OFFICIAL USFN PUBLICATION USFN REPORT SPRING 2019

Supreme Court Issues Ruling on Obduskey v. McCarthy & Holthus LLP Page 4

Fair Debt Collection 2019 & The CF P B USF N Briefings Debut

UPDATE ON 2018 CASES AND CHANGES EXPECTED FOR NEW WEBINAR FORMAT WILL THEIR IMPACT ON THE CONSUMER FINANCIAL DELVE INTO TOPICAL DISCUSSIONS THE FDCPA PROTECTION BUREAU AND ISSUE UPDATES Page 7 Page 10 Page 18 Upcoming USFN Events From the President USFN REPORT April August USFN BOARD OF SPRING 2019 MARTY M. STONE, ESQ. USFN Briefing USFN Briefing 23 REO/Eviction 20 Legal Issues DIRECTORS MCCALLA RAYMER LEIBERT PIERCE, LLC Marty M. Stone, Esq. In This Issue May September President I hope 2019 is treating everyone well so far. I am honored to be your USFN President for the next two years, and we have a lot of USFN Briefing USFN Briefing Kip J. Bilderback, Esq. 21 17 exciting things on deck. It’s not just a new year, but a whole new Legal Issues Bankruptcy Vice President Features look for USFN. We celebrated our 30th anniversary last year, and Recent Supreme Court Ruling USFN Executive Servicer Wendy Lee, Esq. 4 we are spending a lot of time and effort to rebrand and refresh 26 Secretary and Its Industry Impact the organization to prepare us for the next 30 years. June Summit (By invitation only) USFNdustry Forum Palm Beach, FL James E. Clarke, Esq. In December, after being based in California for 30 years, we 3 Nashville, TN September 26-29 Thomas P. Dore, Esq. Sections relocated to our new headquarters in the Dallas/Fort Worth area. Recent Cases Interpreting the Located at 9001 Airport Freeway, Suite 740, in North Richland June 3-5 Sally E. Garrison, Esq. Fair Debt Collection Practices Act 7 Hills, Texas, the modern facility is centrally located and near doz- USFN Briefing October Douglas J. Hannoy, Esq. ens of our clients based in the area. I encourage you all to stop 18 Bankruptcy USFN Briefing Consumer Financial Protection by for a visit the next time your travels bring you to the DFW area. 15 Hilton T. “Hutch” Hutchens, Jr., Esq. Bureau: The Year in Review and 10 REO/Eviction Effective December 1, all member firms had the opportunityto Jay B. Jones, Esq. Looking Forward join as expansion members in all states where they maintain July November Lori A. King, Esq. brick and mortar offices and meet other criteria. This allows 11 USFN Legal Issues in Lisa A. Lee, Esq. State Articles the organization to truly reflect the diversity and depth of all its Servicing Seminar USFN Member Retreat Ohio: Revised Code Sections 1322 member firms. 7 Vail, CO Kelly Ann Poole, Esq. Chicago, IL and 1349.72 13 We also unveiled a new logo for USFN to be used on all materials July 11 - Dinner November 7-10 Shellie Wallace, Esq. going forward. Plus, we have rebranded many of our events such July 12 - Conference USFN Briefing Jeffrey D. Weisserman, Esq. Ohio: Senate Bill 263 and House as uNite, our annual event at the MBA Servicing Conference and 19 Bills 480 and 489 14 USFNstruct, which will replace the Onsite Program. We have also Legal Issues Daniel A. West, Esq. 23 USFN Briefing replaced the LMSS regional servicing conferences with the first of REO/Eviction Edward W. Kirn, Esq. North Carolina: REO/Foreclosure 16 its kind USFNdustry Forum to be held this June 3-5 in Nashville, December Immediate Past President Process Tennessee. Meeting/Seminar USFN Briefing Andrew W. Saag, Esq. New Jersey: Mortgage Foreclosure Now in official webinar format and open to all servicers and 17 Bankruptcy Online Event CFO/Treasurer and Lost Promissory Notes 18 members, USFN Briefings delve into topical discussions and updates on issues pertinent to REO, Evictions, Bankruptcy and North Carolina: Lost Notes in other Legal Issues. The first servicer call under this format, USFN Go to www.usfn.org for details on all USFN events. Power of Sale Foreclosures 19 Briefing – REO/Eviction, is Tuesday, April 23 at 1:00 pm Central. Check the USFN website for registration information. Here are a South Carolina: Loan Applications few more exciting updates to the Briefing program: and Attorney Preference Status 20 • Now offered quarterly throughout the year • Will be listed in the Education Section of the USFN website USFN is a resource network serving the mortgage industry and is the largest not-for-profit associa- Connections • Anonymous questions allowed to enhance confidentiality tion of law firms and trustee companies in the nation. More information about USFN is available at How to Reach Us www.usfn.org. Upcoming Events 2 I think you all will really enjoy the new programming we have for Please send questions and you this year. Another change is the redesigned USFN Report USFN Report is published quarterly for members of the mortgage banking and lending community. comments to USFN: Member Moves + News The USFN Report contains comments from counsel in various states, and the information provided 6 you’re holding in your hands. While the newsletter has a sleek, Jeff Loy is not intended as legal advice. The comments are solely those of the identified authors and may or new look, it still contains the same solid content you expect from may not be the same as other attorneys within USFN. Specific questions should be referred to local Manager, Publications & Communications Member Directory 22 USFN members. counsel who is familiar with the laws, rules, practices and interpretations of the particular jurisdic- 9001 Airport Freeway, Suite 740 tion. Because of the complexities of the law, and changes in legislation, the summary and discussion We are all really looking forward to working together in 2019. If North Richland Hills, TX 76180 USFN Committee Chairs contained in the USFN Report should not be relied upon but should be used for facilitating dialog 23 you have any comments, questions or concerns, please feel free with your counsel, after a careful review of the legislation and cases to which reference is made. (817) 770-0818 or (800) 635-6128 to reach out to myself or to the USFN staff. Thanks again. © Copyright 2019 USFN [email protected]/www.usfn.org All Rights Reserved SPRING 2019 | 3 [A]ny person who uses any instru- pose definition. The firm further mean that McCarthy was violat- mentality of interstate commerce argued that by using the word “also” ing the FDCPA merely by following or the mails in any business the in the limited-purpose definition, Colorado foreclosure law anytime it principal purpose of which is the Congress could not have meant for advertised a foreclosure sale. collection of any debts, or who enforcers of security instruments to Finally, McCarthy argued that the regularly collects or attempts to be included in the primary definition. legislative history of the FDCPA collect, either directly or indirectly, supports its interpretation because debts owed or due or asserted to there was, at one point, competing be owed or due another. bills before Congress – one of which For the purpose of section 1692f(6) would have clearly included enforc- of this title, such term also includes The Obduskey ers of security instruments in the pri- any person who uses any instru- mary definition and one that would mentality of interstate commerce have completely excluded enforcers or the mails in any business the v. McCarthy & of security instruments from the principal purpose of which is the Act altogether. The final statute was enforcement of security interests. Holthus LLP therefore a compromise of the two 15 U.S.C. § 1692a(6). bills, whereby the limited-purpose decision also definition was created to regulate The Court has characterized the only certain activity of security in- first section as the “primary defini- strument enforcers. tion” and the second section as the raises several “limited-purpose definition.” A party Obduskey also advanced some other included in the primary definition arguments, including that McCar- is subject to the full extent of the long-term thy did more than just “enforce” a FDCPA, including its main require- security instrument and therefore ments: that a “mini-Miranda” warn- questions the other acts it took should bring it within the primary definition. Ad- 4 ing be given when communicating with a debtor; that a debt validation ditionally, Obduskey argued that a notice be sent by the debt collec- ruling in favor of McCarthy would tor; that, upon receiving a consumer create a “loophole” in the FDCPA, dispute as to the validity or amount allowing those pursuing foreclosures of a debt, the debt collector cease Obduskey, the homeowner, coun- to engage in various abusive practic- collection activity until it verifies the tered by arguing that it was possible es otherwise forbidden by the Act. debt; and the prohibition on making for McCarthy to be covered by both In reaching its conclusion that false, deceptive or misleading repre- the primary and limited-purpose McCarthy is only subject to the sentations in connection with a debt, definitions, rather than just one or the limited-purpose definition of “debt such as misstating a debt’s “charac- other. He argued that the limited-pur- collector” and not the primary defi- ter, amount, or legal status.” pose definition was meant to capture nition, the Court relied on the three However, a party covered only by the parties who do not outwardly seek primary arguments outlined above: In its most significant opinion impacting default law firms limited-purpose definition is merely to collect debt by sending demand (1) the Act’s text itself ; (2) a deter- Recent U.S. in several years, the United States Supreme Court issued its subject to the FDCPA’s requirement letters and having other direct com- mination that Congress wanted “to decision in Obduskey v. McCarthy & Holthus LLP on March 20, that it not “tak[e] or threaten to take munications with consumers, such as avoid conflicts with state nonjudicial the “repo man” who has no inter- foreclosure schemes”; and (3) the 2019. The issue decided whether McCarthy & Holthus LLP any nonjudicial action to effect dis- action with the consumer at all but legislative history of the FDCPA. Supreme Court (“McCarthy”) is considered a “debt collector” for purposes of possession or disablement of prop- erty if: (A) there is no present right to merely comes in the middle of the the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq., While the Court made sure “not to possession of the property claimed night to repossess a car. suggest that pursuing nonjudicial (the “FDCPA”). In a 9-0 decision, the Court held that McCarthy Decision to Have as collateral through an enforce- McCarthy, and various amicus curiae foreclosure is a license to engage in – and therefore other default firms and trustee companies able security interest; (B) there is no in support of its position (including abusive debt collection practices like whose primary business is the pursuit of nonjudicial foreclo- present intention to take possession USFN), also argued that subject- repetitive nighttime phone calls,” the Significant sures – is not a “debt collector” for purposes of the majority of the property; or (C) the property is ing the firm to the Act would cause decision makes clear that default and most meaningful provisions of the FDCPA. exempt by law from dispossession or conflict with state foreclosure laws, firms and trustee companies whose disablement.” 15 U.S.C. § 1692f(6). which was not an intention of Con- primary business is the pursuit of The case stemmed from a nonjudicial foreclosure that Industry Impact gress when enacting the FDCPA. nonjudicial foreclosures are not McCarthy pursued against Dennis Obduskey in the State of McCarthy argued that because its pri- mary business – the pursuit of nonju- For example, the FDCPA limits debt subject to the vast majority of FDCPA BY RICHARD P. HABER, ESQ. Colorado. The specific question arose from the FDCPA’s stat- dicial foreclosures where no deficien- collectors from communicating with requirements. In the same way, a firm MCCALLA RAYMER LEIBERT PIERCE, LLC utory definition of “debt collector” which, in relevant part, is: cy judgment is permitted – is plainly third parties about the debt, but whose principal business purpose is USFN MEMBER (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY) the enforcement of security interests, Colorado foreclosure law requires the pursuit of foreclosures in a judicial it is subject only to the limited-pur- advertising the foreclosure sale. Thus, (continued on page 6) accepting Obduskey’s position would 4 | SPRING 2019 SPRING 2019 | 5 Supreme Court Ruling Member Moves + News Continued from Page 5 state where the foreclosure judgment simultaneous- ly acts as a money judgment against the borrower Affinity Consulting Group (USFN Associate Member personally, is a “debt collector” covered by the full – FL) announced the recent addition of Ron Warman extent of the FDCPA because of the money judgment to the company’s leadership team. Warman will head component. Affinity’s industry-leading DMS department, which is With respect to judicial foreclosures, the Court spe- comprised of 20 specialized engineers and consultants. cifically stated “whether those who judicially enforce mortgages fall within the scope of the primary definition The law firm management and legal technology con- is a question we can leave for another day,” but there is sulting company also released the first legal specific a good argument that the holding in Obduskey v. McCar- Microsoft Office manuals. thy & Holthus LLP extends to firms specializing in judicial foreclosures that result only in in rem judgments, with- out an in personam deficiency component. Aldridge Pite (USFN Member – CA, GA, HI, ID, NY, OR, Because the term “debt collector” is defined based on UT, WA) attorney Morgan Clemmons recently complet- the “principal purpose” of the business, an interesting ed and published the financial services law book, Intro- question is how the Obduskey v. McCarthy & Holthus duction to Financial Compliance: Consumer Financial LLP decision will impact multistate firms that practice in both judicial and nonjudicial states. Arguably a firm Services Regulation. can have only one “principal purpose” and if a major- ity of the firm’s revenue is generated from nonjudicial foreclosures, judicial foreclosures where there is no Bendett & McHugh, PC (USFN Member – CT, MA, ME, deficiency judgment and other non-collection-relat- Recent Cases Help to Interpret the NH, RI, VT) has named Robert Wichowski a firm princi- ed activities, it would seem that the firm as a whole 7 pal. Wichowski will also be assuming the role of managing should be excluded from the primary definition of litigation partner, overseeing litigation for all six states in “debt collector.” Fair Debt Collection Practices Act which the firm practices. Another open question is what effect, if any, this BY WILLIAM H. MEYER, ESQ. | MARTIN LEIGH PC | USFN MEMBER (KS, MO) case will have on the banks and servicers whose Maggie M. Garden, the firm’s director of marketing and loans are at issue. The Obduskey v. McCarthy & Holthus client relations, has been elected to serve on the Board of LLP decision arguably affects only the default firms Property Preservation is Not Debt collector and therefore not subject to Directors for the Connecticut Mortgage Bankers Association. and trustee companies that are on the front lines Collection Under FDCPA — Schlaf the FDCPA. In reaching that conclu- New Interpretations pursuing nonjudicial foreclosures. It seemingly does v. Safeguard Prop., LLC, 899 F.3d sion, the 7th Circuit relied on the door of the FDCPA not change the fact that servicing a mortgage loan 459 (7th Cir. 2018) hanger’s text which contained no pay- for another party would capture a bank or servicer ment demand, no settlement offer, no In Schlaf v. Safeguard Prop., LLC, a within the FDCPA’s primary definition of debt collec- payment options, no reference to the Safe harbor language does not property preservation company was Stay current with USFN tor because those banks and servicers are entities borrower’s debt, and listed only the protect collectors from sued by a borrower under the Fair updates and news on our “who regularly collects or attempts to collect, either lender’s name and telephone number. misleading information also Debt Collection Practices Act (“FD- LinkedIn page: directly or indirectly, debts owed or due or asserted The 7th Circuit also found it persua- contained in debt notice CPA”). After the borrower had been to be owed or due another.” sive that the preservation company https://www.linkedin.com/ in default, the property preservation made no attempt to collect payments A technical violation of the company/usfn-amba Finally, it remains to be seen whether Congress reacts company was directed by the lender and instructed its employees not to mini-Miranda requirement is to the decision by amending the FDCPA. The Court was to inspect the property and to leave discuss the reason for the inspection. not always actionable clear that it ruled based on the text of the Act as cur- a door hanger that requested the rently drafted and its perception of Congressional intent. borrower to contact the lender. The Federal Circuits Split on if the But, of course, Congress is free to amend the Act if it On these facts, the borrower sued FDCPA Applied to Nonjudicial Fore- Debt collector’s failure to notify wants to sweep nonjudicial foreclosure firms and trust- borrower that debt disputes the preservation company. The closures — Obduskey v. Wells Fargo, ee companies into the broader FDCPA requirements. borrower claimed that the inspec- must be made in writing is 879 F.3d 1216 (10th Cir. 2018) tion was abusive and that the door actionable under FDCPA hanger did not make disclosures In Obduskey v. Wells Fargo, a law firm THE AUTHOR nonjudicially foreclosed on the bor- required by 15 USC § 1692g and § A debt collector’s duty to verify 1692e (11) (i.e. creditor name, amount rower’s home. The law firm initiated a debt is very limited of debt, the debtor’s right to dispute the foreclosure by sending the bor- USFN Members and Associate Members may the debt, mini-Miranda statement). rower a notice stating its intent to foreclose, details about the debt and Tax collection is not debt send possible items for the “Member Moves + The 7th Circuit disagreed with the News” section to Jeff Loy at [email protected]. Richard P. a disclosure that the law firm may collection under the FDCPA Haber, Esq. borrower, ruling that the preser- vation company was not a debt (continued on page 8) 6 | SPRING 2019 SPRING 2019 | 7 Fair Debt Collection Cases the FDCPA—except for one thing. and asserting a § 1692e (11) violation. the same as “written” disputes. It the debt was disputed. PA violation (i.e., the 2009 judgment) and not from the date the violation is The debt collector’s notice indi- Reasoning that even if the law firm’s is possible that the 6th Circuit may On these facts, the debtor sued Continued from Page 7 alleged to have been discovered (i.e., cated that the Wisconsin borrower letter constituted a procedural vio- have ruled differently had the case the debt collector under the FDCPA may be liable for “late charges and lation of the FDCPA, the 6th Circuit not been at the motion to dismiss in 2014). The 3rd Circuit, recognizing a alleging that the debt collector failed split in authority with the 4th and 9th be considered a debt collector at- other charges.” The borrower sued rejected the borrower’s claim be- stage where the Court was required to “reasonably” investigate the infor- Circuits, ruled that the FDCPA’s statute the debt collector under the FDC- cause the letter was true (the dispute to assume that all allegations in the tempting to collect a debt. The bor- mation the debtor disputed because of limitations runs from the date the rower responded and disputed the PA asserting that the “late charges had been settled and the lender complaint were true. the debt collector did not separately alleged violation occurred. In this case, had agreed to waive the borrower’s debt. The law firm did not respond and other charges” language in the This case’s result is intriguing given contact and confirm the account that was in 2009 when the law firm deficiency) and because the bor- and proceeded to foreclose. notice violated the statute. The debt that in another 2018 decision (Hagy information with the creditor. obtained the default judgment and rower could not articulate how the The borrower sued the law firm as- collector countered that its notice v. Demers & Adams), the same 6th not in 2014 when the borrower dis- borrower was harmed by the letter. The 7th Circuit agreed with the debt serting that the law firm violated the tracked the safer harbor language Circuit Court of Appeals ruled that a covered the alleged FDCPA violation. and the notice could not violate the Furthermore, the borrower used the collector and concluded that the FDCPA by failing to respond to the minor or procedural violation of the Tax Collection is Not Debt Collec- law firm’s letter to defend itself from debt collector’s obligation to verify borrower’s debt validation request. FDCPA as a matter of law. FDCPA was not actionable. the lender’s attempt to collect on a a debt was very limited. It ruled that tion Under the FDCPA - St. Pierre v. Recognizing a split among the feder- Basing its decision in part on Wis- settled debt. it “would be both burdensome and Retrieval-Masters Creditors Bureau, al circuits, the 10th Circuit ruled that consin law, the 7th Circuit found the A Debt Collector’s Duty to Verify a Debt is Very Limited - Walton v. EOS significantly beyond the [FDCPA’s] Inc., 898 F.3d 351 (3rd Cir. 2018) nonjudicial foreclosures are not cov- debt collector’s notice was mislead- Debt Collector’s Failure to Notify a purpose to interpret § 1692g(b) as CCA, 885 F.3d 1024 (7th Cir. 2018) In St. Pierre v. Retrieval-Masters ered by the FDCPA and that the law ing to an unsophisticated consumer Borrower that a Debt Dispute Must requiring a debt collector to under- particularly given that Wisconsin Creditors Bureau, Inc., a motorist firm was not obligated to respond Be Made in Writing is Actionable In Walton v. EOS CCA, a creditor no- take an investigation in whether the to the borrower’s debt validation law does not allow a debt collector failed to timely pay highway tolls. A Under the FDCPA - Macy v. GC Srvs. tified debtor that the debtor owed creditor is actually entitled to the debt collector mailed the motorist a request. to recover late charges and other an outstanding balance on a closed money it seeks.” payment demand. However, the mo- charges. Accordingly, the 7th Circuit L.P., 897 F.3d 747 (6th Cir. 2018) Additionally, the 10th Circuit reasoned telephone account. The creditor fur- torist’s account number was visible that if the FDCPA applied to nonju- agreed with the borrower that the In Macy v. GC Srvs. L.P., a debt from outside of the letter’s envelope. dicial foreclosures, then a trustee notice was confusing to the unso- collector notified a borrower that the Based on that violation, the motorist foreclosing a deed of trust would phisticated consumer. borrower had 30 days to dispute the sued the debt collector under the essentially always breach the FDCPA In addition to limiting the value debt identified in the notice. How- FDCPA. ever, the debt collector’s notice did On March 20, 2019, the Supreme Court in order to comply with Colorado’s of “safe harbor” language, the 7th On appeal, the 3rd Circuit addressed not state the borrower’s debt dis- statutory scheme for conducting Circuit cautioned lower courts affirmed Obduskey v. Wells Fargo and resolved two issues: 1) the fact the motorist’s nonjudicial foreclosures. against dismissing FDCPA claims pute must be made in writing. The account information was visible from based upon deceptive notices. That borrower sued alleging that the debt outside the envelope actionable given In reaching its conclusion, the 10th is because the 7th Circuit suggests collector’s notice violated § 1692g(a) the circuit split regarding the FDCPA’s application the debt collector’s argument that the Circuit limited its opinion to nonju- that “district court judges are not (4) of the FDCPA. motorist could not have been dam- dicial foreclosures. The Court found good proxies for the ‘unsophisticat- The debt collector moved to dismiss, aged by this act; and 2) is collecting that judicial foreclosures do contain to nonjudicial foreclosures. ed consumer’ whose interest the arguing that the alleged violation an unpaid highway toll or tax the col- an element of debt collection be- [FDCPA] protects.” (i.e. the notice’s failure to state the lection of a debt under the FDCPA? cause such a lawsuit could result in borrower must dispute the debt in deficiency judgment and presumably The 3rd Circuit ruled that revealing a A Technical Violation of the FD- writing) did not constitute harm suffi- The Federal Circuits Are Split on the FDCPA would be held to apply to ther advised the debtor if the balance debtor’s account number through an CPA’s Mini-Miranda Requirement ciently concrete to satisfy the FDCPA’s judicial foreclosures. was not paid then the account would When the FDCPA’s One-Year Stat- envelope window implicates a core is Not Always Actionable - Hagy injury in fact standing requirement. be turned over to a collection agency. ute of Limitations Period Begins to FDCPA concern (protecting a debt- On March 20, 2019, the Supreme v. Demers & Adams, 882 F.3d 616 The district court denied the debt The account was then turned over Run - Rotkiske v. Klemm, 890 F.3d or’s privacy), and such violations are Court affirmed Obduskey v. Wells (6th Cir. 2018) collector’s motion to dismiss. The to a debt collector who sent a notice 422 (3rd Cir. 2018) always actionable under the FDCPA. Fargo and resolved the circuit split debt collector then petitioned the 6th However, the 3rd Circuit ruled col- In Hagy v. Demers & Adams, the that incorrectly stated the debtor’s regarding the FDCPA’s application to Circuit for interlocutory review and the In Rotkiske v. Klemm, a law firm lecting a highway toll is more akin to lender and borrower settled a dis- account number but the remaining nonjudicial foreclosures. The Su- Court granted that request. information in the notice was correct obtained a default judgment tax collection. The 3rd Circuit ruled, pute pursuant to which the bor- against a borrower for $1,500 in preme Court’s decision is discussed (i.e. debtor’s name, address, amount following a host of other authori- rower quit claimed secured prop- On appeal, the 6th Circuit ruled that 2009. However, the borrower was in the feature article on page 4. owed and social security number). ties, that tax collection is not a debt erty to the lender and the lender the debt collector’s notice – which never actually served with pro- The debtor disputed owing the debt. encompassed by the FDCPA. Accord- Safe Harbor Language in a Debt waived its right to pursue a defi- failed to advise the borrower that a cess because someone other than ingly, the FDCPA does not apply to tax Collector’s Notice to a Borrower ciency. The lender’s lawyer sent a debt dispute must be in writing – In response to the debtor’s dispute, the borrower accepted service. In collection. This result is interesting in Does Not Protect the Debt Collector confirming letter to the borrower’s was potentially actionable and the the debt collector verified that the 2014, the borrower discovered the that the collection was not handled from Misleading Information Also attorney confirming the settlement. Court declined to dismiss the case debt information that it received from judgment while applying for a loan. by the government itself but by a However, that letter did not contain at the motion to dismiss stage of In 2015, the borrower sued the law Contained in the Notice - Boucher v. the creditor matched what was in the non-governmental debt collector. the obligatory § 1692e (11) disclo- the proceedings. However, the 6th debt collector’s notice to the debtor. firm under the FDCPA for wrong- Fin. Sys. of Green Bay, 880 F.3d 362 sure (i.e. this is a communication Circuit’s opinion mentioned that, for (The debt collector did not separately fully taking the judgment. (7th Cir. 2018) THE AUTHOR from a debt collector). purposes of its analysis of the debt contact the creditor to verify that the The law firm moved to dismiss the In Boucher v. Fin. Sys. of Green Bay, a Despite the completed settlement, collector’s motion to dismiss, that initial information that the creditor lawsuit as being time barred by the debt collector sent a Wisconsin bor- the lender continued to attempt the Court was precluded from con- initially provided to debt collector FDCPA’s one-year statute of limita- rower a notice that closely tracked to collect the deficiency against sidering information from outside of was correct.) The debt collector also tions period. The law firm argued safe harbor language that 7th Circuit the borrower. That resulted in the the complaint showing that the debt reported the debt to credit reporting that the limitations period runs had previously ruled to comply with borrower suing the lender’s law firm collector treated verbal debt disputes agencies but noted in the report that from the date of the alleged FDC- William H. Meyer, Esq. 8 | SPRING 2019 SPRING 2019 | 9 abuses to a protection of free and Bureau in December. Since she was informed choice. Specifically, the chosen as a disciple of Mulvaney, new plan called for “free, innovative, and has absolutely no consumer or competitive, and transparent con- financial regulatory experience, her sumer finance markets where the path will most likely be to follow rights of all parties are protected by the actions of Mulvaney. However, the rule of law and where consum- recent actions have indicated that ers are free to choose the products she does not feel obligated to follow and services that best fit their indi- through on all of Mulvaney’s initia- vidual needs.” tives. One example is the proposed Also, in February 2018, members of changes to the Consumer Advisory the Office of Fair Lending and Equal Board. Opportunity were transferred to New Position on Fair Debt Collec- CF P B: Year in Review & Advance the Office of the Director and their tion Practices Act How the Consumer Financial Protection Bureau mission was clarified as a focus on advocacy, coordination and edu- The Bureau also evidenced its new Will Impact the Mortgage Servicing Industry cation over enforcement. Whether position on the Fair Debt Collection by coincidence or design, 2018 saw Practices Act (“FDCPA”) in filing an nine reported settlements of con- amicus brief supporting the position BY LANCE OLSEN, ESQ. | MCCARTHY & HOLTHUS, LLP | USFN MEMBER (AZ, CA, CO, ID, NM, NV, OR, TX, WA) sent orders resolving previously filed of the foreclosing creditor and its ALAN WOLF, ESQ. | THE WOLF FIRM | USFN MEMBER (CA) enforcement actions with one newly law firm in Obduskey v. Wells Fargo. filed complaint. In its amicus brief, the Bureau made By April 2018, the Bureau issued two main policy arguments. First, it a “call for evidence to ensure the argued that nonjudicial foreclosures To properly review the work of the Consumer Financial Protection Bureau is fulfilling its proper and are not subject to the FDCPA, ex- Bureau (referred to in this article as the “Bureau”) in 2018, we must appropriate functions to best cept in those limited circumstanc- start in 2017. protect consumers.” Once again, es where the foreclosure is done the call for evidence is viewed as where “there is no present right to In November 2017, the former director of the CFPB resigned to pur- an intent to focus more on protec- possession of the property claimed 10 sue elected office. On the way out, the former director attempted tion of choice over active effort to as collateral through an enforceable to appoint his own successor; President Trump however appointed discover enforcement opportunities security interest.” Section 1692f(6)(A). his own temporary head of the CFPB, Mick Mulvaney. Most observers and push the envelope of consum- In short, the Bureau took the posi- seemed to agree that the Bureau director did not have the authority er protection. tion that the FDCPA is only applica- to name his or her own successor, and thus Mulvaney assumed con- ble if you foreclose where there was trol of the Bureau as 2017 ends (even though it wasn’t until July 2018 Finally, in June 2018, shortly be- no right to foreclose. fore the deadline to nominate a that a lawsuit challenging the authority of Mulvaney to act was finally permanent director of the Bureau, Next, the Bureau made a policy dismissed). the White House nominated Kathy argument that if you follow state With the change in leadership came a visible change in approach. As Kraninger, a direct report of Mick law, you do not violate the FDCPA. a Congressman, Mulvaney had criticized what he perceived to be a Mulvaney at the Office of Manage- Specifically the Bureau states: lack of oversight and accountability in the structure and operation of ment and Budget, for confirma- Nonjudicial foreclosure is ‘the en- tion by the United States Senate. the Bureau. Against this backdrop, a change was observed early on in forcement of [a] security interest’ 15 Although not much is known about the focus and direction of regulation. U.S.C. 1692a(6), and filing a notice Kraninger’s views on the appro- with a public trustee is undisputedly On January 16, 2018 the Bureau announced that it would engage in a priate role and direction of the a necessary step in that process rulemaking process to reconsider the Payday Rule put forward under Bureau, those with concerns over in Colorado. Deeming such activi- prior leadership. The Payday Rule imposes restrictions on certain Mulvaney’s stewardship have ex- ties debt collection could bring the small loan practices and policies. As most of the provisions of that pressed concern over her apparent FDCPA into conflict with state law Payday Rule are not effective until August 2019, the January 2018 connection and past work under and effectively preclude compliance announcement was perceived by many as notice of the intent of the his tutelage. new Bureau to act independently of old policy. with state foreclosure procedures. Changes in 2019 No sound basis exists to assume In February 2018, the Bureau issued its Strategic Plan for the next five Congress intended that result. years. Within that plan, one significant change from the prior-issued It’s said that predicting the future is plan was removal of the reference to the Bureau’s authority to en- easy, the difficult part is in getting it In a 9-0 opinion, the Supreme Court force against unfair, deceptive or abusive acts or practices. Suggest- right. With that admonishment, here agreed with the CFPB and industry ed in the new plan is a turn away from focus on perceived potential is what has happened so far in 2019. on holding that one who does no As expected, Kraninger was con- more than enforce security interests firmed as the new Director of the (continued on page 12)

SPRING 2019 | 11 CFPB 2019 Expectations of Consumer Protection Estab- While Mulvaney’s statement may be Continued from Page 11 lished to enforce the enhanced viewed as the Bureau’s nod to the Consumer Fraud Act belief that states “know better” how does not fall within the definition 3. Pennsylvania Consumer Finan- to protect their own consumers, of a debt collector. It appears likely having states take the lead has the Report: Legal Issues cial Protection Bureau that in its formal rulemaking, which practical effect of weakening the as of press time is reportedly set for Even without this new legislation, enforcement mechanism. By bow- later in the spring, the Bureau will state attorneys general have sig- ing out of the process, the states take the position that the FDCPA nificant powers to enforce certain have lost the power, resources and Ohio Legislature Enacts New has no application to the mortgage types of Federal consumer legisla- information provided by the Bu- servicing industry, as long as there is tion. For example, Section 1042 of reau to conduct joint investigations, a right to foreclose under state law the Consumer Financial Protection coordinate enforcement actions and Requirements for Mortgage and the state laws are followed. Act (CFPA) empowers state attor- negotiate joint settlements. neys general to bring civil actions to In fact, where states have pursued States Will Take Consumer Posi- enforce the provisions of the CFPA multi-state enforcement actions, Servicers tions Abandoned by the Bureau; as well as regulations issued by the without the Bureau’s involvement, States Will Not Be as Effective as BY RICK D. DEBLASIS, ESQ. & CHARLES E. RUST, ESQ. | LERNER, SAMPSON & ROTHFUSS Bureau under Title X of Dodd-Frank they are often hampered by fewer Bureau USFN MEMBER (KY, OH) — including the dreaded provision resources with the result of much Third, it appears that States are prohibiting unfair, deceptive or smaller penalties against mortgage abusive acts or practices (UDAAP). ready and willing to take up the servicers and other industry play- On March 20, current amendment simply adds 1) demonstrates that noncompli- See 12 U.S.C. § 5552 (effective June consumer positions apparently ers. This trend is likely to continue 2019, two pro- “mortgage servicer” to the existing ance was due to “bona fide error;” 2) 29, 2012). abandoned by the Bureau but may as states take the lead in pursuing visions of Ohio statute, absent a contrary advisory sends a notice of error to the debtor not be entirely able to — they lack In addition, various federal consum- consumer issues. law took effect, opinion, the statute does not appear within 60 days of discovery and pri- the resources and skills to make er protection statutes give direct The Bureau has been a fascinating which impose to impose Ohio brick and mortar or to initiating action stating how it the same impact as the Bureau. enforcement authority to state study in the wide swing of a pendu- new require- requirements on servicers. will make restitution; and 3) makes The push by states to replace the attorneys general including the Real lum. Despite attempts to ameliorate ments on mort- reasonable restitution to the debtor. Bureau has evolved into two paths: Estate Settlement Procedures Act, those wide swings, 2019 looks to be gage servicing. Section 1349.72 - New Require- “Bona fide error” is limited to “an 1) State Bureau type legislation; and the Truth in Lending Act, and the a better year than most for a mort- ments for Junior Lien Collections unintentional clerical, calculation, 2) Prosecution of the Bureau’s rules Fair Credit Reporting Act. Indeed, gage servicer. Section 1322.07(A) - Certificate of The second major change affects computer malfunction or program- and regulations by state attorneys when Mulvaney spoke at the Nation- Registration Requirements persons collecting debt that is in ming, or printing error.” Strict com- general. al Association of Attorneys General First, an amendment to Revised default and secured by “a second pliance with the new notice require- State bureau type legislation in- conference in February 2018 he in- THE AUTHORS Code Section 1322.07(A) requires mortgage or junior lien” on residen- ments should be a priority. vited the state attorneys general to cludes the following: mortgage servicers to obtain a tial real property. Though the new Given the potential for financial act under these provisions declaring 1. Maryland Consumer Financial certificate of registration from the law raises many unanswered ques- penalties and litigation, lenders and that he would be “looking to the Act of 2018 Superintendent of Financial Institu- tions, Revised Code Section 1349.72 servicers, and their agents, operat- state regulators and state attorneys tions for the “principal office and ev- requires creditors and collectors of ing in the State of Ohio are strong- 2. New Jersey’s existing Division of general for a lot more leadership Lance Olsen, Alan Wolf, ery branch office” from which they junior liens to provide defaulting ly encouraged to work with their Consumer Affairs adds an Office when it comes to enforcement.” Esq. Esq. conduct mortgage servicing in Ohio. debtors with an entirely new notice attorneys to address the intricacies Under the statute, unregistered per- before attempting to collect the debt. of these new requirements and de- sons are prohibited from conducting The new notice must: velop strategies for compliance. mortgage servicing in Ohio. • Print in at least 12-point type 1 See Ohio Department of Com- Additionally, “[a] registrant shall • Provide contact information for merce, Division of Financial Insti- maintain an office location for the the person collecting the debt tutions, Ohio Residential Mortgage transaction of business as a mort- Lending Act H.B. 199 Implementa- • Include the amount of the debt 2019 Changes gage lender, mortgage servicer, or tion Guidance. mortgage broker in this state.” This • Include a statement that the (Editor’s note: For information on Ohio Impacting the Supreme Court to rule language allows for two interpre- debtor has a right to an attorney House Bills 480 and 489, and Senate Kraninger confirmed States ready and tations: 1) servicers are required to FDCPA has no application • Include certain specific notices Bill 263, please see the article by Ellen L. Consumer as Director of the willing to take consumer maintain a brick and mortar location to the mortgage servicing about bankruptcy options Fornash on page 14 in this issue.) Bureau in positions abandoned in Ohio; or 2) servicers are required industry if state Financial December 2018 by the Bureau to maintain a brick and mortar loca- Section 1349.72 also requires the laws are followed tion somewhere for the transaction “owner” of a debt to provide a copy THE AUTHORS Protection of business in Ohio. of the note and loan history to the According to advisory guidance from debtor upon written request. Bureau Ohio’s Division of Financial Institu- For noncompliance, the statute tions, 2017 amendments to the stat- authorizes a private right of action ute eliminated the brick and mortar for aggrieved debtors but allows the Rick D. Charles E. requirement1. Because the most collector a defense if the collector: DeBlasis, Esq. Rust, Esq. 12 | SPRING 2019 SPRING 2019 | 13 a notary and enacts requirements While these changes do not have any Both Marcy and Vodrick Perry for notarization of electronic docu- effect on our current notary proce- initialed and signed a mortgage, ments. Notably, to obtain a notary dures, current non-attorney notaries however, the definition of “borrower” commission, one will now have to in Ohio will have additional hoops within the mortgage only included Report: Legal Issues submit to a criminal records check through which to jump upon renewal Vodrick’s name. The bankruptcy completed within the preceding six of their current licenses. trustee determined that the mort- months (R.C. 147.022). Already com- gage did not encumber Marcy’s missioned attorneys will be exempt State Supreme Court Rules in Bank interest in the real property. of N.Y. Mellon v. Rhiel Ohio Senate, House Bills Focus on from this requirement. Although the The bankruptcy court disagreed new requirement is not retroac- Finally, closing with a case law update, and allowed extrinsic evidence to tive, notaries seeking to renew their the Supreme Court of Ohio sided with make its determination that Marcy Lending Industries, Notaries commission will have to comply. lenders when it issued its opinion in intended to encumber her interest. The bulk of the Bill is dedicated to Bank of N.Y. Mellon v. Rhiel on Decem- The Bankruptcy Appellate Panel for BY ELLEN L. FORNASH, ESQ. | ANSELMO LINDBERG & ASSOCIATES LLC online notarizations. The Bill per- ber 20, 2018, when it held that: the US 6th Circuit Court of Appeals USFN MEMBER (IL) mits a commissioned notary to ap- 1. “In response to certified ques- asked the Ohio Supreme Court to ply to perform online notarizations tions by the bankruptcy appellate clarify, after noting the conflicting de- The State of (Editor’s note: For more on Ohio Re- Also, Revised Code Section 1349.72, via live video, electronic signatures panel, it was determined that the cisions of prior bankruptcy cases and Ohio was busy vised Code Sections 1322 and 1349.72, governing Consumer Protection was and electronic notary seals. Online failure to identify a signatory by controlling decisions issued by Ohio this past holiday please see the article by Rick D. DeBla- added and requires a person before notary commissions expire after name in the body of a mortgage courts of appeals. The Ohio Supreme season, passing sis and Charles E. Rust on page 13 in attempting to collect a debt secured five years – including those issued agreement did not render the Court held that signing a mortgage three different this issue). by residential real property to send to attorneys. agreement unenforceable as a may be enough to bind the signatory bills, all signed written notice via US Mail to the matter of law against that signato- despite not being named in the body by then-Gover- House Bill 480 Those seeking online commission residential address of the debtor if ry;” and of the mortgage itself. nor John Kasich the debt is: 1) a second mortgage or The next Bill to affect the lending must participate in an educational on December 19, junior lien on the debtor’s residential industry is House Bill 480, which course; non-attorney applicants 2. “It was possible for a person must also pass a test. Bill 263 who was not identified in the 2018, and scheduled to take effect real property; and, 2) the debt is in establishes requirements for THE AUTHOR 91 days after filing with the Secre- default. multi-parcel auctions, which are passes oversight of the appoint- body of a mortgage, but who tary of State. not currently addressed in the Ohio ment and revocation of notary signed and initialed the mortgage, Written notice must be in 12-point Revised Code, and gives the Ohio commissions from the Court of to be a mortgagor of his or her House Bill 489 font and must include: Department of Agriculture the pow- Common Pleas to the Secretary interest.” of State. Lastly, in short, the Bill Entitled in short as a bill to “address • The name and contact informa- er to regulate the auctions. Bank of N.Y. Mellon v. Rhiel, 2018- deems an online notarized docu- financial institution regulation and tion of the person collecting the Ohio-5087, 2018 Ohio LEXIS 3007. Ellen L. House Bill 480 amends Ohio Re- ment to be an “original document.” Fornash, Esq. consumer protection,” House Bill debt; vised Code sections 2329 (Execu- 489 was initially aimed at undoing • The amount of the debt; tion against real property) and 4707 some of the effects the Dodd-Frank • A statement that the debtor has (Auctioneers). The Bill defines a had on smaller banks and credit a right to an attorney; multi-parcel auction as one in- unions while still protecting con- • A statement that the debt- volving real or personal property in sumers. which multiple parcels or lots are or may qualify for relief under offered for sale in whole or part. The The motivation behind the Ohio Fi- Chapter 7 or 13; nancial Institutions Reform Act was Bill further establishes advertising • A statement that a debtor may to regulate banks only in a manner requirements placed upon auction- be able to protect his residence that would not affect the institu- eers, including the mandate that all from foreclosure through the tions soundness and security. The advertisements short of road signs Chapter 13 process; and Bill permits analytics to be conduct- must state that the auction will be ed on publicly available information • If requested in writing by the offered in various amalgamations, regarding state banks, credit unions debtor, the “owner” of the debt whether individual parcels, combi- and entities registered and licensed shall provide a copy of the note nations or all parcels as a whole. and loan history to the debtor. in Ohio. However, if an institution The Bill goes on to clarify that online meets certain requirements, said in- Failure to comply authorizes civil auctions are to be held for seven stitution would be subjected to less liability, but also provides a bona fide calendar days (previously simply frequent regulatory checks of no error defense. The notice require- seven days), excluding the day the more than once every 24 months. ments set forth by this House Bill are auction opens for bidding. Failure to comply exposes an insti- strikingly similar to those imposed tution to civil liability. upon debt collectors under the Senate Bill 263 House Bill 489 adds a definition of Fair Debt Collection Practices Act, Finally, Senate Bill 263, titled in “mortgage servicer” to Ohio Revised but extend these requirements to short, the “Enact Notary Pub- Code Section 1322, “Mortgage Bro- “persons” rather than debt collectors lic Modernization Act,” increases kers, Loan Officers.” and pertain only to junior mortgages. requirements for commission of

14 | SPRING 2019 SPRING 2019 | 15 Report: REO Foreclosure Status of Title Post FC Sale in North Carolina – You Better Get It Right the First Time! BY JEREMY B. WILKINS, ESQ. & DEVIN CHIDESTER, ESQ. | BROCK & SCOTT, PLLC USFN MEMBER (AL, CT, FL, GA, MA, ME, MD, MI, NC, NH, OH, RI, SC, TN, VA, VT)

In North Carolina, reviewing and approving the chain Poorly aged title correlates to a lack once the clock of title must be done correctly by of prudence in title examination and strikes midnight local counsel from the onset of the not using appropriate title curative on the 10-day foreclosure process or the post-sale measures. Unfortunately, in the post- statutory upset implications may be damning to a foreclosure context, reputational 1. Foreclosure Title Search are handled expeditiously as need- pragmatic, proactive approach from bid period1 the fi- property transfer. damage is extremely costly because Local counsel must ensure that the ed. Moreover, title claims should be the onset of the foreclosure pro- nality of the fore- one cannot exercise the delete func- In North Carolina, reviewing title for vendor completing the title search zealously escalated by local counsel cess and gets it right, title will age closure process tion and start from scratch as you property in REO requires knowing does so completely and accurately. striking a balance between continuity gracefully and move through REO as closes the door on prior owners. The can on social media. how to fix title prior to the rights of The title search at foreclosure is per- of title insurance coverage and prompt intended. remaining title issues, though, may the parties to the foreclosure becom- Under North Carolina law, you must formed at the beginning of the pro- resolution of claimable issues. 1 See Generally, N.C.G.S. §45-21.27 prevent the door from being locked 3 ing fixed . This includes the validity of slowly unwind the process, revise cess, but has implications throughout 2 for good. Absent purchase by a 4. Milestone Awareness In North Carolina, marketable title the procedural process of the foreclo- the public record, admit to the world the entirety of the foreclosure. is statutorily defined as a 30-year third-party, the property is common- sure as set forth under Chapter 45 of that proper review was missed and Local counsel must fundamentally Starting with the first legal stage, the period whereby the title is free and ly anointed as Real Estate Owned the North Carolina General Statutes. a mistake exists. Hence, prudent grasp and act within the applicable title search is supplemented with clear from defects. N.C.G.S. §47B-2. (“REO”) and the former noteholder Consequently, flaws in the foreclo- review and proper due diligence are foreclosure milestones promulgated updates predicated upon milestones Thus, as a best practice, marketable must ensure the property is suitable sure process can create flaws in the paramount when reviewing title at the by specific client service level agree- (pre-first legal, pre-hearing, pre-sale). title for REO should have a clear for an expeditious preservation, mar- ability to market the subject prop- beginning of the foreclosure process. ments (“SLA”). Knowing the milestone The title search should be viewed in 30-year timeframe. Insurable title keting, and re-sale process. erty as an asset in REO. Therefore, a Title documents provided to local stage and status of title product at totality with the updates and vetted carries a lower standard whereby If the subject property reaches foreclosure must be prosecuted with counsel should mirror the level of that stage allows local counsel to in all stages of the foreclosure. The defects may exist in the chain of control foreclosure advancement REO status, impediments must be a forward-looking mentality to deliver quality of an attorney search. Prop- more corners cut, the more the title title, but a title insurance compa- while ensuring finality of the REO nonexistent as the former notehold- an asset in REO free of impediments. er measures will ensure the desired ages terribly. Be thorough in review so ny has agreed to provide coverage asset transfer. er will need to realize the liquidity of In other words, when viewing the as- result for the asset, post-foreclosure decisions can be made with clarity. against said defects. Insurable title the asset to minimize potential loss. set post-foreclosure sale, the subject sale, while executing to perfection 5. Be Forward-Looking During the is contractually rooted and shorter Accordingly, an essential element to property’s title must have aged well. the intended vision for the foreclosing 2. In-house Title Curative search periods are more appropriate successfully moving an asset in REO The challenge rests on the ability to noteholder. Foreclosure Process Local counsel should engage in- to determine the status of the chain is the status of the title on the sub- cure title issues through a combina- For the REO asset’s chain of title to house title curative measures to clear As discussed earlier, when local of title for REO purposes. ject property at time of foreclosure, a tion of clearing title by the foreclosing counsel starts the foreclosure pro- age gracefully, local counsel must up title issues prior to a foreclosure 3 Rights are fixed under N.C.G.S §45- process managed by local counsel. firm, cooperation with title insurance cess, the umbrella mindset for each ensure pre-foreclosure title is rooted sale expeditiously and find solutions 21.27 (a), therefore, the high bidder has companies, and/or applying certain file must consider the future ram- Manifesting the intent of contractu- in achieving successful and market- that would bypass judicial interven- an insurance interest in the property judicial intervention measures (i.e., ifications so title will not age with al obligations predicated on a fu- able title in the future. The following tion (e.g. procuring satisfactions of and can demand a deed be tendered. judicial foreclosure, quiet title, declar- ture REO purchase/sale agreement tips are best practices to ensure the prior liens or curing errors in recorded impediments and time is carved out atory actions, etc.). requires knowing what type of title status of title ages elegantly. The documents by operation of statute to fix issues before it is too late. THE AUTHORS product is required post-foreclo- Similar to the way an errant post on following tips are sensible measures through a curative affidavit, N.C.G.S. In North Carolina, failure to critically sure sale. Generally, the dividing line social media has the tendency to age that can be taken in North Carolina, §47-36.2). think, control, and act, as it pertains between moving foreclosed property terribly, so will a poor pre-foreclo- all within the control of local coun- to the status of title, may create a is the difference between marketable sure title product. If issues lurk after sel, to ensure the foreclosure chain 3. Title Claim Escalation costly situation requiring sale rescis- and insurable title standards. Certain foreclosure, then reparations will re- of title is delivered through the REO Local counsel should ensure title sion, court intervention, and unnec- investors may require a less rigorous quire unwanted timeline delays and/ process flawlessly. insurance coverage is identified early essary additional delay and costs. Jeremy B. Devin product than others2. Simply put, or excessive and unnecessary costs. in the review process and title claims However, if local counsel takes the Wilkins, Esq. Chidester, Esq. 16 | SPRING 2019 SPRING 2019 | 17 Report: Lost Notes Report: Lost Notes New Jersey: Appellate Court Finds North Carolina: Lost Notes Can Be Lost Notes May Be Enforced Even if Used in Power of Sale Foreclosure Not in Possession When Lost When Present Holder Lost Note BY MICHAEL B. MCNEIL, ESQ. | POWERS KIRN, LLC BY JEFFREY A. BUNDA, ESQ. | HUTCHENS LAW FIRM USFN MEMBER (NJ, PA) USFN MEMBER (NC, SC)

For years, lenders ers of the UCC amended section was lost, and that to enforce the lost In an October 2, In affirming the trial court’s order, the that any other entity is the holder of and servicers in 3-309 in 2002 to remove the pos- note, the transferee need only prove 2018 published Court of Appeals expanded the scope the debt or there is an actual contro- New Jersey have session requirement. the terms of the instrument and opinion from the of “who” could avail themselves of versy” regarding the foreclosing lender’s faced uncertainty However, the New Jersey Legislature the transferee’s right to enforce the North Carolina North Carolina’s quasi-judicial foreclo- current status. In essence, the Court re- when seeking has not adopted the amendment to instrument as required by section Court of Appeals, sure process. Although the Court had jected the long-held urban legend that to prosecute a section 3-309 and there had been no 3-309(b). the Court con- signaled its intent to head in this direc- there is a risk of “multiple judgments” or mortgage fore- reported decision addressing wheth- The court reached this decision by firmed that a tion in an earlier unpublished decision “double jeopardy” of duplicative foreclo- closure where er the Joslin Court’s reading of the reading section 3-309 in conjunction lender who lost in In re Iannucci, No. COA 16-738 (Febru- sure actions when homeowners simply the underlying section will apply in this State. with other provisions of the UCC, the original promissory note while ary 7, 2017), the holding of the Frucella cast doubt that the party asking for promissory note has been lost. which lead the court to the con- it was in physical possession of the Court is contained in a published deci- payments isn’t the one who is entitled New Jersey’s version of the Uniform Thus, the stage was set for the clusion that this result furthers the original note may proceed with a sion and, with that, carries the gravitas to collect them. Commercial Code (UCC) uses the old recent decision in Investors Bank v. UCC’s purpose of expanding com- Frucella Torres, 197 A.3d 686, 457 N.J. Super. power of sale foreclosure proceeding of precedent. Before , courts The expansion of the class of persons language for section 3-309(a), which mercial practices and of not denying 53 (N.J. Super. Ct. App. Div. 2018). In before the Clerk of Court. strictly held that only the “holder” e.g., states that: “A person not in posses- transacting parties the benefits of permitted to go before the Clerk in this case, the note was lost at least In re Frucella, party in possession of the original ap- sion of an instrument is entitled to their bargains. In No. COA 18-212 (Octo- power of sale foreclosure proceedings enforce the instrument if the person a year prior to the transfer of the lost ber 2, 2018), the homeowners ap- propriately endorsed promissory note may open the door to the third and was in possession of the instrument note affidavit and mortgage assign- The court also relied upon common pealed the Clerk’s order authorizing a could use the streamlined power of final class of person – the non-holder and entitled to enforce it when loss ment to Investors Bank. law principles of assignment and foreclosure sale for a hearing de novo sale foreclosure process. in possession with the rights of the of possession occurred[.]” N.J.S.A. Predictably, the borrower relied upon equitable principles of unjust enrich- before a Superior Court judge. At the However, under North Carolina’s Uni- holder – to give the quasi-judicial fore- ment to prevent what, in the court’s 12A:3-309(a). the Joslin Court’s reading of section Superior Court hearing, lender’s coun- form Commercial Code, a party who closure route a whirl. This ruling does view, would have been an otherwise 3-309(a) and argued that Investors sel presented a pair of “lost note” affi- was not the holder could still enforce not change the fact that North Caroli- Some courts around the country absurd and unjust result. have strictly construed this language, Bank was not entitled to enforce the davits executed by the same affiant. the Note if it was either a non-holder na’s Uniform Commercial Code does note since it was not in possession holding that a party cannot enforce The first affidavit described the in possession with the rights of a hold- not allow a servicer to use a lost note of the note when it was lost. THE AUTHOR a lost note unless it was both in circumstances by which the lender er (example: missing or defective en- affidavit (LNA) in a power of sale fore- possession of and entitled to enforce However, the court expressly reject- seeking to foreclose came into pos- dorsement in the chain) or a party who closure proceeding if the prior servicer the note when it was lost. See, e.g., ed the holding of Joslin, and instead session of the original Note, and that had lost the Note while it was in pos- lost the Note. In those situations, the Dennis Joslin Co., LLC v. Robinson held that the right to enforce a lost after it obtained possession, the Note session of the Note. Those two classes loan must still be foreclosed judicially, Broadcasting Corp., 977 F. Supp. 491 note is transferrable by one who was was lost. The second affidavit tracks of lender were previously required to unlike the vast majority of jurisdictions (D.D.C. 1997). Notably, in response to both in possession of and entitled Michael B. the elements required to establish file a judicial foreclosure proceeding, which allow a direct successor to rely this case and its progeny, the draft- to enforce the note at the time it McNeil, Esq. the right to enforce a lost promisso- which entails formal litigation and all on LNAs. ry note under North Carolina’s U.C.C. its trappings like discovery, mediation The Frucella expansion may change be- § 3-309 e.g., that the party seeking and trial, rather than being able to cause as of press time, the homeown- to enforce the Note had that right proceed with the more efficient power ers have sought discretionary review to Introducing REGISTER NOW! of sale foreclosure process. Now in official webinar format and open to all servicers and members, USFN when it was lost; the loss was not the the North Carolina Supreme Court. Briefings (replacing the Committee Servicer Calls) delve into topical discussions and USFN Briefing result of a transfer/assignment; and In attempting to defeat the lender’s REO/Eviction updates on issues pertinent to REO, Evictions, Bankruptcy and other Legal Issues. that a due and diligent search had efforts to foreclose via the streamlined THE AUTHOR Tuesday, April 23 been made to locate the Note and power of sale process, the homeown- ALL NEW FORMAT! 1:00 pm Central it could not be found. The Superior ers presented evidence that parties • Quarterly calls now offered throughout the year Check the USFN website for Court entered its own order authoriz- prior to the petitioning lender had held • Anonymous questions allowed to enhance confidentiality registration information and ing a foreclosure sale, from which the the Note. Although, as the trial court • Listed in Education Section of USFN website other upcoming calls. homeowners appealed. noted, the homeowners “presented Jeffrey A. no credible evidence tending to show Bunda, Esq. 18 | SPRING 2019 SPRING 2019 | 19 their attorney preference and only prepopulated the form after ascer- taining that the borrowers did not have a preference. Quicken then sent Report: Legal Issues the attorney preference form to the borrowers within the required time period and the borrowers signed and returned the form without any South Carolina: Lender’s Loan questions. The Court also added that SCAPS did not require Quicken to provide a list of attorneys to choose Application Process Did Not from, nor require Quicken to ascer- tain that initial preference in writing. The Court further pointed out that Violate Attorney Preference Statute that the process ascertained the borrowers’ preference information BY JOHN S. KAY | HUTCHENS LAW FIRM and obtained confirmation of that USFN MEMBER (NC, SC) information in writing. This case marks the second time that In 2017, the • Preference information can be is prepopulated to specify that the the loan origination process used South Carolina included on or with the credit borrower will not be using the ser- by Quicken has been challenged in Supreme Court application on a form similar to vices of legal counsel. If the borrower state court in South Carolina and issued a deci- the one distributed by the South indicates that he or she does wish Quicken has prevailed in both cases. sion finding that Carolina Department of Con- to use a specific attorney, the form Interestingly, the borrowers in Boone the loan closing sumer Affairs; or prepopulates requesting the borrow- v. Quicken Loans, Inc. had also filed an action against Quicken in state court process used by • Provide written notice to the bor- er contact the lender with his or her Quicken Loans, preference of attorney. alleging a similar violation of SCAPS rower of the preference informa- as that alleged in Quicken Loans, Inc., Inc. (Quicken) in South Carolina did tion with the notice being deliv- The Quicken system cannot gener- not constitute the unauthorized v. Wilson. The case was removed to ered or mailed to the borrower ate a loan application without the practice of law. Boone v. Quicken Federal Court and Quicken prevailed no later than three business days attorney information being listed. Loans, Inc., 803 S.E. 2d. 707 (S.C. in that case on summary judgment. after the application is received If no attorney preference is listed, 2017). Boone v. Quicken Loans, Inc. or prepared. Quicken’s affiliate company receives In and Now, in its recent decision in Quicken the referral to act as the settlement Quicken Loans, Inc., v. Wilson, the Court Loans, Inc., v. Wilson, (S.C. Appellate agent and subcontracts with an at- took steps to point out that the bor- Case No. 2016-001214 2019) the This case marks the torney to perform those services. rowers had stated that they had no South Carolina Supreme Court has objection to the application process The Special Referee assigned to weighed in on whether the loan ap- second time the loan itself and, more importantly, did not hear the case granted the borrow- plication process utilized by Quicken state any objection to the attorneys origination process ers’ motion for summary judgment in the context of a residential real assigned by the lender to handle the used by Quicken and found that the process used by estate mortgage transaction violates loan closing process. Quicken did violate SCAPS. In addi- the South Carolina Attorney Prefer- has been challenged tion, the Special Referee found that These two cases appear to show ence Statute (“SCAPS”), S.C. Code in South Carolina; the process was “unconscionable”, as that the South Carolina Supreme section 37-10-102 (2017). Court is keeping its focus on pro- Quicken prevailed in defined by the statute which would In the Quicken Loans, Inc., v. Wilson have the potential for forfeiture of tecting the consumer, but the Court case, Quicken brought a foreclosure both cases. finance charges and other penalties. will not find a violation of law if the action against the borrowers based lender is in compliance with the in- On appeal, the South Carolina upon a default on the note and tent of the applicable case or statute, Department of Consumer Affairs mortgage. The borrowers objected The telephonic process used by and there is clear evidence that the appeared in the case and filed an and alleged the Quicken loan ap- Quicken to ascertain the borrower’s consumer has not been harmed in amicus brief urging the Court to find plication process utilized at loan attorney preference during the loan the transaction. that the attorney preference ascer- origination failed to comply with application process prompts the tainment process used by Quicken the requirements of SCAPS. SCAPS banker to ask the borrower as to was a violation of SCAPS. The Su- THE AUTHOR requires a lender to ascertain a whether the borrower will select an preme Court disagreed and held that borrower’s preference for an attor- attorney to represent him or her in the Quicken process did not violate ney to represent him or her in the the transaction. If the borrower indi- SCAPS. upcoming loan closing. The lender cates that he or she does not have can comply with the statute in one an attorney preference, the attorney The Court found that the banker/ of two ways: preference form used by Quicken agent asked the borrowers about John S. Kay, Esq. 20 | SPRING 2019 SPRING 2019 | 21 Members listed alphabetically Member Directory within each state

Alabama Georgia Maryland (continued) New Jersey South Carolina ASSOCIATE MEMBERS Brock & Scott, PLLC (910) 392-4988 Aldridge Pite, LLP (404) 994-7400 Cohn, Goldberg & Deutsch, LLC (410) 296-2550 KML Law Group, PC (215) 825-6332 Brock & Scott, PLLC (910) 392-4988 McCalla Raymer Leibert Pierce, LLC (205) 216-4238 Barrett Daffin Frappier Turner & (972) 386-5040 Orlans, PC (703) 777-6403 McCalla Raymer Leibert Pierce, LLC (732) 902-5387 Hutchens Law Firm, LLP (803) 726-2700 a360inc (813) 466-1100 McFadden, Rouse & Bender, LLC (251) 342-9172 Engel, LLP Samuel I. White, PC (757) 457-1442 Phelan Hallinan Diamond & Jones PC (856) 813-5500 Scott & Corley, PA (803) 252-3340 Affinity Consulting Group (727) 544-5400 Brock & Scott, PLLC (910) 392-4988 Auction.com, LLC (949) 639-3536 Sirote & Permutt, PC (205) 930-5100 The Alba Law Group, PA (443) 541-8600 Powers Kirn, LLC (856) 802-1000 South Dakota McCalla Raymer Leibert Pierce, LLC (678) 281-3950 CaseMax (844) 679-2273 Arizona Massachusetts New Mexico Halliday, Watkins & Mann, PC (469) 323-8566 Firefly Legal (708) 326-1410 Barrett Daffin Frappier Turner & (972) 386-5040 Hawaii Bendett & McHugh, PC (860) 255-5003 McCarthy & Holthus, LLP (206) 596-4843 Mackoff Kellogg Law Firm (701) 456-3210 First American Mortgage Solutions, LLC (714) 250-7796 Engel, LLP Aldridge Pite, LLP (858) 750-7611 Harmon Law Offices, PC (617) 558-8411 Tiffany & Bosco, PA (602) 255-6000 McCarthy & Holthus, LLP (619) 243-3964 Clay Chapman Iwamura Pulice & (808) 535-8406 Tennessee Five Brothers Asset Management Solutions (586) 772-7600 Orlans, PC (781) 790-7800 Weinstein & Riley, P.S. (307) 462-2690 Brock & Scott, PLLC (910) 392-4988 The Mortgage Law Firm, PC (619) 465-8200 Nervell Mortgage Connect, LP (855) 595-3563 Mickel Law Firm, PA (501) 664-4808 National Field Representatives, Inc. (800) 639-2151 Tiffany & Bosco, PA (602) 255-6000 Leu Okuda & Doi (808) 538-1921 Michigan New York The Mortgage Law Firm, PC (619) 465-8200 Brock & Scott, PLLC (910) 392-4988 Aldridge Pite, LLP (631) 768-8420 Wilson & Associates, PLLC (901) 578-9914 NetDirector (813) 774-4797 Arkansas Orlans, PC (248) 502-1500 Berkman, Henoch, Peterson, Peddy & (516) 222-6200 PERFECT PRACTICE/ADC Legal (407) 843-8992 Idaho Texas Mickel Law Firm, PA (501) 664-4808 Trott Law, PC (248) 642-2515 Fenchel, PC Systems, Inc. Aldridge Pite, LLP (858) 750-7605 Barrett Daffin Frappier Turner & (972) 386-5040 Wilson & Associates, PLLC (501) 219-9388 Druckman Law Group PLLC (516) 876-0800 Engel, LLP ProVest, LLC (813) 877-2844 Halliday, Watkins & Mann, PC (208) 523-9106 Minnesota McCalla Raymer Leibert Pierce, LLC (732) 902-5388 Bonial & Associates, PC (972) 643-6600 Quality Claims Management Corp. (619) 450-8602 California Halliday, Watkins & Mann, PC (469) 323-8566 Trott Law, PC (651) 209-9776 Aldridge Pite, LLP (858) 750-7600 Rosicki, Rosicki & Associates, PC (516) 741-2585 McCarthy & Holthus, LLP (619) 243-3964 Safeguard Properties Management, LLC (216) 739-2900 Lundberg & Associates, PC (801) 263-3400 Usset, Weingarden & Liebo, PLLP (952) 925-6888 Barrett Daffin Frappier Turner & (972) 386-5040 Mickel Law Firm, PA (501) 664-4808 ServiceLink (800) 777-8759 McCarthy & Holthus, LLP (206) 596-4843 Wilford Geske & Cook, PA (651) 209-3300 North Carolina Engel, LLP Brock & Scott, PLLC (336) 354-1200 Shea Barclay Group, Inc. (813) 251-2580 McCalla Raymer Leibert Pierce, LLC (562) 983-5360 The Wolf Firm, A Law Corporation (949) 480-1764 Mississippi Utah Hutchens Law Firm, LLP (910) 864-6888 Aldridge Pite, LLP (619) 326-2402 McCarthy & Holthus, LLP (619) 243-8402 Weinstein & Riley, P.S. (307) 462-2690 Dean Morris, LLC (318) 330-9020 North Dakota Halliday, Watkins & Mann, PC (801) 990-3711 STANDING COMMITTEE & The Mortgage Law Firm, PC (619) 465-8200 Illinois McCalla Raymer Leibert Pierce, LLC (662)388-5464 Halliday, Watkins & Mann, PC (469) 323-8566 Lundberg & Associates, PC (801) 263-3400 SECTION CHAIRS The Wolf Firm, A Law Corporation (949) 480-1764 Anselmo Lindberg & Associates, LLC (630) 453-6153 Mickel Law Firm, PA (501) 664-4808 Mackoff Kellogg Law Firm (701) 227-1841 Weinstein & Riley, PS (702) 504-6434 Tiffany & Bosco, PA (602) 255-6000 McCalla Raymer Leibert Pierce, LLC (312) 476-5156 Underwood Law Firm, PLLC (601) 981-7773 Diversity & Inclusion Wilson & Associates, PA (501) 219-9388 Sally E. Garrison, Esq. Colorado Indiana Ohio Vermont Brock & Scott, PLLC (910) 392-4988 Bendett & McHugh, PC (860) 677-2868 Education Barrett Daffin Frappier Turner & (972) 386-5040 Doyle & Foutty, PC (317) 264-5000 Missouri James E. Clarke, Esq. Lerner, Sampson & Rothfuss (513) 241-3100 Brock & Scott, PLLC (401) 217-8701 Engel, LLP Feiwell & Hannoy, PC (317) 237-2727 Martin Leigh, PC (816) 221-1430 FC Resources & Publications Barrett Frappier & Weisserman, LLP (303) 350-3711 Millsap & Singer, LLC (636) 537-0110 Reimer Law Co. (440) 600-5500 Kayo Manson-Tompkins, Esq. Iowa Virginia Halliday, Watkins & Mann, PC (469) 323-8566 SouthLaw, PC (913) 663-7600 Brock & Scott, PLLC (910) 392-4988 Finance/Audit Petosa Law, LLP (515) 222-9400 Oklahoma McCarthy & Holthus, LLP (619) 243-8402 Baer & Timberlake, PC (405) 842-7722 BWW Law Group, LLC (301) 469-3510 Andrew W. Saag, Esq. SouthLaw, PC (913) 663-7600 Montana Weinstein & Riley, PS (303) 539-8607 Marketing Halliday, Watkins & Mann, PC (469) 323-8566 Kivell, Rayment & Francis, PC (918) 254-0626 Orlans, PC (703) 777-6403 Walentine O’Toole, LLP (712) 388-2244 Brian Vaughn Connecticut Lundberg & Associates, PC (801) 263-3400 The Mortgage Law Firm, PC (619) 465-8200 Samuel I. White, PC (757) 490-9284 Kansas Membership Bendett & McHugh, PC (860) 677-2868 Mackoff Kellogg Law Firm (701) 456-3210 Shapiro & Brown, LLP (703) 449-5800 Martin Leigh PC (913) 685-3113 Oregon Thomas P. Dore, Esq. Brock & Scott, PLLC (401) 217-8701 Aldridge Pite, LLP (619) 326-2402 Bankruptcy Millsap & Singer, LLC (636) 537-0110 Nebraska Washington McCalla Raymer Leibert Pierce, LLC (860) 808-0606 McCarthy & Holthus, LLP (206) 596-4843 Aldridge Pite, LLP (619) 326-2401 Michael J. McCormick, Esq. SouthLaw, PC (913) 663-7600 Eric H. Lindquist, PC, LLO (402) 829-0400 Delaware SouthLaw, PC (402) 342-4644 The Mortgage Law Firm, PC (619) 465-8200 McCarthy & Holthus, LLP (206) 596-4843 Legal Issues Kentucky Robert Wichowski, Esq. Orlans, PC (302) 854-0380 Walentine O’Toole, LLP (402) 330-6300 The Wolf Firm, A Law Corporation (949) 480-1764 The Mortgage Law Firm, PC (619) 465-8200 Doyle & Foutty, PC (317) 264-5000 Weinstein & Riley, PS (206) 269-3490 The Wolf Firm, A Law Corporation (949) 480-1764 REO/Eviction The Alba Law Group, PA (443) 541-8650 Mike Anselmo, Esq. Lerner, Sampson & Rothfuss (513) 412-6615 Nevada Weinstein & Riley, PS (800) 349-3739 District of Columbia Millsap & Singer, LLC (636) 537-0110 Barrett Daffin Frappier Turner & (972) 386-5040 Pennsylvania Engel, LLP KML Law Group, PC (215) 825-6332 BWW Law Group, LLC (301) 469-3510 Reimer Law Co. (502) 371-1510 West Virginia Cohn, Goldberg & Deutsch, LLC (410) 296-2550 McCalla Raymer Leibert Pierce, LLC (562) 983-5360 Phelan Hallinan Diamond & Jones, LLP (215) 556-3700 Pill & Pill, PLLC (304) 263-4971 Louisiana Orlans, PC (703) 777-6403 McCarthy & Holthus, LLP (619) 243-8402 Powers Kirn, LLC (856) 802-1000 Samuel I. White, PC (757) 457-1442 Dean Morris, L.L.C. (318) 388-1440 View the online Rosenberg & Associates, LLC (301) 907-8000 Tiffany & Bosco, PA (602) 255-6006 Vitti Law Group, Inc. (412) 281-1725 Wisconsin Samuel I. White, PC (757) 457-1442 Maine New Hampshire Rhode Island Gray & Associates, LLP (414) 224-8404 directory at Florida Bendett & McHugh, PC (860) 677-2868 Bendett & McHugh, PC (860) 255-5003 Bendett & McHugh, PC (860) 255-5003 Velnetske Law Offices, LLC (262) 241-9339 Brock & Scott, PLLC (401) 217-8701 http://www.usfn.org Brock & Scott, PLLC (910) 392-4988 Brock & Scott, PLLC (401) 217-8701 Brennan, Recupero, Cascione, (401) 453-2300 Scungio & McAllister, LLP Wyoming McCalla Raymer Leibert Pierce, LLC (407) 674-1850 Maryland Harmon Law Offices, PC (617) 558-8400 Halliday, Watkins & Mann, PC (469) 323-8566 Brock & Scott, PLLC (401) 272-1400 SHD Legal Group, PA (954) 564-0071 Brock & Scott, PLLC (401) 217-8701 Orlans, PC (781) 790-7824 Lundberg & Associates, PC (801) 263-3400 Harmon Law Offices, PC (617) 558-8474 Sirote & Permutt, PC (407) 712-9202 BWW Law Group, LLC (301) 469-3510 Weinstein & Riley, PS (307) 462-2690 Orlans, PC (781) 790-7824 22 | SPRING 2019 SPRING 2019 | 23 Instrumental to Your Success

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