Mortgages

Eighth Circuit issues confused ruling turning recourse mortgages into non-recourse mortgages

/ Mortgages, Real Estate Transactions

In a surprising development, the Eighth Circuit has held that mortgage debts are extinguished by foreclosure. CitiMortgage, Inc. v. Equity Bank, 2019 WL 5778343 (8th Cir. 2019). While some states, like California, generally prohibit deficiency judgments (claims against borrowers when the foreclosure sale does not garner enough to pay off the debt), most states allow lawsuits against the borrower to get an order to pay the rest of the debt agreed to by the original note. The promise to repay the loan is embodied in the “note” and the right to foreclose is embodied in a separate agreement (the “mortgage” or “deed of trust”) and the contractual obligation usually persists after foreclosure unless either state law or the contract language provide otherwise. The Eight Circuit ignored these traditional distinctions in CitiMortgage, and decided that the foreclosure ended both the contractual obligation and the lien on the property. The case involve the sale of 500 …

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Nonjudicial foreclosure requires appraisal to ensure foreclosure price is close to fair market value

/ Consumer Protection, Mortgages, Real Estate Transactions

The Massachusetts Appeals Court has held that nonjudicial foreclosures must be conducted in a fair manner and that the burdens on the party who is foreclosing are greater precisely because the auction sale is not be supervised or conducted by judicial officials. Prop. Acquisition Group, LLC v. Ivester, 2019 Mass. App. LEXIS 44, 2019 WL 1716436 (Mass. App. Ct. 2019) held that the owner cannot be evicted from the property after foreclosure when the mortgagee failed in its duty of good faith and reasonable diligence by taking no steps before foreclosure to determine the fair market value of the property. “The mortgagee must get for the property as much as it can reasonably be made to bring and do what a reasonable person would be expected to do to accomplish that result…Where Massachusetts…allows foreclosure without judicial oversight, it is imperative that the foreclosing mortgagee know or ensure that efforts are taken …

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To avoid engaging in discrimination, Facebook changes its policy that had allowed advertisers for housing, employment, and credit to select which users could see their ads

/ Antidiscrimination Law, Fair Housing Act, Leaseholds, Mortgages, Real Estate Transactions

Responding to a lawsuit filed by the National Fair Housing Alliance and others that alleged discrimination against families with children, women, persons with disabilities, and on the basis of national origin, Facebook announced changes in its policies to avoid engaging in discriminatory advertisements. Brakkton Booker, After Lawsuits, Facebook Announces Changes to Alleged Discriminatory Ad Targeting, Mar. 19, 2019. See also Tracy Jan & Elizabeth Dwoskin, HUD is reviewing Twitter’s and Google’s ad practices as part of housing discrimination probe, Wash. Post, Mar. 28, 2019.

Supreme Court holds that nonjudicial foreclosure is not “debt collection” under the Fair Debt Collection Practices Act

/ Mortgages, Real Estate Transactions

Obduskey v. McCarthy & Holthus LLP, U.S., 139 S.Ct. 1029 (2019) resolved a conflict among federal courts on the question of whether those who pursue nonjudicial foreclosure of real property are “debt collectors” regulated by the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692a(6). The Court held that they are not and therefore immune for that statute’s regulatory requirements.

Time-barred claim in bankruptcy held not to violate Fair Debt Collection Practices Act

/ Consumer Protection, Mortgages, Real Estate Transactions

The Fair Debt Collection Practices Act, 15 U.S.C. §§1692e, 1692f, probibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt. §1692e, as well as prohibiting any “unfair or unconscionable menas to collect or attempt to collect any debt,” §1692f. In Midland Funding, LLC v. Johnson, 197 L.Ed.2d 790 (2017), the Supreme Court, in an opinion by Justice Breyer, held that it was not unfair, deceptive, misleading, or unconscionable to make a claim in a bankruptcy proceeding based on a debt when the statute of limitations has run on the claim. The majority argued that the Bankruptcy Code allowed presentation of any “claim” and did not qualify that by saying “enforceable claim.” The Court noted that such a claim might be unfair in an ordinary civil suit but distinguished the bankruptcy process partly because it treats untimeliness as an affirmative defense and because …

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Supreme Court rules that a city has a claim against a bank for the consequences of discriminatory subprime mortgages

/ Antidiscrimination Law, Consumer Protection, Mortgages, Real Estate Transactions

In Bank of America Corp. v. City of Miami, 137 S.Ct. 1296, 197 L. Ed. 2d 678 (2017), the Supreme Court held that the City of Miami was an “aggrieved person” within the meaning of the Fair Housing Act, 42 U.S.C. §3602(i), and that it could sue the Bank of America (and other banks) for lost tax revenue and other municipal expenses resulting from alleged discriminatory grants of subprime mortgages to Miami residents that resulted in mass foreclosures and vacancies. While it violates the FHA to deny mortgages on the basis of race, it also violates the FHA to target a racial group for disfavored terms. The Court noted that it had been previously held that white persons have a claim under the FHA when they are deprived of the benefits of interracial associations when discriminatory rental practices kept African Americans out of a rental complex (citing Trafficante v. Metropolitan Life Ins. Co., 409 …

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Why you should record your mortgage

/ Mortgages, Real Estate Transactions

In a straight-forward application of the relevant recording statute, the Massachusetts Land Court has held that a son who received a deed to the land without notice of a prior reverse mortgage is not subject to the mortgage since it was not recorded and he had no other means to achieve notice of it. https://www.lexisnexis.com/clients/macourts/ 57 N.E.3d 1065 (Mass. App. Ct. 2016).

Mortgage of joint tenancy interest does not encumber interests of joint tenants who do not join the deal

/ Estates and Future Interests, Mortgages, Real Estate Transactions, Statute of Frauds

In Bac Home Loans Servicing, L.P. v. Savankham, 2016 Mass. LCR LEXIS 86 (Mass. Land Ct. 2016), a mother gave a bank a mortgage on her joint tenancy interest in property she shared with her two children. The children did not know about or participate in the transaction. Apparently, the bank thought it was getting a mortgage on the whole property rather than just the joint tenancy interest of one joint tenant and sought to reform the documents to reflect that understanding. However, because there was no proof that all parties understood the transaction this way, it was a unilateral mistake of the bank rather than a mutual mistake of all owners and the lender. The court refused to reform the documents to reflect the arrangement the bank wanted or thought it was getting. A word to the wise, I suppose. You really need to do a title search to make sure …

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Washington state law bans mortgage lender from changing locks and barring the borrower from her home after default but before foreclosure

/ Mortgages, Real Estate Transactions, Trespass

Many mortgage agreements allow the lender to change the locks on the door and take over the property when a borrower-mortgagor defaults or abandons the property; this is intended to prevent the property from becoming dilapidated or taken over by squatters. However, some banks have locked owners out of their homes after they default even if they are still living there and there is no evidence of abandonment or harm to the premises. The Washington Supreme Court outlawed this practice in  Jordan v. Nationstar Mortg., LLC, 2016 WL 3748978 (Wash. 2016), interpreting a state statute that denies the “owner of the mortgage” the power to “recover possession of the real property, without a foreclosure and sale according to law,” Rev. Code Wash. §7.28.230(1).  The court emphasized that Washington is a lien theory state that leaves title with the homeowner and gives the lender a lien on the property unlike title theory …

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Banks that foreclose without legal authority to do so commit the tort of wrongful foreclosure

/ Consumer Protection, Estates and Future Interests, Mortgages, Real Estate Transactions, Title Issues

The California Supreme Court held in Yvanova v.  New Century Mortgage Corp.,, 365 P.3d 845 (Cal. 2016), that a borrower has standing to prove that a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing entity purportedly took a beneficial interest was void, thereby depriving the foreclosing party of any authority to foreclose through a trustee’s sale.  In a follow up case, Sciarratta v. U.S. Bank Nat’l Ass’n, 2016 Cal. App. LEXIS 399 (2016), the Court of Appeals held that foreclosure by an entity with no power to foreclose is, by itself, the tort of wrongful foreclosure. Even if the borrower is in default, and someone has the right to foreclose, that does not mean that any person with a claim can bring the foreclosure. Only a party with a better claim to title — someone with the legal authority to foreclose — can oust a peaceable possessor from their home. …

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