secured party under-takes to collect from or enforce an obligation.” While commercial reasonability deals generally with concepts of good faith and fair dealing regarding the reasonable value of a sale, there is no test to determine whether a particular sale is commercially reasonable. U.C.C. § 9-267 expends greater than 200 words describing how to determine whether a particular transaction is commercially reasonable. However, U.C.C. § 9-267 ultimately provides a number of mal-

leable factors that, at best, tend to indicate that a transaction is commercially reasonable. It does not provide a means to definitively measure the commercial reasonableness of a particular trans-action prior to the conclusion of the transaction.

Furthermore, as demonstrated in U.S. Bank, N.A., v. Ibanez, 458 Mass. 637 (Mass. 2011), courts do not have to follow Article 9 to the letter, even when labeling mortgage or note transactions as “sales” pursuant to “securitized interests.” In Ibanez, plaintiff lenders foreclosed on mortgages in a non-judicial foreclosure state, then sought declarations from the court that they had clear title to the properties that were foreclosed upon, following their purchase of the properties at foreclosure sales. The court ruled that the lenders did not have clear title, due to a number of title defects. Further, the court held that promissory notes serve as financial instru-ments, whereas mortgages securing such notes are legal title to a property. Ibanez has become a popular topic amongst foreclosure defense attorneys because, in its reasoning regarding the difference between notes and mortgages, it breaks from the traditional view, found in U.C.C. § 9-203(g), that a mortgage follows the promissory note that it secures. Ibanez stands for the proposition that a party, even when op-erating under a right of sale under UCC Article 9, is not necessarily entitled to the presumption that an assignment of a note carries with it the assignment of the mortgage securing the note.

Mortgage promissory notes are typically negotiable instruments, as defined under UCC Article 3. Combined with the lack of precision expressly codified within UCC Article 9, the patchwork enforcement of that article generates great uncertainty as to whether a particular lend-er in a particular case will eventually be found to have standing to sue or, in non-judicial states, clear title to property purchased at a foreclosure sale. In the wake of recent opinions reasoning from Article 9, including but not limited to the opinion in Ibanez, there exists the potential for courts to begin to look to Article 9 to determine whether a lender has standing to initiate a law-suit or clear title to post-sale property. In light of the potential sea change currently at hand, it is important for lenders to continue to assert their right as the holder of a negotiable instrument under UCC Article 3.


National

Notice to Terminate Failure to comply with even a single requirement can result in an eviction dismissal, so it’s essential to sidestep the pitfalls. By: Gillian Brown, Esq., Rosicki, Rosicki & Associates, P.C.

The notice of termination in an eviction proceeding can be issued from the owner directly or from the owner’s attorney or agent. Several New York cases have set forth the requirements for signing the notice of termination. As the failure to adhere to any of these require-ments can result in the dismissal of the eviction action, it is necessary for the agent sign-ing to be familiar with the applicable law.

By law, if the notice of termination is signed by the attorney or agent, it must be accompa-nied by proof of the latter’s authority to sign on behalf of the owner. Proof in the form of a power of attorney (POA) is required. Deutsche Bank National Trust Company v. Larke, N.Y.L.J, 4/27/10, p.26 (col. 3). The rationale of the court in requiring the notice to be accompanied by proof of the requisite authority is so that the recipient of the notice can be confident in the notice’s authenticity and can rely upon the no-tice received. In the leading case, Siegel v. Ken-

tucky Fried Chicken of Long Island, Inc., 108 A.D.2d 218, 488 N.Y.S.2d 744 (2Dept. 1985) aff ’d 67 NY2d 792, 501 N.Y.S.2d 317 (1986), which is oftentimes cited for requiring proof of authority, the court focused on the fact that a mere asser-tion of authority by a total stranger to the tenant without proof

of authority did not provide sufficient surety that the tenant could rely on the notice and act upon it.

It is therefore imperative that a copy of the POA accompany the notice signed by the agent, as the failure to provide same renders the notice jurisdictionally defective and will result in the dismissal of the eviction proceeding. It should be further noted that producing a copy of the POA after the notice has already been executed and served in the eviction will not validate the notice.

New York law also requires the agent sign-ing to designate the following clearly on the

notice: 1) his/her title 2) the company he/she is employed by, and 3) the capacity he/she is sign-ing in ( i.e., “attorney in fact” if signing with a POA). HSBC Bank USA, National Association v. Jeffers, 1/20/2011 N.Y.L.J. p.37. Accordingly, the signature line of the notice must include the signer’s title and the company the signer is employed by and must designate that the signer as “attorney in fact.” It is also necessary to sub-mit documentation evidencing that the signer is authorized to execute notices on behalf of the entity they are employed by. Consequently, the notice should be accompanied by the required POA, certificate of authority, or other corporate document authorizing the agent to execute documents on behalf of the employer. The fail-ure to include this additional information on the notice or to provide the required documentation will also render the notice defective.

Lastly, it is required that the POA relied upon by the agent must authorize either the signing of the eviction notice or the commence-ment of an eviction action. A limited POA given by the principal to its agent must grant the agent authority to sanction the commencement of the holdover proceeding. Petra Finance, LLC, v. Strachan, 4/29/2010, N.Y.L.J. p. 26, (col.1). If the POA by its provisions limits the scope of the agent’s authority to act, to certain enumerated transactions that do not pertain to evictions, the POA is subject to challenge in court and there is a risk of dismissal.

Accordingly, to avoid litigation and inherent delays, it is recommended (where feasible) that the termination notice required by law be signed directly by the owner. Where it is impractical for the owner to sign and an agent is authorized to do so, compliance with the signing requirements is crucial. Legal challenges to the notice can be avoided by always providing the POA, which authorizes signing, by designating clearly that the notice is being signed with a POA by provid-ing the signer’s title and company name and ensuring that the scope of the POA authorizes signing. In so doing, the potential for a dismissal will be avoided and the notice will pass the scrutiny of the courts.

States: California

The California Home Owner’s Bill of RightsAmbiguity can easily lead to litigation, and the Sunshine State’s HBOR—which leaves many of its most important provisions open to interpretation—is no exception.

By: Nathaniel M. Brodnax, Law Offices of Les Zieve

Signed into law July 2012 and effective January 1, the California Home Owner’s Bill of Rights (HBOR) has made a host of sweep-ing changes to the non-judicial foreclosure process in California. Unfortunately, many of the provisions in HBOR utilize vague or undefined terms; such terms are a breeding ground for litigation.

One of the most important changes in HBOR is the prohibition on dual-track foreclosures in California. In a nutshell, this means that lenders and servicers can no longer move forward with a non-judicial fore-closure at the same time they are reviewing a borrower for a loan modification or other fore-closure prevention alternative (FPA). Once a

servicer receives a complete application for an available FPA, the servicer must put that foreclosure on hold.

In an attempt to prevent abuse of this provision, HBOR limits what applications a servicer must consider. Specifically, servicers are not required to review a first lien loan modification (FLM) application if that bor-rower has already been evaluated for an FLM prior to January 1, 2013, unless there has been a “material change” to the borrower’s financial circumstances. Unfortunately for borrowers and servicers alike, HBOR fails to define what constitutes a “material change.” Undoubtedly, this will result in numerous law-suits filed by borrowers who feel their servicer

wrongfully deemed their purported changes immaterial.

Not all FPAs are of the FLM variety, however. HBOR also provides protections for those borrowers who are attempting a short sale of their home. In such instances, a servicer must put the foreclosure process on hold once the short sale has been approved in writing by all parties and “proof of funds” has been provided to the servicer.

Rather than electing to use a term such as “tender,” which has a well-understood and defined legal meaning, the drafters of HBOR elected to use the term “proof of funds,” but they failed to provide a definition of this term. This uncertainty will likely result in numer-ous instances of disagreement and confu-sion between servicers and borrowers as to whether “proof of funds” was in fact provided and therefore a foreclosure hold was required. Wrongful foreclosure lawsuits based upon a disagreement over what constitutes “proof of funds” are all but inevitable given this ambigu-ity.

Since HBOR provides for a private right of action for borrowers against servicers who have violated the requirements of HBOR, it is imperative that servicers work closely with their foreclosure counsel to create compliance procedures that limit their exposure.


States: Illinois

Fast-Tracking Foreclosures … Finally Senate Bill 16 is the legislature’s long-awaited answer to prolonged foreclosures on abandoned and vacant properties. By: Michael Anselmo, Esq., Freedman Anselmo Lindberg, LLC

It is no secret that Illinois suffers through one of the lengthiest foreclosure processes in the country, with the average judicial foreclosure taking about two years to complete. The national average, by contrast, is about one year. The prob-lem has become so bad that Illinois is one of only five states in which the Federal Housing Financ-ing Agency is seeking to increase the guarantee fees that Fannie Mae and Freddie Mac charge on home loans. Fortunately, it appears that some relief, though limited, is on its way.

Recently, Senate Bill 16 passed the general assembly. The main purpose of the bill, as it relates to the foreclosure industry, is to fast-track the foreclosure process on abandoned and vacant homes, while at the same time, funding foreclosure prevention efforts.

The bill works by allowing lenders to file a motion to fast-track foreclosures for single-fami-ly residences and multifamily buildings that have six units or fewer. Lenders will have to file a supporting affidavit that verifies that the subject

property meets the definition of abandoned, as provided for in new section 1200.5 of the IMFL. The fast-track is also applicable to unsecure homes that have undergone the initial stages of construction but have not seen any progress for six months. The procedure does not apply to secure buildings that are currently undergoing construction, are on the market, comply with local ordinances, or are subject to an ownership dispute, such as a probate proceeding.

The bill’s intended policy is to positively affect the neighborhoods surrounding vacant properties by stabilizing property values and the tax base, decreasing the crime rate, and reducing the risk of foreclosure for nearby properties. It is also intended to reduce costs for local govern-ments and the state. This would partially be accomplished by an increased filing fee charged to lenders, the proceeds of which would go to fund the Foreclosure Prevention Program and Abandoned Residential Property Relief Program. The bill is estimated to generate an additional

$41 million in fees. About 70 percent would be allocated to helping municipalities offset the costs of maintaining and securing abandoned buildings, while the majority of the remaining 30 percent would be allocated to foreclosure prevention programs.

The additional filing fee is determined by a system of tiers based upon how many foreclo-sure complaints a plaintiff has filed on residen-tial real estate located in Illinois in the previous calendar year. Lenders who filed at least 175 complaints will be required to pay an additional $500. Lenders who filed between 50 and 174 complaints will be required to pay an addi-tional $250, and lenders who filed 49 or fewer complaints will be required to pay an additional $50. While, at first glance, these fees appear to be costly to lenders, one must take into account that, if this law works as intended, lenders will be shaving about 17 months off their foreclosure timelines.

States: Massachusetts

A Threshold Issue The Massachusetts Supreme Judicial Court discusses standing and, once again, we all listen.By: Allison Orprilla, Esq., and Peter Guaetta, Esq., Guaetta and Benson, LLC

And so it begins … or does it? What exactly does it take to establish standing to initiate fore-closure in Massachusetts? This was the once simple—and now complex—question again considered in HSBC Bank USA, N.A., v. Jodi B. Matt, SJC-11101 (January 14, 2013), the latest in a series of Supreme Judicial Court decisions redefining our understanding of the law.

Massachusetts foreclosure is seemingly un-like any other, a piecemeal, de facto, three-part process some call “quasi-judicial” that includes (1) a statutory 150-day Notice of Right to Cure, (2) a judicial “servicemember action” to deter-mine whether the homeowner is entitled to pro-tection under the Servicemembers Civil Relief Act (SCRA), and (3) a non-judicial sale process. Most are already familiar with the SJC decision addressing the non-judicial sale stage: U.S. Bank, N.A., vs. Ibanez, 458 Mass. 637 (2011), requiring the entity claiming to hold the mort-gage actually hold the mortgage when noticing a foreclosure sale, and Eaton vs. Fed. Nat’l Mortg. Ass’n, 462 Mass. 569 (2012), requiring that very same foreclosing party also hold the note, or act as the holder’s “authorized agent” when sending an auction notice. Simple? Think again.

Before even reaching Ibanez and Eaton, a mortgagee must first address a crucial threshold issue: Is the homeowner entitled to SCRA pro-tection? Under Massachusetts law, a service-

member action judgment effectively provides mortgagees and buyers a “safe-harbor” from subsequent SCRA challenge by judicially deter-mining a homeowner’s military status. However, a foreclosing entity must first satisfy yet another crucial threshold inquiry: Does it have standing to commence a servicemember action?

On January 27, 2010, HSBC filed a service-members action against homeowner Jodi Matt, claiming mortgagee status under a 2007 assign-ment. Although admittedly not entitled to SCRA protection, Matt nonetheless challenged stand-ing. Rather than relying on the recorded assign-ment, Land Court Judge Keith Long (yes, the same Judge Long, author of the original Land Court Ibanez opinion) inexplicably chose to rely on “general requirements of standing,” holding that the 2005 pooling and servicing agreement conveyed standing regardless of whether HSBC was the actual mortgage holder. Matt appealed. The SJC transferred the case directly from the Appeals Court.

On January 14, the SJC ruled with consis-tent familiarity. Judge Lenk first noted that the Land Court should not have entertained Matt’s challenge without claim to SCRA protection. Thereafter the SJC, while citing repeatedly to Eaton, stated, “Going forward, to establish stand-ing in servicemember proceedings, plaintiffs must present such evidence as may be necessary

and appropriate in the circumstances reasonably to satisfy the judge as to their status as mortgag-ees or agents thereof,” effectively applying Eaton and Ibanez earlier in the foreclosure timeline. The court thereafter remanded the matter for determination of HSBC’s mortgagee status.

Practically speaking, Matt raises many con-cerns. What constitutes “such evidence as may be necessary and appropriate” is open for debate where even a recorded mortgage assignment was insufficient to establish standing. How will Matt affect those entities and investors who hold a promissory note but who refuse to foreclose the mortgage in their own name? In the future, how much earlier in the foreclosure process might Eaton/Ibanez/Matt be applied? Will courts demand evidence of note and mortgage holder unity prior even to mailing of the Notice of Right to Cure? If so, can servicers and investors comply at such an early stage?

Massachusetts courts are already now focus-ing on the initial stage, voiding entire foreclo-sures due to questionable deficiencies in the Notice and mandating “strict compliance” per Ibanez. The course has been set; we can see the direction in which the SJC is headed. Perhaps the most germane question is not whether the SJC will require standing be established earlier, but when? Will there be a threshold issue, to a threshold issue, to a threshold issue?


© 2013 Stewart.

More casual. Less conventional.When it comes to our customers, we’re all business at Stewart Lender Services®. We just choose to do business differently. We spend more time getting the job done and less time trying to impress you with presentations. We’re always upfront and honest about what we can and can’t do for you. So whether you’d like to meet over a conference table or over dinner, you won’t ever have to worry about seeing through a bunch of bull because we’re never going to give you any. We’ll simply discuss your needs, adapt our capabilities and get things done. We pride ourselves on doing things right because, to us, that’s the only way to do business.

Want more information? Visit stewart.com/more.

Stewart Lender Services.

Dedicated to doing business right.

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M O V E R S & S H A K E R S


Freedman anselmo lindberg adds Three associaTe aTTorneys

Three new associate attorneys joined the growing default practice at Freedman Anselmo Lindberg, LLC. The Chicago-based firm recently announced the hiring of Molly Glanz, Colin Winters, and Teena Thomas.

Glanz practices in the area of mortgage foreclosure law. She recently graduated from the John Marshall Law School. Glanz is licensed to practice in Illinois and is a member of the Illinois State Bar Association and the Chicago Bar Association.

Winters specializes in the areas of mortgage foreclosure and real estate law. He is a 2008 graduate of Loyola University Chicago School of Law and attended the University of Illinois at Urbana-Champaign for his undergraduate studies. He is licensed to practice law in the state of Illinois and is a member of the Illinois State Bar Association and the Chicago Bar Association.

Thomas’ specialty is mortgage foreclosures. She currently holds a license to practice in Illinois and is a member of the Illinois State Bar Association, the Chicago Bar Association, and the DuPage County Bar Association. She earned her bachelor’s degree from the University of Illinois at Urbana-Champaign and her Juris Doctor from Northern Illinois University College of Law. Thomas also studied civil law and the European Union at the Universite Montesquieu-Bordeaux in France.

Three rubin lublin associaTes named ParTners aT Firm

Rubin Lublin, LLC, announced three promotions at the real estate default law firm. Victor Kang, Heidi Billington, and Tenise Cook were all named new partners.

Kang is a supervising attorney and oversees all aspects of the firm’s foreclosure department. He has worked at Rubin Lublin since its 2009 inception and earned his law degree from the University of Alabama.

Billington is also a supervising attorney in the firm’s foreclosure department. She received her law degree from Mississippi College and, like Kang, joined the firm in 2009.

Both Billington and Kang will continue in their roles as supervising attorneys, managing the foreclosure department’s staff, process, and procedure creation and implementation. The two new partners are also responsible for ensuring compliance with state laws.

Cook is a lead associate in the firm’s real estate litigation department and specialized in title curative and title litigation matters. In her new role, she assists senior partner Peter Lublin in the supervision of the litigation department in addition to her caseload. Cook first joined the firm in 2010. She earned her Juris Doctorate from the University of Georgia School of Law and is licensed to practice in Georgia and Tennessee.

Rubin Lublin is a service-oriented boutique law firm serving mortgage banking, loan servicing, and title insurer clients throughout Georgia, Tennessee, and Mississippi.

huTchens, senTer, Kellam & PeTTiT grows Team wiTh Three new hires

Hutchens, Senter, Kellam & Pettit, P.A., welcomed two new attorneys and a marketing and event coordinator to its team.

Chris Foster joins the firm with eight years of experience in the areas of wills, trusts, estate planning, estate administration, corporate taxation, business planning, and business formation. Foster earned his MBA and Juris Doctor from the University of South Carolina. He further pursued a master of law degree in taxation from the University of Florida Frederic G. Levin College of Law.

Elizabeth Jackson also joined the firm as an attorney. Her areas of practice include creditors’ rights and civil litigation. Jackson received her undergraduate degree from the University of Southern California and earned her Juris Doctor from the Loyola Law School in 2012. Jackson is a member of the North Carolina and Cumberland County bar associations.

Also joining the firm is Sara Gamache, who was hired as a marketing and event coordinator. Gamache is responsible for implementing marketing efforts at the firm’s main office in Fayetteville, and she also assists with similar activities at the other two locations in Wilmington and Charlotte. In addition, she coordinates the firm’s participation at local events and in community involvement.

rogers Townsend aTTorney aPPoinTed To lawyers Fund commiTTee

Michael Morris, an attorney with Rogers Townsend & Thomas, P.C., was selected to serve on the Lawyers Fund for Client Protection Committee, which reimburses clients for money or property mishandled by members of the South Carolina Bar. Morris largely represents mortgage lenders and servicers across South Carolina in real estate foreclosures.

rogers Townsend & Thomas announces new aTTorney

Rogers Townsend & Thomas, PC welcomed John F. McLeod IV as the latest default service attorney at the firm’s office in Columbia, South Carolina. McLeod focuses mainly in the areas of real estate and mortgage foreclosures. He earned his bachelor’s degree from Clemson University in 2009 and received his Juris Doctor in 2012 from the University of South Carolina School of Law.

Freedman anselmo lindberg exPands PracTice wiTh Two aTTorneys

Freedman Anselmo Lindberg, LLC, added Nisha B. Parikh and John A. Blatt (not pictured) to its default practice. Parikh’s focus is mortgage foreclosure, bankruptcy, and creditors’ rights. She graduated from the Thomas M. Cooley Law School. Blatt’s specific area of focus is mortgage foreclosures. He earned his law degree from The John Marshall Law School.

The wirbicKi law grouP hires comPliance exec, announces aTTorney PromoTion

The Wirbicki Law Group, LLC, hired Amanda V. Green as chief compliance officer. Green has been working in the area of compliance for four years. She is currently admitted to practice in Kentucky, Ohio, and Indiana, as well as the U.S. District Courts for the Eastern and Western Districts of Kentucky and the U.S. District Courts for the Northern and Southern Districts of Indiana. She is a graduate of the University of Cincinnati College of Law.

The law firm also announced that Larry Goldstein was promoted to default attorney manager. Goldstein works in the firm’s judicial foreclosure department in Chicago. He has more than 30 years’ experience handling default-related issues and was previously an associate attorney with the Wirbicki Law Group for two years. He earned his Juris Doctorate from Loyola University of Chicago Law School and is licensed to practice in Illinois.

rTT hires associaTe, announces leadershiP award For shareholder

Rogers Townsend & Thomas, PC (RTT) hired an associate for its Columbia, South Carolina office and announced one of its shareholders will be honored by SC Lawyers Weekly with a leadership award. Andrew Powell was selected to serve as an associate for the firm’s default services department. Powell’s areas of focus include real estate, mortgage foreclosures, and bankruptcy. He earned his Juris Doctor from the University of South Carolina’s School of Law.

Cynthia Durham Blair of RTT’s Columbia office will receive recognition March 14 with a 2013 Leadership in Law Award from SC Lawyers Weekly. Blair specializes in residential real estate transactions, such as real estate closings, REO title resolution, mobile home law, contract and loan-document drafting, and buyer and seller representation. She also serves on RTT’s executive committee. Blair earned her Juris Doctor from the University of South Carolina.

nielson & sherry PromoTes one and adds Three aTTorneys

Nielson & Sherry, PSC, recently announced a promotion. David Boyce was promoted to the position of senior associate and appointed to serve as default attorney manager. He joined the firm in 2007 and represents lenders and servicers in residential foreclosure action cases. Boyce is a graduate of Ohio Northern University’s Claude W. Pettit College of Law. He is admitted to practice in Kentucky and the United States District Courts for the Eastern and Western Districts of Kentucky.

The firm also welcomed three new attorneys. Matthew George was hired as an associate in the firm’s bankruptcy and litigation departments. George earned his Juris Doctor from Northern Kentucky University’s Chase College of Law. He is admitted to practice in Kentucky and Indiana, and the United States District Courts for the Eastern and Western Districts of Kentucky.

Philip George is an associate attorney practicing in the firm’s residential foreclosure department. He graduated from the University of Kentucky with a bachelor’s degree in finance in 2006 and earned his Juris Doctor from Salmon P. Chase College of Law in 2010. He is a member of the Kentucky State Bar and admitted to practice in the United States District Court for the Eastern and Western Districts of Kentucky.

Daniel Chandler brings more than 10 years’ real estate transaction experience to the firm. He was hired as a title and closing attorney. Chandler graduated from the University of Louisville’s Louis D. Brandeis School of Law and is licensed to practice in Kentucky and the United States District Court for the Southern District of Indiana.

Nielson & Sherry is the only Kentucky-based firm to be a member of both the Fannie Mae Retained Attorney Network and the Freddie Mac Designated Counsel program. The firm’s default legal services division handles foreclosure,

bankruptcy, eviction, litigation, loss mitigation, and compliance issues for residential and commercial mortgage origination and servicing clients. Its real estate services division routinely conducts residential and commercial title searches throughout all of Kentucky’s 120 counties and provides both residential and commercial closing services for the entire Commonwealth of Kentucky. The firm also offers title and closing services in Indiana and Ohio.

wirbicKi law grouP hires associaTe aTTorneys and chieF sTraTegy oFFicer

The Wirbicki Law Group, LLC, expanded its team with a chief strategy officer and three new associate attorneys.

Brian Rubin was hired as the chief strategy officer. He is responsible for designing and implementing internal and external strategic initiatives and for the firm’s expansion into additional states. Prior to joining the firm, Rubin held VP positions at Lender Processing Services and Bank of America. He earned his bachelor’s degree in finance from Old Dominion University.

Brian Larson joins the firm’s litigation department as attorney. He handles court appearances on judgments, mediations, and case management. Larson received his bachelor’s degree and Juris Doctor from the University of Illinois. He is also an active member of the Chicago and DuPage County bar associations.

Ryan McNeil specializes in the areas of foreclosure, evictions, building court, and litigation. He received his bachelor’s degree in economics from the University of Michigan and his Juris Doctor from DePaul University. Prior to joining the firm, Ryan was a legal intern for Borg Warner, Inc.

Amelia Niemi practices in the areas of contested foreclosure and litigation and appears in court on building violations. Niemi graduated magna cum laude from George Washington University with dual bachelor degrees and earned her Juris Doctor from DePaul University.

Located in downtown Chicago, the Wirbicki Law Group is a full service creditor’s rights law firm, representing lenders and servicers in foreclosure, eviction, bankruptcy, REO closings, and related services throughout Illinois.

© 2013 Stewart.

More casual. Less conventional.When it comes to our customers, we’re all business at Stewart Lender Services®. We just choose to do business differently. We spend more time getting the job done and less time trying to impress you with presentations. We’re always upfront and honest about what we can and can’t do for you. So whether you’d like to meet over a conference table or over dinner, you won’t ever have to worry about seeing through a bunch of bull because we’re never going to give you any. We’ll simply discuss your needs, adapt our capabilities and get things done. We pride ourselves on doing things right because, to us, that’s the only way to do business.

Want more information? Visit stewart.com/more.

Stewart Lender Services.

Dedicated to doing business right.

SLS-1329-11-3 Legal League Print Ad - Feb 2013.indd 1 1/23/13 2:23 PM


States: Michigan

Condominium Law Update Get up to speed with Michigan’s latest condo rules and regs. By: Charlie Hahn, Trott & Trott

It appears that the continued legal wrangling in Michigan between mortgage servicers and condominium associations may be coming to an end. Ever since a controversial trial court decision in 2005, the Condominium Bar has been promoting an interpretation of the Con-dominium Act that claims that an assignment of the first mortgage after the recording of an association lien results in the mortgage losing its priority, Greenbrooke vs. Hubble & Midfirst Bank, Oakland County No. 12-2005 (11-2-05). This claim was based on the assertion that an assignment was a “conveyance” of an interest in the unit, thus triggering section 211 (MCL 559.211), which requires a fee payoff request to the association. Those who disputed this conclu-sion pointed out that such an interpretation ignores (or at least contradicts) clearly stated language found in other relevant provisions of the act, most notably Sections 211 and 158.

The intended effects of this theory were clear: to disrupt the foreclosure of the first mort-

gage by causing it to fail to extinguish the junior condominium lien and subsequently subjecting the mortgagee to all past unpaid assessments, late fees, and condominium attorney fees. Unfortunately, this seemingly tenuous legal theory was given additional creditability by the decision of most title insurers to refuse to insure over the junior condominium lien when the first mortgage was foreclosed. This unresolved legal tension led to a number of trial court battles. Despite the fact that a significant majority of the decisions found in favor of the assignee of the first mortgage maintaining its priority posi-tion, the litigious back-and-forth continued.

After years of debate, the issue was heard by the Court of Appeals on October 10, 2012, and a published decision was issued on Oc-tober 25, 2012, Coventry Parkhomes Condo-minium Assoc. vs. Federal National Mortgage Association, _____ Mich. App._____, No. 304188 (10-25-2012); reconsideration denied 12-18-12. The Court of Appeals did not agree

with the association and upheld normal “race-notice” principles. The strongly worded deci-sion states that there is nothing in the Condo-minium Act that could/should be interpreted to change the longstanding principal that an assignee stands in the shoes of the assignor. During oral arguments, the court displayed little sympathy for the association’s arguments, going so far as to make it clear that, in the opin-ion of the court, such an idea could inject an element of chaos into the mortgage market.

While this decision resolves what has been a nagging problem for the mortgage industry—and, in the process, promises to eliminate hundreds of thousands of dollars in improper association charges— other issues continue to generate similar discussion and debate. One of the most noteworthy of these is the issue of precisely when a sheriff ’s deed vests its title. While that question has been consistently answered by dozens of published opinions over the century and a half (and was recently restated in In re Receivership of 11910 South Franklin Rd. 492 Mich. 208, 821 NW2d 503 (7-30-12)), some members of the Condominium Bar continue to argue otherwise.

Charles L. Hahn serves as a senior litigation attorney for Trott & Trott, P.C., one of the nation’s premier law firms conducting residential default procedures and applying foreclosure avoidance solution. Contact Hahn at [email protected].

2. In a series of related cases involving sev-eral mortgages encumbering numerous invest-ment properties, a lender seized rents under the assignment of rents and leases in the mortgages. The borrowers interfered and threatened at least one tenant, so a Petition for Preliminary Injunc-tion was filed, which was granted by agreement of the parties. Despite the Injunction to which the borrowers had consented and which required that rent be turned over to the lender, the bor-rowers continued to interfere with rent flow and pocket the rent. It took two subsequent petitions (both seeking sanctions) and several evidentiary hearings for the Motions judge to issue an Order finding the borrowers in contempt of court; awarding attorneys’ fees to the lender; ordering the turnover of improperly withheld rents; and imposing a per diem interest penalty. Notwith-standing that Order, the borrowers (consistent with prior actions) did not comply. Consequently, the lender filed a fourth petition, seeking a bench warrant. Though a bench warrant was not issued, the Motions judge expressed his annoyance and dissatisfaction with the borrowers on the record at an evidentiary hearing and issued an Order giving the borrowers 30 more days to comply with his nearly nine-month-old contempt Order. Around the last day, the borrowers finally paid the monetary sanctions, but not the interest pen-alty required by the contempt Order. Addition-ally, during the course of those cases, one of the borrowers filed a Chapter 13 bankruptcy, which was frivolous. Not only did Debtor’s Schedules contain misrepresentations, but subsequent filings were not completely truthful. On the lend-er’s Rule 11/9011 motion for sanctions, relying primarily on Section 105(a) of the Bankruptcy Code, and after a hearing on the merits involving the Chapter 13 trustee, the bankruptcy judge, inter alia, barred the debtor from re-filing for six months. Though the lender had the right to also file a Petition for Appointment of Receiver, the

lender opted not to do so at the time of referral. It is believed that appointment of a receiver would not have changed the borrowers’ conduct and a receiver would have experienced the same chicanery. However, a significant advantage to a receiver is that it becomes the receiver’s responsibility, not the lender/servicer’s, to handle property management. The lender/servicer would still likely have the headache of paying for a receiver and, thus, the lender/servicer should just assume the worst when authorizing a Petition for Appointment of Receiver: That even if the receivership Order directs borrowers to pay for a receiver, they are not going to comply.

3. In a post-sheriff ’s deed ejectment (evic-tion) case, the borrowers filed a motion to stay lockout, falsely claiming that a lockout occurred. The hearing was continued three times and, each time, the borrowers raised different theories as to why lockout should be stayed. At the third hearing, the borrowers claimed that the loan had been satisfied before sheriff ’s sale by the borrow-ers’ aunt right before she had died. Despite the lender’s argument that such a claim should have been raised in the foreclosure action and not in a subsequent ejectment action, the Motions judge continued the third hearing for the borrowers to assemble and submit evidence of the payoff. At the fourth hearing, only one of the borrowers appeared and he attempted to outright avoid dis-cussing the issue of the payoff. When pressed by the Motions judge, the borrower finally conceded that there never was a payoff. Upon request of the lender’s counsel for a provision in the Court’s Order barring both borrowers from filing any further motions or petitions to postpone or stay lockout, the Motions judge initially declined from including such bar; however, the borrower con-tinued to spar verbally with the judge and never apologized for misrepresenting a material fact to him. This not only angered the Motions judge, resulting in a public on-the-record admonish-

ment that the borrowers had “wasted his time,” but also caused the Motions judge to reverse his thinking, as he ended up including the re-filing bar. The Motions judge also warned the borrower on the record that any further motions or peti-tions would result in more severe sanctions.

Therefore, under the right set of facts, lenders/servicers can obtain at least a verbal reprimand or, at best, sanctions (monetary or otherwise) for unlawful and/or inappropriate con-duct in a civil case. Sanctions, in particular, can require several motions or petitions and hearings (and are likely appealable in many jurisdictions).

However, persistence, an aggressive ap-proach, and reliance on local counsel’s expertise as to when you should fight the good fight can result in tactical advantages, such as:

» favorable court orders that serve as precedent;

» heightened settlement leverage;» re-filing bars that can preclude the

filing of further dilatory motions and/or petitions, which cost time and money to defend; and

» a message to borrowers, judges, and the defense bar that lenders/servicers are not afraid to be vigilant and willing to enforce their rights in the face of bad conduct.

In fact, the last point above is especially important, as there are individuals in the judi-ciary and defense bar who believe that lenders/servicers will generally just turn a blind eye to misbehavior in order to minimize attorneys’ fees, court costs, and headline risks. However, by not taking any action or counteraction, lenders/servicers arguably become enablers to bad apple borrowers and engender a culture of misbehavior.

Thus, we should not be completely shocked when borrowers, with or without counsel, intentionally run afoul of the law and push the envelope to see what they can “get away with.”

“Borrowers Behaving Badly” continued from page 1


Legal League 100 ~ In Pictures

(1) Shapiro & Zielke, LLP, completed its seventh annual winter fundraiser, raising a record-setting $15,000 for 360 Communities, a local nonprofit located in Burnsville, Minnesota. Per the firm, these funds will help stock the local food shelf, provide Christmas gifts through the “armful of love” program, and further support a school program assisting disadvantaged students. (2) Andrew J. Lixey, operations manager, and Dawn M. Burdick, marketing manager, of Potestivo & Associates’ Rochester Hills office were honored to attend the quarterly Detroit Cornerstone Schools Partner meeting. Since 2010, several of the firm’s staff members have taken part in the Partner Mornings program. Each quarter, they spend two hours at

Washington-Parks Academy, where staff members are matched one-on-one with a student in grades kindergarten through eighth, using the time to listen to the child about what they are working on in school and how things are going in their life, as well as to offer mentorship. (3) NDeX IT Software Development team members (left to right) Raquel Schriber, Jason Buckner, Brad Wehrmeyer, and Lyndsey Kelley proudly display the more than 50 gifts its team purchased for Oakland Family Services’ Adopt-A-Family program as part of a yearlong corporate giving initiative at Trott & Trott, P.C., and NDeX Michigan. In total, 270 employees from both companies donated hundreds of gifts and raised $3,300 for the cause.

States: North Carolina

Hidden Liens Exposed Uncovering the controversy behind North Carolina’s new law. By Sarah Miranda and Chris Salyer, Hutchens, Senter, Kellam & Pettit, P.A.

New legislation has been enacted in North Carolina that brings substantial change to the state’s mechanic and materialman lien law. The changes were designed to address the increasing “hidden lien” controversy and are slated to take effect April 1.

Under existing North Carolina law, a contractor, subcontractor, or material supplier may file a claim of lien on real property within 120 days of completion of the work and may file suit to perfect and enforce the lien within 180 days of the day of last completion. The lien will then relate back to the first furnishing of labor, services, or materials by the claimant. Thus, any mortgage lender making a loan during this peri-od, or even an innocent purchaser of a property, will take subject to the lien, which has retroac-tive priority status. As there is no requirement that the lien be of public record at the time the property is sold, it makes it quite difficult for closing attorneys, lenders, and title insurance companies to identify these “hidden liens.”

How does a lien come about in a residential construction project, and how does it give rise to the “hidden lien” feature? Say a builder buys a lot and starts constructing a house. He most likely obtained a construction loan to build said house and at the start of the project is paying the contractors he has hired, such as the concrete company for the foundation or the grading company to clear the lot and prepare it for build-ing. As the project progresses, the builder finds himself searching for cash and begins robbing Peter to pay Paul, most likely from a draw from the construction loan. As empty promises by the builder come and go, the contractors start

getting nervous about getting paid and start con-sidering whether a claim of lien should be filed with the court. Once the unpaid contractors get word that the house has closed and disbursed, the unpaid contractors start filing their liens and the lawsuits if needed in order to perfect the lien. A properly perfected lien will relate back to the first date of delivery or work performed. Therefore, a properly perfected lien is going to have priority over the new owner as well as the mortgage lender even though the lender holds a purchase money deed of trust. At the time the closing attorney updates title, it is possible no liens have been filed. The contractors still have lien rights at this time, which gives rise to the hidden lien since there is no claim of lien on record. Once the new owner or mortgage lender gets notice of the claim of lien, a claim is filed with the title company, which oftentimes results in a title company writing a check to satisfy the lien.

As a result of increasing claim litigation over these “hidden liens,” many title insurance companies took the position last year that they would no longer issue new construction cover-age in North Carolina on their title policies. Realizing the drastic effect this would have on North Carolina’s construction industry as well as anyone involved in the closing process, the North Carolina legislature enacted new legisla-tion in July 2012 that overhauled the state’s existing lien law. Modeled after Virginia’s lien law, one of the most significant changes North Carolina adopted is the requirement that a prop-erty owner designate a lien agent who must be placed on notice by any potential lien claimant.

Starting April 1, all private construction projects valued at $30,000 or more will require the designation of a lien agent obtained from a list of title insurance companies or insurance agents maintained by the North Carolina Depart-ment of Insurance. In order to preserve rights, the lien claimant must serve notice on the lien agent within 15 days after first furnishing labor or materials to the project. The initial notice is not a lien, but merely an announcement that a contractor, subcontractor, or material supplier started work and reserves the right to file a lien at a later date. However, do not be confused. The lien agent is not an agent of the owner of the property and the notice by itself is not suf-ficient to claim a lien on the subject property. Therefore, in addition to giving the designated lien agent notice, effective January 1, a potential lien claimant must also file and serve notice on the owner of the property in order to perfect a claim of lien. (Remember, prior law did not require that the claim of lien be served in order to be properly perfected.)

The new law gives absolute protection to lien claimants who give notice to the lien agent within 15 days of starting work. If a lien claimant fails to file the requisite notice, and the property is mortgaged or refinanced before a claimant files and serves a claim a lien, they would no longer have their priority status over the intervening lender and would fall in line behind the mortgagee’s lien. Further, if a claim-ant fails to file the requisite notice with the lien agent and attempts to file a claim after the property has been sold, the lien is no good—thus eliminating the hidden lien. There is a narrow exception, however, for contractors and subcontractors who are considered “last provid-ers,” such as the landscaping company. Last providers under the new law will have 15 days from first furnishing of labor or materials to file notice with the lien agent, even if the property is conveyed to an innocent purchaser.

The revised lien law substantially reduces the risk title companies now take in writing new construction coverage in North Carolina. As the changes take effect over staggered dates in 2013, the construction and real estate industry would do well to familiarize themselves with North Carolina’s new lien statute.

1. 2. 3.


only if there is a change in the borrower’s pay-ment.

Prompt Payment CreditingServicers are to credit principal/interest/

escrow payments as of the date such payment is received. If the payment tendered is less than a full contractual payment, the funds may be held in a suspense account. With regard to requests for payoff statements, the regulations provide that a servicer must provide an accurate payoff to the borrower within seven business days of receipt of a written request for same.

Forced-Placed InsuranceForced-placed insurance has always been an

area of contention for borrowers. The new regula-tions provide that servicers are essentially prohib-ited from obtaining one of these insurance policies unless the servicer has a reasonable basis to con-clude that the particular borrower did not maintain appropriate insurance coverage. The rules provide that the servicer tender two notices to the borrower prior to force placing. There is an initial 45-day notice and an additional reminder notice to be sent before such policy may be obtained. If a servicer purchases forced-placed insurance and later finds out that the homeowner did in fact have a policy, the forced-placed policy must be cancelled within 15 days and all premiums refunded.

Error ResolutionThere are new provisions relating to resolu-

tion of errors on a borrower’s account and to handling information requests from borrowers. If a borrower tenders a written complaint alleging an error on the account, servicers must acknowl-edge receipt of the complaint within five business days of its receipt. Servicers must investigate the complaint (and correct, if necessary) and provide written notice of same to the borrower within 30 to 45 days. If a borrower requests information, the servicer should provide that information to the borrower within a similar time frame.

Servicing Policies and ProceduresThe rules require servicers to adopt internal

policies and procedures that are designed to achieve the objectives specified by the rules. It is important to note that there will be no private right of action to enforce these provisions.

Good Faith Efforts, Consistent Contact

Active engagement with delinquent borrow-ers is important. Servicers must attempt to make live contact with a delinquent borrower by the 36th day of the delinquency. Servicers should promptly inform the borrower of the loss mitiga-tion options that are available. By the 45th day of the delinquency, the servicer shall provide a bor-rower with written notice of the loss mitigation options that are available. The regulation exempts small servicers from this requirement.

Loss Mitigation Policies and Procedures

A servicer has to maintain a reasonable policies and procedure to provide borrowers with access to personnel to assist them on loss mitigation options. It is important to note that the regulations do not provide a private right of en-forcement of these provisions of the regulations. If a borrower’s loss mitigation application arrives at least 37 days before a scheduled sheriff ’s sale, the servicer must consider and respond to the application.

Significantly, the regulations prohibit “dual tracking.” Under the regulation, the servicer must wait 120 days from the initial delinquency before tendering the first notice or initial foreclosure filing. If a borrower has applied for loss mitiga-tion, a servicer may initiate foreclosure only if the servicer has informed the borrower that he or she is not eligible for loss mitigation, the borrower has rejected the loss mitigation offer, or the bor-rower failed to comply with the loss mitigation. There are numerous other provisions in this por-tion of the regulation relating to loss mitigation. Importantly, for servicers, borrowers will not have a private right of action against the servicers for failure to comply with the loss mitigation proce-dures outlined in the rules.

Stephen M. Hladik and William E. Miller work in the mortgage law department at Kerns Pearlstine Onorato & Hladik, LLP. The firm assists lenders and servicers in Pennsylvania and New Jersey.

“Brave New World” continued from page 1

The Downsides for Lenders The upside of reverse mortgages for lenders

comes from the upfront fees charged when a reverse mortgage is originated. Also, in most cases the lender is the sole mortgagee and the loan is structured so that a sale of the residence will fully satisfy the debt.

From a lender’s perspective, the primary goal of a reverse mortgage is the same as any other type of loan: to have a performing asset. This is, however, where lenders may come up short because there is generally no right to a deficiency judgment under a reverse mortgage. Declining property value is therefore an inherent risk. Since 2008, this risk has come to fruition, leaving insufficient equity for reverse mortgage lenders.

Lenders and their respective attorneys also need to be aware of the defenses that may arise should a foreclosure be the only recourse when a loan comes due and owing. Speaking from the perspective of an Illinois-based firm, one of the defenses most often raised in mortgage foreclosure cases is the motion to quash service. As is sometimes the case with reverse mortgages to elder borrowers, medical issues may arise where borrowers spend extended periods of time in the hospital or extended travels are taken and their whereabouts cannot be ascertained. The problem in this instance is two-fold. First, the loan requirement that a borrower reside in the property becomes a gray area. As is all too often the case when looking for statutory guidance, the law is worded in a way that muddies the waters when seeking to enforce a lender’s rights. The

Illinois Banking Act, for example, states in part that absences from the home exceeding 60 con-secutive days but not exceeding one year shall not cause the mortgage to become due and pay-able provided the home is properly secure. 735 ILCS 5/6.1(a)(c)(2). Attorneys and their clients are then left to the task of diligently researching and expending resources to ascertain borrowers’ residency and whether the terms of an HECM have been breached. Second, publication service where a borrower’s whereabouts are unknown or, worse, are missed is subject to attack at any stage of the foreclosure.

The defense of a failure to meet a condi-tion precedent is a very real possibility as well. In Illinois, subparagraph E of section 6.1 bars a lender from making a reverse mortgage commit-ment unless a borrower attests in writing that he or she received a statement regarding the advisability and availability of counseling services for reverse mortgages. The potential for attacks during a lawsuit that are based on a failure to comply with these requirements is very real, as has been the frequent issue with TILA disclo-sures and, at a later stage, grace period notices in this jurisdiction. Lenders should work hand-in-hand with their attorneys to ensure that this process is followed in order to prevent problems later on.

Attorneys and their clients are also faced with the possibility that should foreclosure be necessary, “interested” parties other than the bor-rowers themselves may appear out of nowhere to challenge the proceedings based on some interest they feel they have in the home or on their not being named in the case, most com-monly in the form of heirs. Attorneys must be diligent in following up on their initial referrals, title searches, and service of process all the way through the foreclosure to avoid these pitfalls. Getting it right the first time can and will save a world of time and cost down the road.

“Headed in Reverse” continued from page 3


in a consent judgment.1 Since the settlement was entered into, numerous defendants in foreclosure actions across the country have attempted to incorporate it into their foreclosure action by fil-ing counterclaims, affirmative defenses, defenses, and other objections in an attempt to enforce the settlement to their underlying case.

What the Settlement DoesUnder the settlement, the servicers were

required to comply with certain terms in order to be released from certain claims and legal rem-edies of the plaintiffs. The first function of the settlement requires the servicer to comply with a detailed standard for servicing loans secured by owner-occupied properties that serve as the primary residence of the borrower. This portion sets forth requirements with respect to foreclo-sure and bankruptcy documentation, documenta-tion of promissory note and loan holder status, implementation of quality assurance systems, third-party oversight, loss mitigation standards including single points of contact and the development of loan portals, loan modification processes including appeals, transfers of servic-ing, and more.2

The settlement also required the servicers to deposit settlement payments into a joint account. The purpose of the settlement fund was to pro-vide cash payments to borrowers whose homes were finally sold or taken in foreclosure between and including January 1, 2008, and December 31, 2011, who submitted claims for harm alleg-edly arising from certain servicer conduct and who otherwise met additional criteria.3 Addition-ally, the fund allowed for consumer relief to bor-rowers who did not finally lose their homes.4 This settlement remains in full force and effect for three-and-a-half years from April 4, 2012. After which, defendants’ obligations enumerated in the settlement expire, save for a final report.

Why Standing Isn’t IncludedIn the settlement, the defendant servicers

did not admit any allegations of the complaint.5

Additionally, the settlement does not constitute evidence against the servicers.6 The settlement’s sole purpose was to remediate harms that alleg-edly resulted from the alleged conduct of the defendant servicers. In doing so, it detailed the required course for remediation. The settlement is a valid agreement solely between the plaintiffs (the government) and the defendants (the ser-vicers). Enforcement of this settlement shall be enforceable solely in the U.S District Court for the District of Columbia.7 More importantly, an action to enforce the settlement may be brought by any party to this settlement or the monitoring committee.8 It does not allow for third parties to enforce this settlement. The settlement also states that “[t]his release is intended to be and shall be for the benefit only of the parties and entities and individuals identified in this release, and no other party or entity shall have any rights or benefits hereunder.”9

There is no doubt that the settlement will directly benefit borrowers: Servicing standards will change for the benefit of borrowers, some borrowers who lost their home will receive com-pensation, and other borrowers who did not lose their home could still receive some consumer relief. However, parties that benefit from a government contract are generally assumed to be incidental beneficiaries.10 There is also no doubt that a borrower in a foreclosure is not a party to this settlement. This settlement clearly does not create a private right of action for borrowers to enforce the terms of the settlement—only the parties and monitoring committee are authorized to do so. The language in the settlement also makes clear that borrowers are not intended third-party beneficiaries of the settlement.

Most jurisdictions hold a third party only has rights under a contract if the contracting parties have manifested an intent to confer a benefit on it.11 As an example, Illinois law holds that “it is not enough that the parties to the contract know, expect, or even intend that others will benefit.” Additionally, liability to a third party must af-firmatively appear from the contract’s language and liability cannot be expanded at will.12 “Under

Illinois law, there is a strong presumption against creating rights in a third-party beneficiary. To overcome this presumption, the intent to benefit a third party must affirmatively appear from the language of the contract and the circum-stances surrounding the parties at the time of execution.”13 “Express language in the contract identifying the third-party beneficiary is the best evidence of intent to benefit that party.”14 With this settlement, not only is this language not included, but there is express language in the release that states only the parties have rights and benefits under the settlement and no other party or entity shall have such rights. This makes clear that borrowers in a foreclosure are neither intended nor incidental beneficiaries who can enforce the settlement or its terms.

With this settlement, the defendant servicers admit no facts. Therefore, none of it can be ad-mitted as to evidence in an individual foreclosure action. But this does not stop borrowers from attempting to enter this settlement as evidence in individual foreclosure actions. Mostly, borrow-ers will allege they are entitled to some sort of settlement payment or modification or allege the servicer failed to comply with the servicing obligations delineated in the settlement. The settlement also makes clear that the parties intended for its enforcement are to be made only by the parties and the monitoring committee. Furthermore, any attempt at enforcement must be had in the U.S. District Court for the District of the Columbia. Because of these facts, borrow-ers do not have standing to enforce the settle-ment in individual foreclosure actions. Therefore, any counterclaims, affirmative defenses, or other pleadings that attempt to introduce or enforce the settlement’s terms fail as a matter of law.

1 A copy of each consent judgment can be viewed at http://nationalmortgagesettle-ment.com/ (last accessed February 7, 2013). 2 See consent judgment, Bank of America https://d9klfgibkcquc.cloudfront.net/Consent_Judgment_BoA-4-11-12.pdf, at p. 3–4, Exhibit B in its entirety.

2 Id. at Exhibit E, ¶(J) p198–99. 3 Id at Exhibit C.4 Id. at Exhibit D.5 Other than consenting to the jurisdiction of the court. See consent judgment, Bank of America https://d9klfgibkcquc.cloudfront.net/Consent_Judgment_BoA-4-11-12.pdf, at p.2.6 Id. 7 Id. at Exhibit E, ¶(J) p198–99. 8 Id. 9 Id. at Exhibit F, ¶(17)10 Restatement (Second) of Contracts § 313(2). 11 For Example, See Ocasek v. City of Chicago, 275 Ill. App. 3d 628, 634 (1st Dist. 1995).12 Id.13 Wallace v. Chicago Housing Authority, 298 F. Supp. 2d 710, 724 (N.D. Ill. 2003). 14 Id.

“No Standing”continued from page 1

A UNION OF GOVERNMENT AND THE MORTGAGE INDUSTRY Elect to join us for the fourth annual Government Forum, assembled exclusively for leaders in the housing and mortgage servicing industries to interact, engage, and drive progress directly with government offi cials within the D.C. Beltway.

Through experience, ideas, and leadership, your voice will play a critical role as the mortgage leaders of today drive the policies of tomorrow.

RESERVE YOUR PLACE TODAY AND HELP US DEFINE THE ROAD AHEAD. TO REGISTER VISIT WWW.THEFIVESTAR.COM/FSGF OR CALL 214.525.6760

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THE MISSION OF THE LEGAL LEAGUE 100 IS TO PROVIDE A COMMUNICATION PLATFORM FOR INFORMATION EXCHANGE WHILE FACILITATING STRATEGIC BUSINESS-RELATIONSHIP DEVELOPMENT OPPORTUNITIES TO ITS MEMBERS AND THE MORTGAGE SERVICING COMMUNITY.

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COLORADOAronowitz & Mecklenburg, LLP303.813.1177

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HAWAIIThe Mortgage Law Firm858.740.0442

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LOUISIANADean Morris, LLP318.388.1440

MARYLANDCovahey, Boozer, Devan & Dore, P.A.443.541.8600

Rosenberg & Associates, LLCwww.rosenberg-assoc.com

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MINNESOTAShapiro & Zielke, LLP www.zielkeattorneys.com

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NEBRASKAEric H. Lindquist, P.C., LLO www.elindquistlaw.com

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Malcolm Cisneroswww.mclaw.org

NEW JERSEYFein, Such, Kahn & Shepard, P.C. www.feinsuch.com

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Phelan Hallinan & Diamond, P.C.www.fedphe.com

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NEW YORKDavidson Fink LLPwww.davidsonfi nk.com

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Stein, Wiener & Roth, LLP 516.742.6161

NORTH CAROLINAHutchens, Senter, Kellam & Pettit, P.A.www.hsbfi rm.com

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OKLAHOMABaer, Timberlake, Coulson & Cates 405.842.7722

Lamun Mock Cunnyngham & Davis 405.840.5900

PENNSYLVANIAKerns Pearlstine Onorato & Hladik, LLPwww.kernslaw.com

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Martha E. Von Rosenstiel, PC www.mvrlaw.com

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SOUTH CAROLINABrock & Scott, PLLCwww.brockandscott.com

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emason 4592 Ulmerton Road, Suite 101Clearwater, FL 33762866.222.3370www.emason.bizCONTACT

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