The Ninth Circuit recently limited the availability of diversity jurisdiction for certain cases with claims involving mortgage loan modifications. Specifically, in Corral v. Select Portfolio Servicing, Inc., the Ninth Circuit held that, where the plaintiff-borrower “seeks only a temporary stay of foreclosure pending review of a loan modification application … the value of the property or amount of indebtedness are not the amounts in controversy.” — F.3d —-, 2017 WL 6601872, at *1 (9th Cir. Dec. 27, 2017). Rather, to satisfy the amount in controversy requirement in such cases, parties must demonstrate that the value of the temporary delay in foreclosure exceeds $75,000, “such as the transactional costs to the lender of delaying foreclosure or a fair rental value of the property during pendency of the injunction” (in addition to any compensatory damages plaintiffs may be seeking). Id. at *5.
On December 31, 2016, the remedial provisions of “An Act Clearing Titles to Foreclosed Properties” (the “Act”) will take effect in Massachusetts. The Act is designed to clear legal title for Massachusetts homeowners who purchased homes with a prior foreclosure, by limiting the time period that former homeowners can challenge the foreclosure sale. The Act should be seen as welcome relief to the industry, but as detailed below, the Act still has some limitations. Indeed, like most rules governing foreclosure-related litigation, attorneys representing individuals that are the subject of a foreclosure action will inevitably try to find ways to challenge the Act and seek to avoid its intended and desired results.
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The Ninth Circuit recently clarified when a trustee of a deed of trust acts as a debt collector under the Fair Debt Collection Practices Act (“FDCPA”). In a break from other courts of appeal, the Ninth Circuit held that when a trustee carries out the contractual and statutory requirements for foreclosing property subject to the deed of trust, the trustee does not act as a debt collector. The Ninth Circuit reasoned that in so acting, the trustee does not seek to collect monetary debt from the debtor. In so holding, the court broke with other courts of appeals.
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By: Irene C. Freidel
On June 2, 2014, the Commonwealth of Massachusetts sued the Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac in state court, under Massachusetts’ consumer protection statute (“Chapter 93A”) to force them to sell foreclosed properties to non-profit organizations at fair market value, so that the properties can then be re-sold or leased back to the former homeowner. See Commonwealth of Massachusetts v. Federal Housing Finance Agency, et al., C.A. No. 14-1763 (June 2, 2014). Among other things, the lawsuit seeks a declaration that the GSEs’ current anti-fraud guidelines violate Massachusetts foreclosure law (M.G.L. c. 244, § 35C(h)), an order requiring property sales to non-profits in specific transactions, an injunction to prevent the GSEs from refusing to adhere to Massachusetts law, and an award of penalties of up to $5,000 for each transaction that the court determines constituted an unfair and deceptive practice under state law. The lawsuit follows a series of communications between the Massachusetts Attorney General and FHFA beginning in 2012 in which the state has demanded that FHFA direct the GSEs to change their anti-fraud “arms-length” requirements that apply to short sales and REO transactions. Read More
On October 28, 2013, with the publication of Mortgagee Letter 2013-38, HUD provided a much-needed update to the schedule of claimable attorney fees and reasonable diligence timeframes for prosecuting a foreclosure on loans insured by the FHA. These updates expressly apply to both forward mortgages and Home Equity Conversion Mortgages (“HECMs”).
As FHA servicers are aware, with respect to foreclosure on FHA-insured loans, HUD sets limits on the attorney fees that servicers can claim and requires servicers to prosecute foreclosure in a specific amount of time, referred to as the “reasonable diligence timeframe.” In light of the substantial changes in state foreclosure requirements in recent years, HUD’s guidance on fees and reasonable diligence timeframes, which was last updated in 2005, presented significant challenges for FHA servicers striving to meet reasonable diligence timeframes and recoup actual attorney fees expended in prosecuting foreclosures in connection with FHA-insured loans. The updates announced in Mortgagee Letter 2013-38 bring welcome increases for both claimable attorney fees and reasonable diligence timeframes in many jurisdictions.
In the wake of Hurricane Sandy, both the U.S. Department of Housing and Urban Development (“HUD”) and the Rural Housing Service (“RHS”) have issued guidance intended to help homeowners with government insured or guaranteed loans who were affected by the storm. With regard to loans insured by the Federal Housing Administration (“FHA”), the guidance is a combination of reminders about existing relief or insurance programs available to assist disaster victims and new policies designed to aid borrowers in the process of obtaining FHA financing for properties impacted by natural disasters. With regard to RHS-guaranteed loans, the guidance focuses on foreclosure and loss mitigation relief available to borrowers impacted by Hurricane Sandy. Read More
Is a refusal to make or buy residential mortgage loans from jurisdictions that seize loans through eminent domain a federal crime or a reasoned response to excessive government intervention? That’s the question that people are asking today in light of the comments of Lt. Governor of California Gavin Newsom. Yesterday, he asked the U.S. Department of Justice to investigate and prosecute those in the industry who advocate staying away from jurisdictions exercising eminent domain. Did he expect the industry instead to send thank you notes? Read More
For those who wondered how the Consumer Financial Protection Bureau (the “Bureau”) would seek to convert portions of the global foreclosure settlement into federal law, last Friday’s proposed servicing rules provide an answer. The Dodd-Frank Act (“DFA”) amended the Real Estate Settlement Procedures Act (“RESPA”) in several ways to address discrete loan servicing issues, such as escrow accounts, flood insurance, and qualified written requests. What it did not do, however, is address loss mitigation or foreclosure. Many thought that the Bureau would use its general authority to issue regulations prohibiting unfair, deceptive or abusive acts and practices to craft loss mitigation requirements, but that authority would not afford consumers with a federal private right of action. Read More
By: Phoebe S. Winder
In a long-anticipated decision, the Massachusetts Supreme Judicial Court (“SJC”) ruled in Eaton v. Federal National Mortgage Ass’n, 2012 WL 2349008 (June 22, 2012) (“Eaton”) that when conducting a non-judicial foreclosure in Massachusetts, a foreclosing entity must not only hold the mortgage – it also must hold the note or be authorized to act on behalf of the note holder. But if the goal of consumer advocates was to void a large volume of foreclosures, then they failed in that goal, and Eaton should be seen as a victory for those who have foreclosed, or who are seeking to foreclose, on mortgage loans in Massachusetts. Read More
At what point is it appropriate after a borrower defaults to initiate foreclosure proceedings? As soon as the borrower defaults? Few, if any, servicers follow this rule. During a review of loss mitigation options? During a trial modification? Servicers long have felt that the extraordinary delays in completing foreclosures based on some state laws weigh in favor of starting the foreclosure process as soon as possible. Of course, the servicer always can call off the foreclosure if the loss mitigation option succeeds, but a decision to delay the initiation of foreclosures can result in investor claims. On the other hand, borrowers who think they are in the running for a loan modification often are angry and dismayed when the foreclosure notice arrives. The national foreclosure settlement between the country’s five largest residential mortgage loan servicers and the federal government and 49 state attorneys general places a number of restrictions on the controversial but common practice of “dual tracking” foreclosures and loan modifications. Read More