Presentation on theme: "Presented by the AFN’s Legal Services Committee. William M. LeRoy - Moderator CEO American Legal & Financial Network “AFN” Carolyn A. Taylor, Esq. - Panelist."— Presentation transcript:
Presented by the AFN’s Legal Services Committee
William M. LeRoy - Moderator CEO American Legal & Financial Network “AFN” Carolyn A. Taylor, Esq. - Panelist Partner Hughes, Watters & Askanase, L.L.P. Cynthia A. Nierer, Esq. - Panelist Partner Rosicki, Rosicki & Associates, P.C. Matthew C. Abad, Esq. - Panelist Partner Burke, Costanza & Cuppy L.L.P. Michelle Garcia Gilbert, Esq. - Panelist Attorney Kass, Shuler, Solomon, Spector, Foyle & Singer, P.A.
In re Crawford 2008 WL (Bkrtcy. SDNY) FACTS: Debtor filed for chapter 13 bankruptcy listing Servicer on bankruptcy petition on 11/26/07, one day prior to a scheduled foreclosure sale. Non filing co-debtor faxed copy of bankruptcy filing notification to Referee and personally appeared at foreclosure sale with bankruptcy notice. Referee proceeded with sale with caveat that bankruptcy filing may cause sale to be null and void. Servicer, through its sub-agent, placed only bid at foreclosure sale. Debtor filed letter with Bankruptcy Court on 12/11/07 requesting the Chapter 13 Trustee withdraw the bankruptcy petition as her house was sold at a foreclosure auction. Bankruptcy Court, on its own motion, filed Order to Show Cause directing secured creditor and the Referee to appear and show cause why sanctions should not be issued for willful violation of automatic stay.
In re Crawford 2008 WL (Bkrtcy. SDNY) DECISION: Court issued separate order declaring foreclosure sale invalid and void ab initio. Mortgage Holder, sub-agent who bid at sale, and the Referee held jointly liable for actual damages of $ Struck from Servicer’s Proof of Claim $8, for foreclosure fees and costs and 4 separate charges totaling $1, for bankruptcy fees and costs without prejudice to Servicer’s right to file an amended Proof of Claim with proper documentation and evidence of date and purpose for each charge. Assessed punitive damages against Mortgage Holder in the amount of $60, Assessed punitive damages against Sub-Agent, in an amount to be determined at a further hearing. Barred Mortgage Holder, Servicer, and any subsequent servicer from collecting fees, expenses or other charges associated with the foreclosure sale or the Order to Show Cause from debtor or adding to amounts due under the note and mortgage.
In re Crawford 2008 WL (Bkrtcy. SDNY) ANALYSIS: Mortgage Holder, through its sub-agent, was liable for the sub-agent’s actions through principles of agency. Court determined that mortgage holder had complex system of agents, sub-agents, and servicing agents (a “Ruby Goldberg apparatus”) which was relevant in determining amount of sanctions to deter future similar conduct – $10,000 per layer from principal, servicing agent and various agents and subagents. Court was troubled that it issued an Order to Show Cause directing Mortgage Holder to appear, but it sent its servicing agent to respond in its place. Punitive damages necessary to get the attention of the principal creditor. “Eve of Foreclosure” defense of creditor is insufficient to excuse stay violation – creditor could easily have run bankruptcy search prior to sale. Although Court found that Referee violated stay, Referee did not act with malice or bad faith, Court did not award punitive damages against Referee. Subagent who was retained by a national company was not credible and had no notes or memory as to the events that took place at sale – willfully violated stay.
NEW YORK RESIDENTIAL FORECLOSURE PROGRAM Background: New York’s Chief Judge recently announced a trial run beginning this summer in Queens County, New York. The program is expected to spread to the rest of the State this fall. the program is in response to the increasing number of foreclosure actions being commenced in the State. Queens County alone saw a 70% jump in foreclosure actions in 2007 (1,243 from 731 in 2006).
NEW YORK RESIDENTIAL FORECLOSURE PROGRAM The main components of the program are to: notify parties as soon as practicable of community resources; to hold early conferences before a hearing officer to develop a settlement or case management plan; and to hire specialized court personnel to assist borrowers in foreclosure who likely are unable to afford an attorney to represent them. The program will require two additional notices to be sent to the borrower early in the foreclosure process. One is to come from the named plaintiff in the action, and the other from the Court. The notices are to advise the borrowers of the conference program and of available community resources. The program is also designed to allow conferences to be scheduled with only those borrowers who have sought counseling on their own or from the Court provided resources.
NEW YORK RESIDENTIAL FORECLOSURE PROGRAM How this will affect the foreclosure process: The additional notice will result in an extra cost in the foreclosure action. Additional delays in the foreclosure process, particularly in those cases where the mortgagor has no intention of trying to settle or work out an agreement with the lender. The scheduled conferences will further delay the process as the conferences will be held according to the Court’s availability. As the Courts are already overburdened with the volume of foreclosures throughout the State, the conferences will have to be scheduled in an already “full” Court calendar. Attending the conferences will also result in an additional expense within the foreclosure action. While this program may enable resolution of some foreclosures, the impact it will have on most foreclosures will be to create extra steps to an already lengthy process.
Bill Affecting Foreclosure Actions Passes both Houses in New York A proposed bill recently passed both Houses of the New York legislature. The bill has not yet been signed into law by the Governor. The bill provides that it will take effect immediately upon signing by the governor. ***One provision of the bill, Section 2, which requires 90 days notice before commencing a foreclosure of certain loans, will not become effective until September 1, 2008.
Bill Affecting Foreclosure Actions Passes both Houses in New York Highlights of Proposed Bill 8143-A Section 1304 of the Real Property Actions and Proceedings Law (RPAPL) being added. This will require lenders and mortgage servicers to send a notice to borrowers with a high-cost home loan, or “sub-prime home loan” or “non-traditional” loan originated between January 1, 2003 and September 1, 2008 at least 90 days prior to commencement of the foreclosure (pre-referral). The notice will provide names and telephone numbers of housing counseling agencies approved by HUD or designated by Division of Housing and Community Renewal. Section 1303 of the RPAPL to be amended. This statute went into effect last year and requires plaintiffs’ attorneys in foreclosure to serve an additional notice to the borrower with the Summons and Complaint. The language of that notice will be changed by this bill.
Bill Affecting Foreclosure Actions Passes both Houses in New York Section 3408 of the CPLR is added which requires that the Court in a residential foreclosure of a sub-prime or “non-traditional” loan originated between January 1, 2003 and September 1, 2008, schedule a settlement conference within 60 days of filing affidavits of service of the Summons and Complaint. The purpose of the conference is to determine “…whether the parties can reach a mutually agreeable resolution to help the defendant avoid losing his or her home and evaluating the potential for a resolution in which payment schedules or amounts may be modified or other work out options agreed to…” The plaintiff or representative with authority to settle must appear at the conference. Plaintiff may be able to appear by tele-conference. Section 3408 also requires that the court notify plaintiffs in pending foreclosure actions commenced prior to September 1, 2008 to identify whether the loan is a subprime home loan or high-cost loan and if so, the court will notify the defendant that a settlement conference may be requested.
Bill Affecting Foreclosure Actions Passes both Houses in New York The Banking Law will be amended as to the regulation and definition of “high-cost loans.” The new rules pertaining to high cost loans will prohibit negative amortization, prohibit prepayment penalties, prohibit “abusive yield spread premiums,” require that taxes and insurance be escrowed and prohibit teaser rates (initial interest rates with duration of less than six months). The Banking Law will also be amended so as to define and regulate “sub-prime home loans.” These loans are defined as a first mortgage where the APR exceeds by 1 ¾ points or a subordinate lien exceeds by 3 ¾ points the average commitment rate for loans in the northeast region with comparable duration as published by Freddie Mac. The new rules prohibit negative amortization, an increased interest rate after default, “loan flipping”, prepayment penalties, abusive yield spread premiums, and requires that the lender reasonably have a good faith belief that the borrower is able to repay the loan. Various disclosures will also have to be made to the borrower at the time of origination.
Bill Affecting Foreclosure Actions Passes both Houses in New York There are also new regulations of mortgage brokers and lenders that will affect loan origination. For example, a lender and mortgage broker are prohibited from attempting to improperly influence the appraiser’s findings. The mortgage broker must “diligently work to present the borrower with a range of loan products…” The banking board is also authorized to promulgate regulations which establish grounds to impose a fine or penalty on mortgage loan servicers and to require that they file annual reports regarding mortgage foreclosures and delinquencies. Violations of these new requirements could constitute a defense to the foreclosure action or result in counterclaims for damages The bill also adds the new crime of residential mortgage fraud. This crime is committed where false information is contained in loan application.
Attorney’s Title Ins. Fund v. Landa-Posada, 2008 WL (Fla 3d DCA 2008) Facts: Title insurer brought fraud action against attorney members preparing fraudulent docs used to induce lenders; subpoenaed records from non-party attorney, Landa- Posada, who took 5 th, sought legal fees.
Holding: Florida awards attorneys fees based upon contract or statute, not in equity as argued by attorney: if anything, equities favor Fund, victim of fraud. Best practice: Maintain due diligence review at origination and throughout loan history to assess exposure, possible recovery.
In re Sharpe, 2008 WL (Bkrtcy. N.D. Ala.) Facts: Borrowers filed 3 successive bks, Lender filed 3 lift stay motions, last which led to sale; Borrowers filed adversary for breach of contract, wrongful foreclosure, conversion, trespass, violation of automatic stay, estoppel, fraud, unjust enrichment, breach of fiduciary duty.
Facts, cont.: Borrowers claimed payments current, required notice not given. Holding: Payments in default when stay lifted, but no actual or constructive notice of acceleration given, therefore lender liable for breach of contract damages, perhaps for wrongful foreclosure and breach of fiduciary duty after damages evidence is received.
Best practices: Know what loan documents require (i.e., Sharpe docs: “Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument…;” no notice given);
Observations: Somewhat hypertechnical ruling: does filing of motion to lift stay provide notice of default under contract? Should federal judge defer to state court when deciding preforeclosure conditions?
Involve local counsel in loss mitigation: antidotal data suggests more borrowers respond to attorneys than to servicers. Ask local counsel to provide timely state updates; maintain state by state file for staff use. Work with local counsel to tweak bidding process (online sales- proposed in FL, flyers at sales, delayed sales payments, monitor and influence state legislative changes.)
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