litigation: what evidence are judges really requiring

Q1 2015
C O M M I T T E D T O T H E I N D U S T R Y, I N T E G R I T Y, A N D B E S T P R A C T I C E S
mastering the art of
business process analytics—
By: Erica Fujimoto, Director of Default Services – Affinity Consulting Group
The term “Business Process Analytics”
has been bandied about quite a bit in the last
year. Chances are someone has asked how
you define, work, and audit your processes.
Although these are important aspects of
Business Process Analytics, the “analysis” part
of the process is oftentimes lacking or missing
altogether. To be truly effective, your firm must
not only work from a defined and regularly
audited process, you must actively review
all aspects of your business process to make
improvements and create efficiencies.
Before reviewing your business, you must
decide that your firm is really serious about
making change. If not, efforts to improve will
likely fall victim to the “because we’ve always
done it that way” syndrome. If you’re not
serious about embracing new ways of doing
things, it will be difficult to perform a critical,
introspective review on your own or to hear
recommendations given by an impartial third
This may sound extreme, but the reality
is that it can be very discouraging for
firms uncommitted to change to see their
inefficiencies clearly defined on paper. The
knee-jerk reaction is to balk and defend
the current state because it is too daunting
or scary to consider making the significant
changes that may be required to become more
efficient. Unless your firm already recognizes
that tradition can be the enemy of greatness, a
cultural shift may be necessary.
Where do we begin? To simplify, we have
broken down the methodology into four phases:
analyzing the process (the
assessment phase)
This is where Business Process Analytics
come into play. You always have processes
that you’re working and being audited on. It’s
important to regularly analyze those processes to
“Art of Business” continued on page 11
litigation: what evidence
are judges really requiring
By: Jennifer Lima-Smith, Esquire – Gilbert Garcia Group, P.A.
One would think that presenting evidence
in a foreclosure, eviction, or bankruptcy case
should be relatively easy: Introduce the original
note and mortgage, payment history, breach
letter, and possibly the assignment of mortgage
or lost note affidavit into evidence. However,
things have been changing in statewide default
servicing litigation cases. To paraphrase a
famous movie line, “We’re not in Kansas
Trials have become more aggressive
throughout the country. Servicers, lenders
and plaintiffs’ counsel need to be aware of
the potential impact to their preparation and
the case itself. More documentary evidence
may be required to prove a case, and more
foundational work may be needed to introduce
this documentary evidence. No longer are the
traditional five pieces of evidence—the note,
mortgage, payment history, breach letter, and
Trends suggest that evidence may need to
include affidavits; the screenshots of when the
“Litigation” continued on page 17
HUD Remands
on Reverse
Mortgages Again and Again
By: Teena Thomas – Anselmo Lindberg Oliver LLC
Recent decisions from the federal courts have
spurred new requirements set forth by HUD
for the insuring of Home Equity Conversion
Mortgages (HECMs), commonly referred to as
reverse mortgages. The scenario at play involves
spouses that mortgage their home with only
one spouse as the borrower/mortgagor. This is a
common occurrence when there is a significant
age difference between spouses. Since an older
spouse can typically secure a higher loan amount,
couples leave the younger spouse off the loan.
Problems arise when the borrower dies, leaving
the non-borrower under threat of foreclosure, as
the death of the last mortgagor is a trigger for the
loan to be due and payable in full. Thus, if the
surviving non-borrower spouse is unable to pay off
the loan, they can lose their home.
A case involving this situation arose in the
U.S. District Court for the District of Columbia.
In Bennett v. Donovan, two non-borrower
spouses whose borrower spouses pre-deceased
them filed suit against the secretary of HUD,
alleging that HUD regulation 24 C.F.R. §
206.27(c), which triggers a reverse mortgage
becoming due and payable in full, contradicted
the reverse mortgage insurance statute 12
U.S.C.S § 1715z-20(j). The district court
dismissed the case, but the appellate court
reversed and remanded the matter. The HUD
regulation states, “The mortgage shall state that
the mortgage balance will be due and payable in
full if a mortgagor dies and the property is not
the principal residence of at least one surviving
mortgagor,” while the reverse mortgage insurance
statute states, “The Secretary may not insure
a home equity conversion mortgage under this
section unless such mortgage provides that
the homeowner’s obligation to satisfy the loan
obligation is deferred until the homeowner’s
death ... For purposes of this subsection, the
term ‘homeowner’ includes the spouse of a
“Reverse Mortgages” continued on page 19
Q1 2015
By: Adam Codilis – Codilis & Associates, P.C.
With 2014 in the rearview mirror and the
new year upon us, I’ve found some time to
reflect on where we have been as a trade group
and where we want to be. In addition to my
role as Chairperson of the Government Affairs
Subcommittee, I was elected to serve as an
Advisory Council Member of the League this
past year. Thank you to the membership for your
votes—I will do my best to serve you and the
interests of the group. I am writing you today to
give you an update on what the board and the
Government Affairs Subcommittee have been
up to, where we will go in 2015, and why your
attendance at the Spring 2015 Summit is critical.
Following elections of our new members,
the Advisory Council convened in Washington,
D.C., to discuss Legal League 100 goals for the
coming year. After soliciting our membership for
ideas and discussing among council members,
it was decided that the council would develop a
set of mortgage default industry best practices
for the League and its members to adopt. Among
the best practices will be “reasonable” audit
procedures for the benefit of all law firms
and servicers alike in an attempt to set an
industry-wide minimum standard. The League
and its members and servicers can use these
best practices as a benchmark for client audits
and to market their adherence to the principals
adopted by the League. We know how onerous
these audits have been on both the firms
and the servicers. I’m sure many firms, like
mine, have allocated some of our best people
and resources to the audit process. As 2015
approaches, we find ourselves in need of a
more uniform and streamlined process. The
Legal League will work with the industry to
develop such a process.
Additionally, our Government Affairs
Subcommittee will stay busy, continuing its efforts
to alleviate the problem of abandoned properties
across the country. This subcommittee will also
focus on advocacy around amending the Fair Debt
Collection Practices Act (FDCPA) to minimize
its applicability to the foreclosure process and
otherwise immunize attorneys from FDCPA
actions arising out of their legal activities in this
area. We must align this law with its original intent
and stop the cottage industry of FDCPA lawyers
from using the law as a sword instead of a shield ,
which results in untold delays and credit losses
for the industry. The Legal League will use its
advocacy arm to bring light to those issues.
As you can see, we have exciting topics to
discuss at the upcoming summit this spring.
Our council is refocused and reenergized. We
are committed to make this trade group a leader
in our industry. One voice, one League, united
to better our industry. While there are other
trade groups in our industry, we believe our
governmental advocacy and education set us
apart. We will strive to grow our membership
and exert our influence on the industry. I look
forward to seeing you all at the Spring Summit
and hearing from each of you —thank you again
for your support.
Adam E. Codilis, VP, Attorney, Client Relationship Manager
Codilis is an attorney concentrating his practice in creditor’s rights, mortgage
foreclosure, bankruptcy, litigation, and REO transactions. He also works for the firm as a
client relationship manager. He had worked for the firm as a law clerk and legal assistant
prior to licensing, but joined as an attorney in November 2009. Prior to that time, he also
gained experience working as a law clerk for the Financial Industry Regulatory Authority.
Codilis recently received his Six Sigma Green Belt Certification and participated in
Fred Lane's Trial Technique Institute. He is a member of the DuPage County Bar Association, Chicago Bar
Association, the Illinois State Bar Association, the Illinois Real Estate Lawyers Association, and Phi Alpha Delta
Law Fraternity. Codilis also serves as an Advisory Council Member and Chairperson of the Government Affairs
Subcommittee for the Legal League 100 and was appointed to be on the Membership Committee for the
Chicago Bar Association.
In his personal life, Codilis is actively involved in several charities, including volunteer positions for the
CARA Program and the EGBOK Mission, and serving as an associate board member for the Mercy Home for
Boys and Girls.
2 Legal League Quarterly
~of Events ~
Five Star
Government Forum
March 18, 2015
Washington, D.C.
Legal League 100
Servicer Summit
Spring 2015
Dallas, Texas
Five Star Conference
and Expo
September 16-18, 2015
Dallas, Texas
Hilton Anatole
Legal League 100
Servicer Summit
September 18, 2015
Dallas, Texas
Hilton Anatole
protecting tenants
in foreclosure: the
legacy lives on
By: Colin Winters – Anselmo Lindberg Oliver LLC
The Protecting Tenants in Foreclosure Act
(PTFA) was enacted in 2009 in order to protect
blameless tenants who lived in properties that were
foreclosed upon from eviction. The PTFA had an
initial expiration of December 31, 2012, which was
postponed once by the Dodd-Frank Wall Street
Reform and Consumer Protection Act to December
31, 2014. Now that the PTFA has finally expired,
servicers and lenders should be aware of how the
compliance landscape has changed.
The PTFA required that where a foreclosure
occurred on a federally related mortgage loan
covering residential real estate, the successor
in interest to the property would take the
property subject to the rights of any bona fide
tenant—essentially requiring that existing leases
be honored unless the successor in interest
intended to personally occupy the home. It
further required that any notice to vacate by the
successor in interest would provide a minimum
of 90 days. The PTFA then defined a bona
fide lease as one resulting from an arms-length
transaction at fair market value, not involving
family members. Finally, the PTFA also ensured
that any successor in interest to a property with
Section 8 voucher tenants residing therein
would assume the same obligations as the
former owner under the Section 8 provisions.
Despite the PTFA expiring at the end of
2014, eviction proceedings cannot entirely rest
on the law’s expiration. Much of its intent is
still in force through state statutes that were
modeled after it.
For instance, in New York, the state
legislature enacted a statute that gave tenants
similar protections to the PTFA—namely, the
right to remain in the property until the end
of their lease or until 90 days had expired,
whichever was longer. The New York statute also
required that even if the purchaser intended to
personally reside in the home, a 90-day notice
would still be required. The New York statute
went even further, however, and required that
the statute protect tenants in buildings that
had transferred title through short sale or deed
in lieu of foreclosure, which the PTFA did not
Similarly, in California, the state legislature
passed a bill modeled after the PTFA. It had
the standard provision that the tenants could
stay through 90 days or the end of their lease,
whichever was longer. However, it also required
that the new owner honor the terms of the
existing lease (such as which party pays utilities)
through its remaining duration.
For a specific example of the effect of the
PTFA expiring, Illinois is an excellent case
study. As with the PTFA, the Illinois statute
requires that tenants receive a minimum of 90
days’ notice or that bona fide leases be honored
through the duration of their term.
In defining a “bona fide lease,” the Illinois
statute uses nearly identical language to
the PTFA. However, the Illinois statute has
numerous provisions to address the issue
of leases longer than a term of one year.
Specifically, to be bona fide, the lease had to
be entered into prior to the foreclosure sale.
For these leases, the statute provides that
those executed for a term of one year or less
are considered bona fide, and longer leases are
converted to one-year bona fide leases. The
statute also converts oral leases to bona fide
month-to-month leases unless the tenant can
prove that a longer duration was intended.
Finally, the Illinois statute provides that any
lease entered into after the judicial sale takes
place is considered a month-to-month lease.
However, with the expiration of the PTFA,
the duration of any lease in Illinois would
become an issue, as the statute converts the
terms of the lease based upon when it was
signed, its duration, and whether it was an oral
lease. While a bona fide lease would need to
be honored until the end of its term, that term
would be for only one year from the date the
lease began.
Moreover, these statutes operate with
an underlying assumption—namely, that the
tenants have a bona fide lease. With the PTFA’s
expiration, the Illinois definition of bona fide
lease must be used, which converts any lease
longer than one year into a one-year lease. For
instance, any tenant with a two-year lease will
not have a bona fide lease if it was signed over a
year before the sale of the property.
Thus, in Illinois, despite expiration of the
PTFA, the status of leases as bona fide versus
not bona fide still creates a conundrum for
lenders. Whether to send a 90-day notice is
still something of a catch-22. If the lender does
not send a 90-day notice and later finds the
tenant has a bona fide lease, the lender will then
need to send the 90-day notice. If the lender is
cautious and sends a 90-day notice, it may well
discover that the notice was never needed in the
first place.
Moreover, it is unclear whether Illinois
courts will require a notice where no bona fide
lease exists, and if so, what type of notice will
be required. Currently, Illinois law does not
require a notice to be served if the term of a
lease has expired. Assuming that the residents
of the property are not squatters who never
had a lease, the tenants who had a lease will
likely find that it has expired and is thus not
subject to any notice whatsoever. In this case,
it may be advisable to send a seven-day notice
to the tenants in order to assuage any concerns
the judiciary has regarding the oversight of the
legislature in not determining the type of notice
However, even if no notice is required, local
ordinances may still apply.
In Chicago, the “Keep Chicago Renting
Ordinance” (KCRO) requires that any bona
fide lease be honored through its duration,
even if the lease is oral, or in the alternative, a
relocation assistance payment of $10,600 can be
paid. The KCRO does not distinguish between
“The PTFA required that
where a foreclosure occurred
on a federally related
mortgage loan covering
residential real estate, the
successor in interest to the
property would take the
property subject to the rights
of any bona fide tenant—
essentially requiring that
existing leases be honored
unless the successor in
interest intended to personally
occupy the home.”
leases based on their duration. Thus, while
no notice may be appropriate, the lease itself
would be applied to the successor in interest,
and an eviction could not take place without
offering the tenant the choice of paying the
lease’s payment rate or the relocation assistance
The moral of this story is that the PTFA has
expired, but its state- and local-level progeny
still exist. The expiration of the PTFA will have
a significant impact on eviction suits brought by
foreclosing lenders or successors in interest, but
this is partly because the remaining multitude
of state and local regulations, with all their
minutia and which applied throughout the
duration of the PTFA, are now at the forefront.
It is now necessary for lenders and servicers to
revisit state and local eviction requirements.
It will also be necessary for their counsel to
educate opposing counsel and the judiciary on
the changes in the law, as five years of following
the PTFA’s regulations will be a difficult habit
to break.
Legal League Quarterly 3
States: Florida
vacant and abandoned property registration
By: Jennifer Lima-Smith, Esquire – Gilbert Garcia Group, P.A.
Vacant and abandoned property is recognized
as a significant barrier to the revitalization of
central cities. There have been numerous U.S.
studies focusing on the effects of these properties
on communities. Googling the topic produces
lots of informative articles.
What’s the bottom line from all these surveys?
Findings show that vacant and abandoned
property is perceived as a significant problem by
residents and elected and appointed officials in
the nation's largest central cities (those with high
Reasons for vacancy or abandonment of
properties ranges from circumstances like: a
lost job; an illness; mismanagement of finances;
death of the breadwinner in the family; reset
of mortgage interest rates; a foreclosure; or an
eviction. Studies have shown that single- and
multifamily housing, retail properties, and vacant
land are the most problematic types of vacant and
abandoned property for most cities. Properties
that have been abandoned and allowed to
become overgrown, and those whose structures
are left open and unsecured, not only have a
negative impact on community value, but also
can create conditions that invite criminal activity
“Findings show that vacant and
abandoned property is perceived as
a significant problem by residents
and elected and appointed officials
in the nation's largest central cities.”
and foster an environment that is unsafe and
unhealthy for our communities in general.
Cities and counties use a variety of registration ordinances, regulations, and innovative
techniques to address this problem, including
aggressive code enforcement, tax foreclosure,
eminent domain, and cosmetic improvements.
In Florida, codes and ordinances outline which
properties need registration.
Purposes for vacant property registration
ordinances are threefold: 1) to ensure owners of
vacant properties are known to the city and other
interested parties and can be reached if necessary; 2) to ensure owners of vacant properties
are aware of relevant codes and regulations; 3) to
ensure owners meet minimum standards of main-
tenance for vacancies.
A fourth purpose—although not always
stated—is to motivate owners to use the
Ordinances should include these elements:
a clear definition of which properties and
which parties must register; requirements and
procedures, including information required
of the owner or lienholder; the fee structure;
the obligations of the owner with respect to
maintaining the property; and the penalties
for failing to register in timely fashion. Fee
structures vary and could include covering basic
maintenance costs, usually to motivate owners to
restore and reuse vacant properties.
Best practices include: providing the owner
or agent’s phone number and mailing address
within the state; certifying the property has been
inspected; designating and retaining an individual
or property management company responsible
for the security and maintenance of the property;
remembering things change—for example, in one
Florida county, the code changed for regulating
acceptable grass height.
It’s always best to consult with local counsel
with questions.
“Common sense,
courtesy, maturity,
honesty, integrity,
hard work, and
professionalism are
a few thoughts that
come to my mind as
the backbone of what
sets us apart.”
John D. Clunk
Services Include:
Serving Ohio, among other states
4500 Courthouse Boulevard, Suite 400, Stow, Ohio 44224 | 330.436.0300 | [email protected]
4 Legal League Quarterly
States: Illinois
all other notices
required to be given—
except one
Grace Period Notices and the
Deemed Allegation Dispute in
Mortgage Foreclosure Case Law
By: Lauren Riddick – Codilis & Associates, P.C..
A recent opinion from the
Illinois First Appellate District,
Bank of America, N.A. v. Adeyiga,
2014 IL App (1st) 131252, may
alter how plaintiffs plead their
cases and/or alter the proof needed
to combat a post-judgment Grace
Period Notice (GPN) claim.
By following the statutory
form complaint [735 ILCS 5/151504(a)], plaintiffs in Illinois are
deemed to have alleged that “any
and all notices of default ... or other
notices required to be given have
been duly and properly given.”
waiver of a defense for failing to
timely allege. If a GPN defense
cannot be waived, it would become
a jurisdictional prerequisite to
suit, in contravention of Belleville
Toyota, Inc. v. Toyota Motor
Sales, U.S.A., Inc., 199 Ill.2d 325
Adeyiga further suggested
that raising a GPN defense
post-sale could trigger the need
for an evidentiary hearing before
a sale is confirmed. One ground
to deny sale confirmation is that
“justice was not otherwise done.”
735 ILCS
Adeyiga states
that failing to
send a GPN
would satisfy
this ground
and would
thus require
plaintiffs to
prove the
mailing of
a GPN, even when the GPN
issue is raised for the first time
after sale and after a court has
adjudicated the parties’ rights (i.e.
the Judgment of Foreclosure).
Therefore, the prior adjudication of
the parties’ rights and the duty of a
mortgagor to timely defend would
become meaningless as to any
potential GPN issue.
However, the First District has
already questioned the breadth
of its own reasoning in Adeyiga
in an unpublished decision, Beal
Bank v. Barrie, 2014 IL App
(1st) 133898-U. In Beal Bank,
the court held that the Illinois
Supreme Court’s sale confirmation
analysis in Wells Fargo Bank, N.A.
v. McCluskey(2013 IL 115469)
controls and that raising a GPN
defense for the first time at such
a late stage is insufficient to deny
As of the drafting of this
article, Adeyiga is pending petition
for rehearing before the appellate
“The court reasoned that
the GPN statute was
enacted 19 years after the
deemed allegation statute.”
735 ILCS 5/15-1504(c)(9). Before
Adeyiga, the sending of a GPN,
which notifies borrowers of the
ability to seek housing counseling,
was thought to be part of this
deemed allegation. Complaints,
therefore, typically have not
included a separate allegation that
a GPN had been mailed.
Adeyiga changes this
interpretation. The court reasoned
that the GPN statute was enacted
19 years after the deemed
allegation statute. However, the
timing of the statutes should
be irrelevant, as Illinois allows
statutory amendments (see Statute
on Statutes, 5 ILCS 70/1.34), and
the broad wording (“... or other
notices ...”) was not altered when
the GPN statute was enacted.
The court also noted that
the GPN statute states that
there “shall be no waiver” of the
GPN requirement; however, the
court confused a lender’s duty to
send a GPN, which cannot be
contractually waived, with the
Legal League Quarterly 5
States: Indiana
regional sewer district victory prompts
legislative action
By: Stephanie Reinhart-Rock and Andrew C. Clark – Manley Deas Kochalski, LLC
On December 4, 2014, the Indiana
Supreme Court issued two sister opinions
(Ray1 and Hruska2), finding that regional
sewer district (RSD) liens may be collected
through tax sales, even if those liens are the
only liens on the property. The Supreme Court
decisions are controversial and carry significant
consequence to both property owners and
mortgage lienholders alike because they
provide a new avenue of divesting owners and
lienholders of their property interests through
Indiana's tax sale regime.
Prior to the Supreme Court rulings, it
was commonly understood that Indiana Code
13-26-14-4, as amended in 2012, prevented
all sales of property for the sole purpose of
collecting RSD liens. Specifically, the statutory
provision states, "A lien under this chapter
that is the only lien on a property may not
be foreclosed." In the Ray and Hruska cases,
the Indiana Supreme Court reversed trial
court decisions that removed properties from
the list of those subject to tax sale related
to non-payment of RSD liens, finding that a
tax sale was not a "foreclosure" for purposes
“A lien under this chapter that is
the only lien on a property may
not be foreclosed.”
of the statutory prohibition. In reaching
this conclusion, the court focused on the
compartmentalized legislation within the
Indiana Code relating to tax sales (Title 6) and
foreclosures (Title 32) and the distinction that
a tax sale is not a sale of the real estate but
rather a sale of a tax lien subject to a one-year
redemption period for the owner.
Recorded legislative history reveals
little about the intent of the RSD statutory
prohibition of foreclosure prior to its
enactment in 2012. Nonetheless, it seems
clear from the immediate reaction of the
Indiana House of Representatives that at
least some members of the legislature find the
Supreme Court rulings to be contrary to the
original intent. On January 15, 2015, Indiana
House Rep. Greg Beumer introduced Indiana
House Bill 1496, which, among other things,
seeks to retroactively clarify the intent of the
statute by providing that "if a lien for rates or
charges assessed by an RSD is the only lien
being collected on the property, the lien may
not be foreclosed at a tax sale or otherwise."
Even if the Supreme Court decisions are
essentially nullified by the pending legislation,
it is important to remember that the prohibition
of sale of property for the sole collection
of RSD liens applies only to regional sewer
districts. Municipal sewer districts continue
to be governed by Indiana Code 36-9-23,
allowing collection by the county treasurer in
the same way that delinquent property taxes are
collected, which includes resort to a tax sale.
In the absence of successful legislative
intervention, there are roughly 100 nonmunicipal RSDs in Indiana that may consider
procedural updates incorporating this newly
sanctioned collection method.
1 In re Carroll County 2013 Tax Sale, (2014) No.
08S04-1402-MI-97; 21 N.E.3d 832.2 In re Carroll
County 2014 Tax Sale, (2014) No. 08S02-1402MI-78; 21 N.E.3d 91.
States: Maryland
For Whom the 120 Days Tolls
By: John Ansell – Rosenberg & Associates, LLC
The Maryland Commissioner of
Financial Regulation (CFR) has issued new
foreclosure forms to bring required notices
into compliance with Consumer Financial
Protection Bureau (CFPB) regulations.
Originally scheduled for an effective date
of December 11, 2014, the new forms were
larger servicers could implement these changes
with the original time frame. Ultimately, the
CFR agreed and issued a notice extending the
effective date until February 1, 2015.
While most of the revisions to the forms
are simply to differentiate between federally
related and non-federally related loans, there
“While most of the revisions to the forms are simply to
differentiate between federally related and non-federally related
loans, there are a couple of substantive changes that should
be noted. Substantively, there are two main changes to the
documents that are included in the new regulations.”
issued only days prior. In response to the short
deadline (and many frantic calls and emails), a
number of the firms representing lenders and
servicers prevailed upon the CFR to extend the
effective date, arguing that the programming
changes necessary to implement the changes
would take time and that there was no way the
6 Legal League Quarterly
are a couple of substantive changes that should
be noted. Substantively, there are two main
changes to the documents that are included in
the new regulations.
Firstly, the forms now advise borrowers of
the 120-day CFPB waiting period after default
before the case can be docketed on all federally
related loans; non-federally related loans retain
the 90-day waiting period (there are few to
none non-federally related loans that anyone
reading this would have to take into account). The other substantive change is the
clarification of the period that the borrowers
have to request mediation after receiving
a Final Loss Mitigation Affidavit. The new
forms advise borrowers that they have 25 days
from the date of mailing (for cases originally
docketed with a Preliminary Loss Mitigation
Affidavit) within which to request mediation.
The prior forms indicated that borrowers
had 25 days from the date they received the
documents, not the date they were mailed.
The new forms are currently available on
the CFR website in Microsoft Word format to
allow for easier programming. All foreclosure
notices sent out after February 1, 2015, will have
to utilize the new forms. Fortunately, other than
the new forms, there is very little in the way of
changes to procedures that need to be accounted
for at this time. For lenders and servicers who
send their own pre-docketing notices, however,
the time is getting short to update their systems
to account for the new forms.
States: Michigan
condominium law
update – michigan
By: Charles Hahn – Trott Law, P.C.
For several years, mortgage
servicers and condominium
associations have been at odds
regarding when condominium
assessments are due in relation
to a mortgage foreclosure.
Associations promoted three
theories of liability to force
servicers to pay for all or most of
the fees not paid by co-owners: 1)
the priority of the first mortgage
was lost when it was assigned
after the filing of a condominium
lien; 2) the failure to request a fee
statement from the association for
the post-sheriff ’s sale conveyance
to the investor triggered liability
under MCL 559.211, which made
the transferee liable for all past
fees and attorney’s fees; and 3)
acquisition of title under MCL
559.158 occurs on the date of the
sheriff ’s sale and not at the end
or redemption. Although all three
of these theories of liability were
heavily litigated, only the latter,
acquisition of title, received any
traction with the trial courts—and
even then, most of the courts did
not agree.
Clearly, there is indicium of
title on the date of the sheriff ’s
sale received by the purchaser.
Dozens of Michigan cases state
that the sale purchaser receives
what is referred to as Equitable
Title. Equally clear is that full
fee title is not acquired at that
time, as the basic element of the
right to possession does not ripen
until the sheriff ’s deed becomes
operative, as the ForeclosureBy- Advertisement statute, MCL
600.3236, sets forth, and recently
reiterated by the Supreme Court
in an unrelated case.
These significant elements
of title fell on deaf ears with
the Court of Appeals when the
issue came before it. In Wells
Fargo Bank v Country Place
Condominium Association, 304
Mich App 582 (3-18-2014) (lev.
denied Mich 10-28-14), the
Court of Appeals made it clear
that Section 158 did not specify
what type of title needed to be
acquired. Accordingly, the court
concluded that any type of title
met the statutes’ language. One
might ask, what type of title did
the Court of Appeals use? Rather
than look to the foreclosure
statutes, which set forth when the
sheriff ’s deed became operative,
the court looked to Black’s Law
Dictionary, which supported Wells’
argument of a more encompassing
definition of title. Inexplicably,
the Court of Appeals ignored the
broader definition and chose a
narrow one. Not only was this
contrary to more than 150 years
of well-established real estate law
on the nature of sheriff ’s deeds, it
was also contrary to the beliefs of
many condominium associations,
which accepted the traditional
interpretation of acquisition of
title as meaning when the sheriff ’s
deed became operative.
This concludes over a decadelong chapter of litigation between
condominium associations and
mortgage servicers on this issue.
Charles Hahn serves as a senior
litigation attorney with Trott Law,
P.C., a Michigan-based real estate
finance law firm. Charles can be
reached at [email protected]
Legal League Quarterly 7
States: Missouri
missouri supreme court holds
that mechanic’s lienholders are
entitled to personal notice by
mail in the event of a tax sale
By: Mark M. Haddad – Martin, Leigh, Laws & Fritzlen, P.C.
The Missouri Supreme Court has significantly increased protections for mechanic’s
lienholders in the event of a tax sale. In Collector of Revenue by & through Dir. of Collections
for Jackson Cnty. v. Parcels of Land Encumbered with Delinquent Land Tax Liens, No. SC
93982, 2015 WL 195897, at *1 (Mo. Jan. 13,
2015), the Missouri Supreme Court held that
a properly filed mechanic’s lien is a substantial
property interest subject to due process protections, and a mechanic’s lienholder is entitled
to personalized notice by mail, and not mere
publication notice, of a tax sale on property
encumbered by the mechanic’s lien.
Sunnypointe, LLC, owned a parcel of real
estate in Blue Springs, Missouri. In 2006 and
2007, Beemer Construction Company and
Seal-O-Matic Paving Company (the lienholders) performed significant work on the property, which included installing curbs, sewers,
water mains, and asphalt for the streets. Each
lienholder properly filed mechanic’s liens on
the property after the completion of their work.
Sunnypointe did not pay the 2007 taxes on
the property before it became delinquent, and
the director of collections for Jackson County,
Missouri, filed a petition seeking foreclosure and
public sale of the property for the unpaid real
estate taxes. A public tax sale was scheduled,
and, in compliance with the Missouri statute,
the collector provided personal notice of the
tax sale by mail to the owner, Sunnypointe, and
publication notice to everyone else. Although
the lienholders had properly filed mechanic’s
liens with the clerk of the Circuit Court and the
clerk’s abstract book showed these liens and the
lienholder’s names and addresses, no attempt
was made by the collector to exam the clerk’s
records or otherwise identify or personally notify
the mechanic’s lien claimants. Therefore, the
lienholders did not receive personal notice of the
tax sale and were not aware of the publication
notice prior to the occurrence of the tax sale.
Realty Acquisition, LLC, purchased the
property at the tax sale. After learning about the
sale, the lienholders entered their appearance
in the tax foreclosure action to oppose confirmation of the sale and argued that the failure
to give them prior personal notice of the sale
violated their due process rights. The trial court
agreed and set aside the sale.
In affirming the trial court’s decision, the
Missouri Supreme Court stated that no reason
was given as to why the holders of properly
filed mechanic’s liens were not entitled to due
process protection of their property interests,
including personal notice by mail, other than the
fact that it would require the county collector
of revenue to look in two locations rather than
a single location to determine who is entitled to
personal notice. The court found this minimal
additional burden was not sufficient to outweigh
the due process rights of those possessing
mechanic’s liens on a property whose names and
addresses are reasonably ascertainable from the
public records maintained by the county in its
circuit clerk’s office, as required by statute.
In a concurring opinion, Judge Paul C.
Wilson wrote separately to emphasize that the
court’s holding applies only to an entity that
has prosecuted a claim for a mechanic’s lien
to judgment—not to an entity that has merely
filed a mechanic’s lien claim or a subsequent
mechanic’s lien petition but for which judgment
has not been entered.
Mark M. Haddad is an Associate at Martin,
Leigh, Laws, & Fritzlen P.C. in Kansas City, Missouri. He can be reached at [email protected]
Default Servicing • Bankruptcy • Evictions
REO & Closing • Probate & Estate Planning
Litigation • Corporate Law
[email protected]
2005 Pan Am Circle, Suite 110
Tampa, FL 33607
8 Legal League Quarterly
States: Nevada
will the nevada supreme court
adopt the tort of “bad faith
wrongful foreclosure?”
By: Thomas N. Beckom – McCarthy Holthus LLP
On November 13, 2014, the Nevada Supreme Court accepted a certified question from
the Federal District Court in GMAC Mortgage
LLC v. Nevada Association Services. The Nevada Supreme Court is tasked with determining
the effect of a homeowners association’s (HOA)
refusal to provide the first deed of trust holder
with a quote for the superpriority amount of
the HOA’s lien. This is an important question of public policy for the Nevada Supreme
Court in light of its
recent opinion in
SFR Invs. Pool 1,
LLC v. U.S. Bank
N.A., wherein the
court ruled that an
HOA’s nonjudicial
foreclosure of a lien
for unpaid assessments wipes out a
first deed of trust,
leaving mortgage
lenders completely
The lender in this case alleged they requested the superpriority amount of the HOA’s lien
in order to pay the HOA, only to be rebuffed by
the collection agency for the association. The
HOA went on to foreclose and sold the property
to a third party.
While the question posed to the Supreme
Court is one of first impression in Nevada,
courts in other jurisdictions have set aside
foreclosure sales when the creditor refused to
accept payment. The Alabama Supreme Court
noted that the legitimate purpose of a secured
lien is assuring repayment of the mortgage
indebtedness. Talley v. Webster, 222 Ala. 188
(1930). And “[i]f this power is perverted from
its legitimate purpose” and used to oppress,
courts have the power to set aside the sale. Id.
at 190. Following this precedent, Alabama has
developed an entirely separate tort claim for
“wrongful foreclosure” stemming from the use
of “the power of sale for a purpose other than to
secure the debt owed by the mortgagor.” Reeves
Cedarhurst Dev. Corp v. First Am. Fed. Sav. &
Loan Ass’n, 607 So.2d 180, 182 (Ala. 1992).
Along the same lines, South Dakota has also
recongized a tort for “bad faith” foreclosure. See
Lipsey v. Crosser, 63 S.D. 185, 193-194 (1934);
see also BAC Home Loans Servicing LP v. Trancynger, 2014 SD 22 (2014).
Nevada has not recognized a tort for “bad
faith” foreclosure to date. The state defines
“wrongful foreclosure” as a foreclosure that
occurs despite the fact that no breach of condition or failure of performance existed. Collins
v. Union Fed. S&L Ass’n, 99 Nev. 284, 304
(1983). The situation where an HOA refuses to
provide a quote for the superpriority lien does
not fit squarely within this definition.
GMAC, however, would seem to have a
classic “bad faith wrongful foreclosure” claim
against the HOA and its collection company.
By accepting the certified question, the Nevada
Supreme Court now has an opportunity to adopt
this form of wrongful foreclosure claim into the
state’s jurisprudence.
Wherever, whenever, however,
we’ve got your portfolio covered.
MetroCorp Claims
The Most Experienced Hazard Claims Adjusters | 1.800.866.1994
Legal League Quarterly 9
States: New York
a primer on how bankruptcy
filings affect a lender’s right to
foreclosure in new york
By: Joshua I. Gornitsky – Houser & Allison, APC
A common issue that lenders face in New
York foreclosure actions arises is a bankruptcy
filing by a borrower. When that occurs, the
Bankruptcy Court imposes an automatic stay on
the foreclosure proceeding, which prevents action on the case. Borrowers use the bankruptcy
process to attempt to avoid Judgments of Foreclosure and Sale. It is important that lenders are
aware of how these filings affect their rights in
New York.
The two primary forms of bankruptcy filing
utilized by borrowers in this way are filings
pursuant to Chapter 7 and Chapter 13 of the
Bankruptcy Code. In a Chapter 7 context, a
borrower will attempt to use a bankruptcy filing
to stave off Judgment of Foreclosure and Sale
by challenging the status of the mortgage lien
and the foreclosure plaintiff’s standing as owner
of the lien. This argument fails on many levels,
most notably that a state court’s judgment of
Foreclosure and Sale cannot be challenged in
federal court. See, Exxon Mobil Corp. v. Saudi
Basic Indus. Corp., 544 U.S. 280, 284 (2005).
Additionally, a Chapter 7 bankruptcy often
States: Washington D.C.
wipe out: where does your
priority stand?
By: Azer Akhtar – Rosenberg & Associates, LLC
In August 2014, the D.C. Court of Appeals
issued an opinion in Chase Plaza Condominium
Association, Inc. and Darcy, LLC v. JPMorgan
Chase Bank, N.A. that will have major ramifications for properties that are subject to condominium liens.
Condominium associations are permitted
to impose liens against condominium units for
non-payment of condominium assessments. At
issue in the case was whether a condominium
foreclosure extinguishes a first priority deed
of trust’s lien and specifically the appropriate
interpretation of D.C. Code §42-1903.13, which
governs condominium foreclosures. This section essentially bifurcates liens that arise from
delinquent condominium assessment payments
as follows: 1) a “superpriority” lien for the most
recent six months of assessments; and 2) a lien
10 Legal League Quarterly
for the remaining unpaid assessments that is
junior to any senior liens.
In Chase Plaza, the court held that a condominium “superpriority” lien foreclosure extinguishes the lien of a first deed of trust. The court based
its decision on the language of the Code section,
its legislative history, and basic principles of foreclosure law. Applying the court’s logic, a condominium may initiate foreclosure for assessments
due and owing for the most recent six months,
and even if the proceeds of sale are insufficient
to satisfy the first deed of trust, it is extinguished
nonetheless. While the lender correctly noted the
detrimental policy ramifications of the decision
the court ultimately reached, the court noted in its
opinion that its role is not to resolve this particular
policy dispute.
Before Chase Plaza, condominium foreclo-
results in a determination that there are no
assets. The filing serves to protect the borrower
from personal liabilities. This form of bankruptcy also protects the debtor personally by
preventing a foreclosure plaintiff from pursuing
a deficiency judgment. The takeaway here is
that if a borrower files for Chapter 7 bankruptcy,
a lender loses the ability to pursue the borrower
for a deficiency judgment but retains the right to
foreclose on the property.
The second form of bankruptcy filing
relevant in this situation is under Chapter 13 of
the Bankruptcy Code. A Chapter 13 bankruptcy
is a unique and effective tool in allowing a borrower to slow the foreclosure process. If a debtor
follows the necessary steps, a Chapter 13 bankruptcy can prevent a lender from foreclosing on
the debtor’s home, giving the borrower additional time to pay any past-due amounts. First,
a debtor must stay current on the mortgage
through the bankruptcy process. Depending on
the subtleties of the case, the debtor can either
make payments directly to the lender or through
the bankruptcy trustee. Second, the debtor must
pay back all the arrearages by the end of the
designated repayment period, which is generally
between three to five years. If a debtor stays current on his or her mortgage payments through
the bankruptcy process and pays back the arrearages through the Chapter 13 plan, then the
lender cannot foreclose. Another unique aspect
of Chapter 13 foreclosures is that, under certain
circumstances, the debtor can strip off his or
her junior liens. The stripped-off liens become
unsecured debt, which is then paid off pursuant
to the debtor’s individualized Chapter 13 plan.
Due to the unique mechanisms present in
each form of bankruptcy, it is important that
lenders are aware of the intricacies of both
and how those intricacies affect their rights in
sures were conducted subject to first deeds of
trust. In practice, if a lender foreclosed prior to the
condominium foreclosing and a condominium lien
was recorded with the D.C. Recorder of Deeds,
the lender would simply pay the most recent six
months of condominium assessments to pay off
the “superpriority” lien. The holding in this case
will now require lenders to adopt a different approach to protect their interests in connection with
condominium properties going forward. Lenders
should be prepared to proactively pay assessments
themselves. In order to do so, it is essential that
assignments of deeds of trust are recorded, even
though there is no legal requirement to do so, with
the D.C. Recorder of Deeds so that notice of any
pending condominium foreclosure is received. In
the alternative, lenders may wish to require payment of condominium assessments into an escrow
account. Additionally, lenders should be reviewing
applicable title policies for potential claims resulting from these now “superior” liens.
In all likelihood, there will be a noticeable
increase in condominium foreclosures. Lenders
must be diligent in protecting their interests in affected properties. Absent a legislative fix, this case
creates yet another major dilemma for mortgage
lenders in our nation’s capital years after a lengthy
de facto moratorium on foreclosures arose.
“Art of Business” continued from page 1
answer the following questions:
• Are we doing this right?
» Confirm your process meets all required
criteria of your courts, investors, etc.
• Are the right people doing this?
» Be sure your people are right for your
company and that they’re in the right seats
(doing jobs that they’re best at). Analyzing
staff is just as important as analyzing the
process itself.
• Are our organizational structure and our
managers effective?
» Management isn’t easy, and upward
mobility based on technical expertise
isn’t always effective. Provide managers
additional resources, such as clearly
defined goals and restrictions, as well
as management training, to be better
• Is the technology we’re using sufficient?
» Analyze every aspect of the process to
be sure it’s supported by the technology
and that software is kept current from a
workflow perspective.
• Could we be doing this better?
» Constantly analyze how you’re working the
process to determine if there are better
ways to obtain the same end result.
• What needs to be changed?
» Ultimately, analyzing the process, firm
organizational structure, and technology
aren’t enough. Make improvement
changes as quickly as is manageable,
or else you run the risk of performing
reviews that ultimately serve no
PROCESS (The Planning and
Design Phase)
If I were helping you set up a new firm
today, I would say that in terms of workflow,
the first thing you want to do is Define the
Process. However, since you likely already
have a firm, it’s important that you look back
at your process with a critical eye and redefine
it! This includes identifying key managers and
personnel required to “map” the process. In
spending literally hundreds of hours mapping
process with firms, the one thing I can say with
100 percent certainty is that process mapping
is tedious, so including processors—and not
just their managers—is the key to only doing it
once. As you map the process, you should again
ask the questions from the Assessment Phase
and tweak every possible area to make it as
efficient as you can. This may include adjusting
who performs certain processes to have them
done at one time by one person, rather than
at different times by different people (thereby
reducing the number of times files are touched);
removing unnecessary steps; and other changes
to become a well-oiled machine.
Re-defining the Process is a necessary step
for almost every firm. Most firms’ processes
haven’t been mapped out in detail, and if they
have, they tend to gather dust sitting on a
shelf in a volume entitled “Standard Operating
Procedures.” This process “map,” as we’ll see in
the next section, needs to be a living, breathing
thing that drives your process so that nothing is
missed. Once you’ve determined every step with
as much detail as possible, document and build
that process into your case management system
so that it facilitates the next step: Working the
Implementation Phase)
Although managers may have been excited
to re-define the process, when it comes to
actually implementing change, we find it to be
a challenge. Staff may rail at the changes and
sometimes flat out refuse to adjust how they’re
doing things. They’re in the trenches and may
be offended that someone who doesn’t actually
do that work is making changes. Thus, people
challenges may be the most difficult part of
making improvements. How do you create a
cultural shift to overcome the tendency to shy
away from change?
As mentioned in the Planning and Design
Phase, include your people in the process. The
more involved they are in defining the changes,
the more likely you’ll have their buy-in, as well as
that of their team.
Drum up excitement for change by sending
regular updates or having status meetings to
talk about the changes you are making, and
encourage everyone to constantly look out
for areas they think could be more efficient.
Provide a method to submit changes for
consideration, and seriously consider their
Make sure that you’re not just throwing
process at the staff and expecting that they can
easily change. Some changes may need to be
rolled out slowly or in phases. Develop a plan
for rolling out changes that minimizes loss of
production while the changes are being made,
and vet your proposed implementation by your
staff so you can consider their valuable input.
Your team members will always be your best
resource in making beneficial change, so don’t
forget to include them as much as possible.
Evaluation Phase)
To be sure the process is being worked as
defined, you must put quality controls in place and
regularly Audit the Process. Once you determine
the audit points, set a timetable for audits (daily,
weekly, monthly, bi-monthly, and quarterly are
most common). Ultimately, you should always
analyze your audit data to measure and quantify
the effectiveness of your process and return to the
Assessment Phase as often as necessary.
Continuous quality improvement isn’t
new, but because foreclosure and its ancillary
processes in the current environment are
unfortunately a moving target, it’s imperative
that you constantly review and update your
practices to keep up. Take the ideas defined
here and put them onto a wheel of continuous
improvement so you never stop returning to
the Assessment Phase. In other words, rinse
and repeat often to ensure thorough, effective,
and efficient process is always at the forefront
of your firm.
Nexus can assess, identify, and
implement Strategies & Technologies
to increase efficiency.
» Process Engineering
» Technology Consulting
» Software Development
» Training & Education
Paul Kooima, President
[email protected]
Legal League Quarterly 11
Dumas & McPhail, LLC
Choice Legal Group, P.A.
Jauregui & Lindsey, LLC
Gilbert Garcia Group, P.A.
McCalla Raymer, LLC
Kahane & Associates, P.A.
Rubin Lublin, LLC
Van Ness Law Firm, PLC
Houser & Allison, APC
Aldridge Connors LLP
Law Offices of Les Zieve
Morris | Schneider |
Tiffany & Bosco, P.A.
Dyke & Winzerling, PLC
Barrett Daffin Frappier
Treder & Weiss, LLP
Pite Duncan, LLP
Rosenthal, Withem & Zeff
The Wolf Firm,
A Law Corporation
Barrett Frappier &
Weisserman, LLP
Bendett & McHugh, P.C.
L E ALeague
G U E Quarterly
100.COM - 214.525.6786
Richard B. Maner, P.C.
Rubin Lublin, LLC
The Mortgage Law Firm
Anselmo Lindberg
Oliver LLC
Codilis & Associates, P.C.
Pierce & Associates, P.C.
The Wirbicki Law
Group LLC
Doyle Legal
Corporation, P.C.
Manley Deas Kochalski LLC
Mercer Belanger
Unterberg &
Associates, P.C.
Klatt, Augustine, Sayer,
Treinen & Rastede, P.C.
Lerner, Sampson
& Rothfuss
Nielson & Sherry, PSC
Dean Morris, LLP
Bendett & McHugh, P.C.
The Alba Law Group
Fisher Law Group, PLLC
Rosenberg &
Associates, LLC
Doonan, Graves, &
Longoria, LLC
Marinosci Law Group, P.C.
The mission of the Legal League 100 is to provide a communication platform for
information exchange while facilitating strategic business-relationship development
opportunities to its members and the mortgage servicing community.
Fabrizio & Brook, P.C.
Fein, Such, Kahn &
Shepard, P.C.
Potestivo & Associates, P.C.
Schneiderman and
Sherman, P.C.
Trott Law, P.C.
Shapiro & Zielke, LLP
Usset, Weingarden
& Liebo, PLLP
Morris & Associates
Codilis, Stawiarski
& Moody, P.C.
Martin, Leigh,
Laws & Fritzlen, P.C.
Millsap & Singer, LLC
SouthLaw, P.C.
Malcolm Cisneros,
A Law Corporation
McCarthy & Holthus, LLP
Tiffany & Bosco, P.A.
Kivitz McKeever Lee, P.C.
Phelan, Hallinan,
Diamond & Jones, P.C.
Stern & Eisenberg, P.C.
Davidson Fink LLP
Kozeny, McCubbin
& Katz, LLP
Rosicki, Rosicki &
Associates, P.C.
Stein, Wiener & Roth, LLP
The Hunoval
Law Firm, PLLC
Hutchens Law Firm
Shapiro & Ingle, LLP
Carlisle, McNellie, Rini,
Kramer & Ulrich Co., LPA
The Law Office of
John D. Clunk Co., LPA
Laurito & Laurito, LLC
Reimer, Arnovitz, Chernek
& Jeffrey Co., LPA
Reisenfeld & Associates,
Weltman, Weinberg &
Reis Co., LPA
Baer, Timberlake,
Coulson & Cates
Lamun Mock
Cunnyngham & Davis
Houser & Allison, APC
Hladik, Onorato &
Pearlstine, LLP
KML Law Group, P.C.
Martha E. Von
Rosenstiel, P.C.
Richard M. Squire
& Associates, LLC
Millennium Partners
Bendett & McHugh, P.C.
Orlans Moran, PLLC
Brock & Scott, PLLC
Bailey & Slotnick, PLLC,
a member of Bailey &
Wyant, PLLC
Finkel Law Firm, LLC
The Hunoval
Law Firm, PLLC
Riley Pope & Laney, LLC
Bass & Moglowsky, S.C.
O’Dess and Associates, S.C.
Firefly Legal
Firm Solutions
Global Strategic
631.969.1200 ext. 1554
JJL Process Corp.
KMC Information Systems,
Shapiro & Kirsch, LLP
Weiss Spicer Cash, PLLC
ProVest, LLC
813.877.2844, ext. 1424
Nexus Consulting
Consortium LC
Barrett Daffin Frappier
Turner & Engel, LLP
Butler & Hosch, P.A.
Hughes, Watters &
Askanase, LLP
Metro Public Adjustment
Affinity Consulting Group
American Property Guard
Bendett & McHugh, P.C.
Schiller & Knapp, LLP
Houser & Allison, APC
Superior Home Services
Walz Group
Jack O’Boyle & Associates
Scalley Reading Bates
Hansen & Rasmussen, P.C.
Market Ready
Baker, Donelson, Bearman,
Caldwell & Berkowitz, P.C.
Capital Software
Consultants, Inc.
Claims Recovery Financial
Services, LLC
O MLeague
- 2 1 Quarterly
4 . 5 2 5 .136 7 8 6
Potestivo &
Associates Welcomes
New Supervising
Bankruptcy Attorney
Michigan-based default
servicing legal services provider
Potestivo & Associates, P.C., has
announced the addition of Jordan
Segal as the firm’s supervising
bankruptcy attorney. Segal is
experienced in the areas of
bankruptcy, foreclosure, eviction,
fair debt collection practices, and
real estate litigation. Immediately
prior, Segal served as assistant city
solicitor in Baltimore, Maryland.
Fabrizio & Brook
Appoints IT Director
Fabrizio & Brook recently
announced that Stefan Zaryczny
has been promoted as the firm’s
director of information technology.
Zaryczny is based in Fabrizio’s
headquarters in Troy, Michigan,
and oversees all of the firm’s
IT operations. He is a graduate
of Oakland University with a
Bachelor of Science degree in
Management Information Systems.
Prior to his promotion, he served
in various IT positions, including
systems analyst for the law firm
and senior application designer
with another company.
14 Legal League Quarterly
Hutchens Law Firm
Attorneys Receive
Top Honors
Hutchens Law Firm attorney
Michael B. Stein has received
the highest rating for the legal
profession, an AV Rating from
Martindale-Hubbell, and
Hutchens associate attorney Lanee
Borsman has been named the
2014 Chief Justice Service Award
winner by the North Carolina
Lawyer Assistance Program (LAP).
Stein has been practicing in
the area of creditors’ rights for
20 years. His primary areas of
focus have been assisting clients
with pursuing and collecting
outstanding debt through various
Borsman has been volunteering
with the North Carolina Lawyer
Assistance Program for a year and
a half, and an unusually high level
of volunteerism netted her this
year’s Chief Justice Service Award.
The LAP is a service provided by
the North Carolina State Bar that
provides confidential assistance to
North Carolina lawyers.
Weltman, Weinberg
& Reis Announces
Election of Two New
Cleveland, Ohio-based default
services law firm Weltman,
Weinberg & Reis announced the
election of two new partners for
2015, Brady J. Lighthall and Keri
P. Ebeck. Lighthall and Ebeck are
part of a team of approximately
85 attorneys that have been
offering creditors’ rights service
to clients for more than 80 years.
Lighthall is a managing attorney
in WWR’s real estate default
practice group. He is licensed to
practice law in Ohio, Indiana, and
Kentucky, and is a member of the
Indiana, Kentucky, Ohio State,
and Cincinnati Bar Associations
as well as the J. Reuben Clark
Law Society. Lighthall is based in
WWR’s Cincinnati office. Ebeck,
based in WWR’s Pittsburgh
office, practices in bankruptcy
with a focus on the Consumer
Bankruptcy Group and is involved
with the firm’s integrated real
estate default group.
McCalla Raymer,
LLC, Announces
Expansion of Georgia
Closing Offices and
Names New Partners
McCalla Raymer, LLC,
announced the expansion of their
Residential Closing department
with the opening of four new offices
located in Duluth, Johns Creek,
Douglasville, and Newnan, Georgia.
In addition to opening the new
offices, McCalla Raymer is excited
to announce that Pilar Gigante,
Heather Ison, and Deb Kalish have
joined the firm as partners.
Gigante, Ison, and Kalish join
McCalla Raymer with significant
legal experience. Gigante is an
alumnus of Emory University
and a member of the National
Association of Hispanic Real
Estate Professionals and the
Georgia Real Estate Closing
Attorney Association.
Ison is an alumnus of Mercer
University and is on the board of
directors for the West Georgia
Board of Realtors as well as being
the board’s Affiliate of the Year.
Kalish is an alumnus of Harvard
and Emory Universities. Her 26
years of legal experience has been
concentrated on commercial and
residential retail closing. She is a
Legal League 100 ~ In Pictures
member of the Commercial Real
Estate Women and Counsel to the
Newnan-Coweta Board of Realtors.
In addition to Kalish, attorneys
Kathryn Davis and Beth Hudson have
joined McCalla Raymer and will work
out of the firm’s Newnan office.
received her B.A. from Iowa State
University and her J.D. from Drake
University Law School. She is
licensed to practice in Iowa state
Fabrizio & Brook
Welcomes Attorney
D. Cook
South & Associates
Hires Three New
South & Associates, P.C., is
pleased to announce that the
firm has recently hired three new
associate attorneys at its West Des
Moines, Iowa location.
Emily Bartekoske is an associate
attorney in the Firm’s judicial foreclosure department. Emily received
her B.A. from the University of
Northern Iowa and her J.D. from
Drake University Law School. She
is licensed to practice in both state
and federal courts in Iowa.
Steven Clarke is an associate
attorney in the Firm’s litigation
department. Steven received his
B.A. from California Lutheran
University and his J.D. from the
University of Iowa. He is licensed
to practice in both state and federal
courts in Iowa.
Halley Ryherd is an associate
attorney in the Firm’s judicial
foreclosure department. Halley
Fabrizio & Brook is pleased to
welcome attorney Cheryl D. Cook
to its litigation team. Cook joins
the firm with more than 18 years
of experience in litigation involving
creditors rights, asset recovery,
lending, and real estate law. She
has assisted financial institutions in
restructuring loans and collecting
consumer and commercial debt
and bankruptcy litigation. She has
also handled complex litigation
involving secured and unsecured
transactions at both the state and
federal level throughout her career.
Cook is a member of the State
Bar of Michigan and the Sterling
Heights Regional Chamber of
Commerce. She is admitted to
practice in the U.S. District Courts
for the Eastern and Western
Districts of Michigan and the
Northern and Southern Districts of
Indiana, as well as the Sixth Circuit
Court of Appeals and the United
States Supreme Court. She earned
her B.A. in English from Liberty
University and her Juris Doctorate
from Michigan State University,
Detroit College of Law.
Shapiro & Zielke, LLP, and First Financial Title Agency of Minnesota, Inc., successfully completed their 9th Annual White Christmas Fund Raiser. The affiliated organizations are part of
the LOGS Network. The firm has partnered with 360 Communities, a local charity in Dakota
County, Minnesota, for several years. 360 Communities serves a wide spectrum of needs by
offering two crisis centers, several food shelves, two shelters for abused women & children,
and a school success program. Pictured holding the ceremonial check (left to right) are Laurie
Bolin of 360 Communities, Larry Zielke, Managing Partner of Shapiro & Zielke, and Sal Mondelli, CEO of 360 Communities. The ceremony to present the proceeds of the latest fundraiser
was held November 25th, 2014.
Codilis & Associates helped fund a new
technology resource center for the Jesse
White Community Center and Fieldhouse’s
after-school program recently. Pictured (left
to right): Peter Birnbaum and Sarah Boeckman (Attorneys Title Guarantee Fund), Illinois Secretary of State Jesse White, Ernie
Codilis, and Greg Moody (Codilis & Associates, P.C.).
This holiday season, the Law Offices of John
D. Clunk CO., LPA, and Omega Title Agency,
LLC, made a contribution within our community by participating in the Angel Tree Program for the Salvation Army. The Angel Tree
program provides gifts to more than 3,700
children in Summit County, Ohio. There is no
greater gift than to bring a smile to the face
of a child, and we are proud of our staff and
their ongoing efforts to contribute, volunteer,
and participate.
Some of the generous staff at Michigan’s Fabrizio & Brook, P.C., after completing a donation
drive for Toys for Tots!
Butler & Hosch associates play a game of charity football at McKinnish Park in Carrollton,
Legal League Quarterly 15
I ntroducing the new
L egal L eague 1 0 0 A ssociate M embers
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Offering select companies and organizations that provide services and solutions to streamline the default
process, associate members have the opportunity to collaborate with the law firm members of the Legal
League 100, lenders, servicers, and government sponsors entities in the context of Legal League 100 events.
For more information, contact Kelli Snowgren Garcia via email at [email protected], or by dialing 214.525.6786.
16 Legal League Quarterly
Legal League Quarterly 16
“Litigation”continued from page 1
note was acquired or when the breach letter
was prepared and sent; authorization to act on
another corporation’s behalf, a corporation’s
certificate of merger, or a certificate of the
corporate name change; and the dates of the
acquired loan’s servicing rights. Evidence and
witness testimony may even include information
about the servicer’s platform/records system
used to contain and track payment applications
and history.
Preparation of witness testimony is crucial
to the laying of a proper foundation for prior
business records and their accuracy and
reliability. Particular attention should be paid to
the content of pre-trial orders and the deadlines
imposed. Prior notice of documents to be used
at trial must be given to satisfy due process
requirements. Discovery cut-off dates may also
be impacted.
Corporate witnesses need to familiarize
themselves with these documents and be able to
testify about changes in corporate structure or
about authority to act on another corporation’s
behalf. Witnesses should familiarize themselves
with the chain of ownership, from origination
up to the day of the trial. The corporate
representative may need to glance over and
review documents like powers of attorney,
certificate(s) of merger, assignments, payment
histories, and the like. A witness should be able
to articulate specific steps to verify information
if the loan is transferred from one servicer to
another. Compliance must be demonstrated
based on personal knowledge.
Borrowers’ counsels routinely object to
information about a prior servicer’s records.
Some of the more common objections are
relevancy, hearsay, and improper foundation.
Uniform Rules of Evidence “provide a hearsay
exception for records of regularly conducted
business activity. “
Where a business takes custody of another
business’s records and integrates them within its
own records, the acquired records are treated as
having been “made” by the successor business,
such that both records constitute the successor
business’ singular “business record.” United
States v. Adefehinti, 510 F.3d 319, 326 (D.C.
Cir. 2007), as amended (Feb. 13, 2008).
Generally, to lay a foundation to the
business record exception to hearsay, testimony
should be provided to establish: that the
proffered document was/is a true and accurate
representation of the payment history for the
loan; that it was kept during the regular course
of regularly conducted activities by a person
with knowledge of the event or activity; that
the person making the record had a duty to
accurately compile (keep) the information for
the record; and that it is the regular practice of
the servicer to make such a record.
“…[S]ince records crafted by a separate
business lack the hallmarks of reliability
inherent in a business’s self-generated records,
proponents must demonstrate not only that ‘the
other requirements of [the business records
exception rule] are met’ but also that the
successor business relies upon those records
and ‘the circumstances indicate the records are
trustworthy.’” United States v. Childs, 5 F.3d
1328, 1333 (9th Cir. 1993); see also Brawner
v. Allstate Indem. Co., 591 F.3d 984, 987 (8th
Cir. 2010) (“[A] record created by a third party
and integrated into another entity’s records
is admissible as the record of the custodian
entity, so long as the custodian entity relied
upon the accuracy of the record and the other
requirements of Rule 803(6) are satisfied.”);
United States v. Duncan, 919 F.2d 981, 986-87
(5th Cir. 1990); Air Land Forwarders, Inc. v.
United States, 172 F.3d 1338, 1342-44 (Fed.
Cir. 1999); United States v. Bueno-Sierra, 99
F.3d 375 (11th Cir. 1996).
Therefore, mere “‘reliance by the
[incorporating business] on records created
by others, although an important part of
establishing trustworthiness, without more’” is
insufficient. State v. Fitzwater, 227 P.3d 520,
532 (Haw. 2010) (quoting 2 Kenneth S. Broun
et al., McCormick on Evidence § 292, at 318
(6th ed. 2006)).
It’s not required to call the individual who
prepared the document; however, the witness
through whom the document is being offered
must be able to show each of the requirements
for establishing a proper foundation. Evidence of
a business relationship or contractual obligation
between the parties can create the path
necessary to establish accuracy. See, e.g., Matter
of Ollag Constr. Equip. Corp., 665 F.2d 43, 46
(2d Cir. 1981).
Witness and exhibit lists may need to be
amended to include other documentation that
may be offered into evidence at trial, and these
documents must be available for inspection in
advance of trial.
“The rationale behind the business records
exception is that such documents have a high
degree of reliability because businesses have
incentives to keep accurate records.” Timberlake
Constr. Co. v. U.S. Fid. & Guar. Co., 71 F.3d
335, 341 (10th Cir. 1995); see also United
States v. Veytia-Bravo, 603 F.2d 1187, 1189
(5th Cir. 1979) (explaining that the justification
for the business records exception lies in “the
reliability or trustworthiness of the records
sought to be introduced”).
Businesses rely upon their records “in the
conduct of [their] daily affairs” and “customarily
check [them] for correctness during the course
of the business activities.” Charles W. Ehrhardt,
Florida Evidence § 803.6 (2014 ed.)2; see also
Bean v. Montana Bd. of Labor Appeals, 965 P.2d
256, 262 (Mont. 1998). Thus, courts view the
“material contained in those records [a]s more
likely to be truthful than the average hearsay.”
United States v. Santos, 201 F.3d 953, 963 (7th
Cir. 2000).
All of this seems to indicate that a corporate
witness needs to be familiar with the specific
record keeping system, past and present, and be
able to lay a proper foundation and establish the
reliability of record keeping.
“The successor business itself may establish
trustworthiness by independently confirming the
accuracy of the third-party’s business records
upon receipt.” See, e.g., Simien v. Unifund
CCR Partners, 321 S.W.3d 235, 243 (Tex.
App. Houston [1 Dist.] 2010) (“[A] document
created by one business may become the records
of a second business if the second business
‘determines the accuracy of the information
generated by the first business.’” (quoting
Martinez v. Midland Credit Mgmt., Inc., 250
S.W.3d 481, 485 (Tex. App.-El Paso 2008, no
These trends mean making sure discovery
is adequately answered and all pre-trial motions
and depositions are noticed for use at trial.
To ensure best practices, always consult
with your counsel, and watch for part two of this
Legal League Quarterly 17
March 18, 2015 | Newseum | Washington DC |
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18 Legal League Quarterly
C.F.R. §206.125 to initiate foreclosure within a
specified timeframe due to death of the borrower.
In its analysis, the appellate court noted that
Because HUD failed to address this option in its
HUD had the authority to accept an assignment of determinations on remand, the court remanded
the reverse mortgage from the lender and opt not to it back to HUD. The case is currently pending
foreclose on the non-borrower spouse. Because this appeal.
possible solution exists, the appellate court found
While the fate of these plaintiffs and other
that plaintiffs have standing and reversed, while also non-borrower spouses with reverse mortgages
explicitly stating, “We do not hold, of course, that
originated before August 4, 2014, remains in
HUD is required to take this precise series of steps, limbo, significant changes have been promulgated
nor do we suggest that the district court should
by HUD regarding non-borrower spouses. On April
issue an injunction to that effect.” The matter was
25, 2014, HUD issued Mortgagee Letter 2014remanded for HUD to formulate a solution.
07, a directive to all HUD-approved mortgagees.
Soon after Bennett, a similar case was filed by
Mortgage Letter 2014-07 acknowledges the
four widowed non-borrower spouses in Plunkett v.
Donovan. HUD issued a determination on remand varying interpretations of when a loan becomes
in the Bennett case and decided to offer no further due and payable in full in instances where a nonborrower spouse survives the borrower spouse and
relief to the two plaintiffs. Other non-borrower
wants to retain the home. Thus, Mortgagee Letter
spouses were not addressed, and thus, the court
2014-07 creates a deferral period for the nonremanded the Plunkett case as well.
borrower spouse who meets certain requirements.
On June 24, 2014, the assistant secretary
issued another determination on remand, this time These requirements are that the non-borrower
spouse must have been married to the borrower
addressing the four Plunkett plaintiffs and both
spouse at the time of origination and remained
Bennett plaintiffs. This determination included a
remedy called the “Mortgagee Optional Election,” married to them during the remainder of the
borrower spouse’s life; the non-borrower spouse
which applies to only these six plaintiffs. In these
was disclosed to the mortgagee and specifically
cases, the lenders have the option of assigning the
named as a nonmortgage to HUD if
borrower spouse in the
the following conditions
mortgage documents;
are met: 1) plaintiff was
and the non-borrower
married to the borrower
“While the fate of these plaintiffs
spouse maintains the
at origination and until
the borrower’s death;
and other non-borrower spouses
mortgaged property as
2) plaintiff has title
their principal residence
with reverse mortgages originated
to the property or the
for all relevant times.
before August 4, 2014, remains
legal right to remain
The deferral period lasts
there; 3) the loan is not
as long as the conditions
in limbo, significant changes
in default for a reason
continue to be met.
have been promulgated by HUD
besides death of the
However, Mortgagee
borrower; 4) there are
regarding non-borrower spouses.”
Letter 2014-07 applies
no allegations or claims
only to loans originated
that would invalidate
on or after August 4,
the loan; and 5) the
non-borrower spouse
On January 9, 2015, HUD issued Mortgagee
must have had a Principal Limit Factor (PLF) no
Letter 2015-02. This Mortgagee Letter defines
less than the borrower at origination or the nonand delineates non-borrowing spouses into two
borrower spouse’s current PLF is greater than the
categories: Ineligible Non-Borrowing Spouse and
current unpaid principal balance. (“The PLF is
Eligible Borrowing Spouse. These delineations are
an actuarial variable based on age of the youngest
based on the non-borrower spouse’s ability to meet
borrower and the expected loan interest rate.”)
the requirements for the deferral period as outlined
HUD explicitly stated this was an option for the
in Mortgagee Letter 2014-07. Mortgage Letter
lenders and not required. Interestingly, none of the
2015-02 sets forth form certifications for both the
six plaintiffs qualify for the “Mortgagee Optional
borrower and non-borrower spouses to execute
at origination and also creates procedures for the
Eventually, the Bennett and Plunkett cases
borrower and non-borrower spouses to complete
were consolidated into Plunkett v. Castro, and
in order to initiate and maintain the deferral period
the district court found the Mortgagee Optional
for the remainder of their lifetimes.
Election “is an entirely reasonable program
These mortgagee letters indicate HUD’s desire
whereby mortgagees may assign HECMs
to bring a resolution to this problem. However,
to HUD, so long as certain criteria are met.”
given the tedious and complicated nature of the
Additionally, the court found that plaintiffs failed
new ongoing requirements and procedures, it
to demonstrate that HUD has the authority to
seems inevitable that they will pose a challenge for
compel lenders to assign eligible mortgages and
the senior citizens the provisions are intended to
that even if HUD did, there is no obligation for
assist. Is HUD really going to allow foreclosure on
HUD to exercise that authority. However, the
non-borrower spouses simply because they forgot
court remanded the case back to HUD on one
to submit their annual certification? Are these
issue—the Trigger Inapplicability Decision (TID).
certifications going to be sought out by HUD, or is
TID is a conceivable remedy mentioned by HUD
in a motion filed in this case. HUD argued that the it up to the lender or even the borrower to initiate
that process? These are all questions that remain
prior invalidation of 24 C.F.R. § 206.27(c) means
mortgagees are no longer required pursuant to 24
to be answered.
“Reverse Mortgages” continued from page 1
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Legal League Quarterly 19
1 9 0 9 Woodall R odg e rs
S u it e 3 0 0
Dallas , T e x as 7 5 2 0 1
2 1 4 . 5 2 5 . 6 70 0