Indiana's Mortgage Release Obligations

Duty to release.

Indiana’s General Assembly has made it clear that lenders/mortgagees must release their mortgages when the underlying debt has been paid in full, including interest. First, Indiana Code 32-29-1-6 provides:

After a mortgagee [lender] of property whose mortgage has been recorded has received full payment from the mortgagor [borrower] of the sum specified in the mortgage, the mortgagee [lender] shall, at the request of the mortgagor [borrower], enter in the record of the mortgage that the mortgage has been satisfied. An entry in the record showing that a mortgage has been satisfied operates as a complete release and discharge of the mortgage.

A virtually identical statutory requirement exists at Indiana Code 32-29-11-1: “... if the debt … and the interest on the debt … that a mortgage secures has been fully paid … [then] the [lender/mortgagee] … or custodian of the mortgage shall:

(1) release;
(2) discharge; and
(3) satisfy of record;

the mortgage as provided in IC 32-28-1.

Indiana Code 32-28-1-1 (for the third time) redundantly states, in pertinent part:

(b) When the debt … and the interest on the debt … that the mortgage … secures has been fully paid … the [lender/mortgagee] … or custodian shall:

(1) release;
(2) discharge; and
(3) satisfy of record;

the mortgage….

Consequences.

The General Assembly added teeth to the release obligation by assigning a deadline and financial repercussions in Indiana Code 32-28-1-2.

    15 days:

(a) This section applies if:

(1) the mortgagor [borrower]… makes a written demand, sent by registered or certified mail with return receipt requested, to the [lender/mortgagee] … or custodian to release, discharge, and satisfy of record the mortgage…; and

(2) the [lender/mortgagee] … or custodian fails, neglects, or refuses to release, discharge, and satisfy of record the mortgage … not later than fifteen (15) days after the date [of receipt of] the written demand.

    Fine and fees/costs:

(b) A [lender/mortgagee] or custodian shall forfeit and pay to the mortgagor [borrower] or other person having the right to demand the release of the mortgage or lien:

(1) a sum not to exceed five hundred dollars ($500) for the failure, neglect, or refusal of the [lender/mortgagee] … or custodian to:

(A) release;
(B) discharge; and
(C) satisfy of record the mortgage or lien; and

(2) costs and reasonable attorney’s fees incurred in enforcing the release, discharge, or satisfaction of record of the mortgage….

(c) If the court finds in favor of a plaintiff who files an action to recover damages under subsection (b), the court shall award the plaintiff the costs of the action and reasonable attorney’s fees as a part of the judgment.

(d) The court may appoint a commissioner and direct the commissioner to release and satisfy the mortgage….. The costs incurred in connection with releasing and satisfying the mortgage … shall be taxed as a part of the costs of the action.

Settlements/Compromises. The statutory scheme outlined above appears to be limited to situations involving a full and complete payoff – the entire debt including interest. The provisions do not seem to apply to settlements, compromises, short pays, etc. Hence the need, in settlement agreements arising out of loan disputes (commercial or residential), to compel the lender/mortgagee to release the mortgage and when it must be released.

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Lender Entitled To Full Amount Of Insurance Proceeds From Fire Loss: Borrower Responsible For Own Attorney Fees

Lesson. If a borrower engages an attorney to help with an insurance claim arising out of a loss to mortgaged property, generally the attorney will not be paid from the insurance proceeds, which belong to the lender as a loss payee.

Case cite. Flannagan v. Lakeview Loan Servicing LLC 184 N.E.3d 691 (Ind. Ct. App. 2022)

Legal issue. Whether Borrower’s attorney was entitled to a cut of the insurance proceeds following a fire that damaged Borrower’s house.

Vital facts. Borrower and Lender entered into a mortgage loan. A fire destroyed the house on the mortgaged real estate.

As is typical, the mortgage required insurance against certain losses, including fire. The customary language in the mortgage also stated that, in the event of a loss, the insurance proceeds may be applied by Lender either (a) to the reduction of the indebtedness owed under the promissory note or (b) to the restoration or repair of the damaged property. Borrower’s insurance policy had a standard provision that any loss payments would be paid to Borrower unless “some other person is named in the policy or is legally entitled to receive payment” (a so-called “loss payee”). With respect to lenders/mortgagees named in the policy, the mortgage went on to express that losses shall be paid “to the mortgagee and you, as interests appear.” Lender was a loss payee on Borrower’s hazard insurance policy.

Borrower engaged a law firm to represent her in connection with the fire loss. The insurer issued settlement checks in the amount of $74,373.23 that were jointly payable to Borrower, Lender and Borrower’s law firm. The proceeds were less than the total amount of Borrower’s debt.

Procedural history. A lawsuit arose in which Lender and Borrower sought a determination by the trial court of Borrower’s law firm’s rights to the insurance proceeds. The trial court granted summary judgment in favor of Lender, and Borrower appealed.

Key rules. Indiana law generally provides that, because a mortgage is a contract, the parties “are free to enter into an agreement concerning the disposition or application of insurance proceeds in the event of a loss.”

"Where a mortgage or insurance policy provides for insurance proceeds to be paid to the mortgagee 'as its interest appears', the mortgagee is entitled to the insurance proceeds to the extent of the mortgage debt."

Holding. The Indiana Court of Appeals affirmed the trial court’s summary judgment.

Policy/rationale. Borrower essentially contended Lender was only entitled to the insurance proceeds remaining after the cost of her attorneys, which were instrumental in negotiating a settlement of the fire loss. The Court rejected Borrower’s theory because “the plain language of the Mortgage does not support [Borrower’s] interpretation of the phrase “insurance proceeds.” The Court noted that the mortgage:

did not expressly refer to a partial distribution of insurance proceeds or, at least where the proceeds do not exceed the amount of the [Borrower’s] indebtedness, to a distribution of a portion of the insurance proceeds to the Lender and a portion of the proceeds to the [Borrower]. Also, the Mortgage does not suggest the amount of insurance proceeds to which the Lender is entitled must be reduced by an amount equal to the costs or attorney fees incurred by the [Borrower] to secure the proceeds.

The Court also examined equitable claims asserted by Borrower. Please review the opinion for details of those theories. In the end, neither the language of the mortgage nor the law of equity required Lender to share the insurance proceeds with Borrower’s attorneys. Remember, the purpose of the insurance was to cover damage to Lender’s loan collateral (Borrower’s house). Assuming Borrower did not use the funds to rebuild the destroyed property, the money went to reduce Borrower’s debt. Make no mistake – this was a windfall to Lender. Borrower benefitted from the insurance proceeds. It’s just that Borrower had to pay for her lawyers.

Related posts.

• What Are A Lender’s Rights As A “Loss Payee” Under An Insurance Policy In Indiana? 
• Potential Negligence Of An Indiana Receiver

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Borrower’s Loan Reinstatement-Related Promissory Estoppel Defense Dismissed

Note: on 5/6/22 and 5/20/22, I wrote about the 410 case cited below. Today’s post addresses more issues from the same opinion. In particular, the 5/20/22 article provides context for today’s installment, which follows up on the “loan balance statement” at issue.

Lesson. A promissory estoppel theory in the defense of a foreclosure case often fails for the simple reason that there is no evidence the lender made an actual promise to the borrower (to reinstate or forbear).

Case cite. Wilmington Tr. Nat'l Ass'n v. 410 S. Main St. LLC 2022 U.S. Dist. LEXIS 21288 (N.D. Ind. Feb. 7 2022).

Legal issue. Whether a lender’s foreclosure action could be defeated on the basis of promissory estoppel, where the lender had tendered a “loan balance statement” during workout discussions that was arguably a commitment to reinstate a loan.

Vital facts. The “balance statement” (the subject of my May 20th post) was at the center of the Defendants’ promissory estoppel theory. The Defendants essentially claimed that they were “ready, willing and able” to reinstate the loan in reliance on the figures in the balance statement. The Defendants alleged that they took steps to obtain the necessary funds, but Lender “made an about face and refused to honor the Balance Statement, damaging Defendants.”

Procedural history. Lender filed a motion for summary judgment on the promissory estoppel claim/defense.

Key rules. The Court cited to an Indiana Supreme Court case for the five elements of promissory estoppel: “1) a promise by the promissor [here, Lender]; 2) that was made with the expectation that the promisee [here, Defendants] would rely on it; 3) and induces reasonable reliance by the promisee [Defendants]; 4) of a definite and substantial nature; 5) in a way where injustice can be avoided only be enforcement of the promise.”

Holding. The Court granted Lender’s motion summary judgment. The Defendants have appealed the decision to the 7th Circuit Court of Appeals. I will follow-up as warranted.

Policy/rationale.

The Court reasoned that the balance statement simply did not create a promise to reinstate the loan and waive prior defaults. “Without a promise, promissory estoppel fails from the start.” Moreover, there was no evidence that Lender sent the balance statement with the expectation that Defendants would rely on it as they did. For good measure, the Court also noted that the Defendants did not meet the payment deadline in the balance statement anyway.

Related posts.

• Email Evidence Of Alleged Loan Modification And Promissory Estoppel Defeats Auto Dealer Lender’s Summary Judgment Motion
• Alleged Oral Release Of Mortgage Rejected

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

7th Circuit: Absent “Concrete Injury” Plaintiffs Have No Standing To Bring FDCPA Claim

Lesson. Mere annoyance or intimidation by language in a demand letter, without any concrete harm resulting from such language, is insufficient for a plaintiff to have standing to file a FDCPA action.

Case cite. Gunn v. Thrasher, 982 F.3d 1069 (7th Cir. 2020)

Legal issue. Whether a true statement in a demand letter nevertheless injured the plaintiffs.

Vital facts. Plaintiffs owed their homeowners’ association $2,000. The HOA hired a law firm, which sent a demand letter to plaintiffs that contained this sentence:

If Creditor has recorded a mechanic’s lien, covenants, mortgage, or security agreement, it may seek to foreclose such mechanic’s lien, covenants, mortgage, or security agreement.

The HOA subsequently sued plaintiffs for breach of contract (damages) but not for foreclosure. The plaintiffs responded by filing suit against the HOA’s law firm in federal court under the Fair Debt Collection Practices Act (FDCPA). Although the plaintiffs conceded that the disputed sentence in the letter was both factually and legally true, they contended that the sentence was false and misleading because it would have been too costly to pursue foreclosure to collect the 2k debt.

Procedural history. The USDC for the Southern of Indiana dismissed the complaint on the basis that a true statement about the availability of legal options “cannot be condemned” under the FDCPA. Plaintiffs appealed.

Key rules. “Concrete harm” is essential for a plaintiff to have standing to sue in federal court. Article III of the Constitution “makes injury essential to all litigation in federal court.”

Holding. As a practical matter, the 7th Circuit agreed with the District Court. However, rather than affirming the District Court’s ruling on the defendant’s dispositive motion, the 7th Circuit remanded the case with instructions to dismiss for lack of subject matter jurisdiction.

    See also: Larkin v. Finance System, 982 F.3d 1060 (7th Cir. 2020) and Brunett v. Convergent Outsourcing, 982 F.3d 1067 (7th Cir. 2020). The 7th Circuit decided these two Wisconsin cases at the same time as Gunn and applied the same injury/standing rules.

Policy/rationale. The plaintiffs failed to allege or argue how the contested sentence in the demand letter injured them. Although they were annoyed and intimidated by the letter, that does not constitute a concrete injury. The Court reasoned:

Consider the upshot of an equation between annoyance and injury. Many people are annoyed to learn that governmental action may put endangered species at risk or cut down an old-growth forest. Yet the Supreme Court has held that, to litigate over such acts in federal court, the plaintiff must show a concrete and particularized loss, not infuriation or disgust. Similarly many people are put out to discover that a government has transferred property to a religious organization, but Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464 (1982), holds that a sense of indignation (= aggravated annoyance) is not enough for standing.

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My practice includes the defense of mortgage loan servicers in consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

7th Circuit: Communications Were Not “False, Misleading, Or Deceptive To The Unsophisticated Consumer” In Violation of the FDCPA

Lesson. Per the Seventh Circuit, “Congress did not intend the FDCPA to require debt collectors to cast about for a disclosure formulation that strikes a precise balance between providing too little information and too much. The use of an itemized breakdown accompanied by zero balances would not confuse or mislead the reasonable unsophisticated consumer.”

Case cite. Degroot v. Client Servs. 977 F.3d 656 (7th Cir. 2020)

Legal issue. Whether allegedly false or misleading statements by a collection agency violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692e, by using false, deceptive, and misleading representations or means to collect a debt, or 15 U.S.C. § 1692g by failing to disclose the amount of the debt in a clear and unambiguous fashion.

Vital facts. Debtor defaulted on credit card debt, and the credit card company assigned the debt to Collection Agency. The Debtor sued Collection Agency following a couple of collection letters Debtor received. (The opinion details the letters.) Debtor claimed that the second letter “misleadingly implied that [the credit card company] would begin to add interest and possibly fees to previously charged-off debts if consumers failed to resolve their debts with [Collection Agency].” Specifically, Debtor alleged that he was "confused by the discrepancy between the [letter 1’s] statement that 'interest and fees are no longer being added to your account' and [letter 2's] implication that [credit card company] would begin to add interest and possibly fees to the Debt once [Collection Agency] stopped its collection efforts on an unspecified date."

Procedural history. The District Court granted the Collection Agency’s motion to dismiss. Debtor appealed.

Key rules. The FDCPA requires debt collectors to send consumers a written notice disclosing "the amount of ... debt" they owe. 15 U.S.C. § 1692g(a)(1).

This disclosure must be “clear.” "If a letter fails to disclose the required information clearly, it violates the Act, without further proof of confusion."

"A collection letter can be 'literally true' and still be misleading ... if it 'leav[es] the door open' for a 'false impression.'"

“A debt collector violates § 1692e by making statements or representations that ‘would materially mislead or confuse an unsophisticated consumer.’"

Holding. The Seventh Circuit affirmed the District Court and held that the Collection Agency’s communications “were not false, misleading, or deceptive to the unsophisticated customer.”

Policy/rationale. The key issue in Degroot was whether Collection Agency, by providing a breakdown of the debt that showed a zero balance for "interest" and "other charges," violated §§ 1692e and 1692g(a)(1) by implying that interest and other charges would accrue if the debt remained unpaid. The Court set out the test it faced:

To determine whether [Collection Agency’s] letter was false or misleading, we must answer two questions. The first is whether an unsophisticated consumer would even infer from the letter that interest and other charges would accrue on his outstanding balance if he did not settle the debt. If, and only if, we conclude that an unsophisticated consumer would make such an inference, then we move to analyze whether the inference is false or misleading.

The Court reasoned that the itemization (debt breakdown) at issue could not be construed “as forward looking and therefore misleading”:

That interest and fees are no longer being added to one's account does not guarantee that they never will be, because there is no way—unless the addition is a legal or factual impossibility—to know what may happen in the future. That is why a statement in a dunning letter that relates only to the present reality and is completely silent as to the future generally does not run afoul of the FDCPA. While dunning letters certainly cannot explicitly suggest that certain outcomes may occur when they are impossible … they need not guarantee the future. For that reason, the itemized breakdown here, which makes no comment whatsoever about the future and does not make an explicit suggestion about future outcomes, does not violate the FDCPA.

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My practice includes the defense of mortgage loan servicers in consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Assignee Of Mortgage Loan Not Liable For Alleged TILA Violations

Lesson. Generally, an assignee of a residential mortgage (a subsequent mortgagee) is not subject to liability under TILA, 15 U.S.C. § 1641(e)(1), for violations that occur after the loan has been made.

Case cite. Crum v. SN Servicing Corp., No. 1:19-cv-02045-JRS-TAB, 2020 U.S. Dist. LEXIS 172358 (S.D. Ind. Sep. 21, 2020)

Legal issue. Whether a defendant lender/mortgagee, an assignee of a loan, violated the Truth and Lending Act (TILA), 15 U.S.C. 1601, specifically Sections 1639f or 1638f.

Vital facts. Plaintiff Borrower obtained a residential mortgage loan in 1997. Subsequently, the loan was assigned to other lenders. In 2012, Borrower filed a Chapter 13 bankruptcy case and, per the Plan, made regular monthly payments to the Trustee. In 2018, the Trustee filed a report (1) certifying the amounts received from Borrower and (2) stating that Borrower had completed the case. However, a discrepancy existed between the Trustee’s final report and its earlier report detailing the “final cure payment.” Specifically, the inconsistency involved two payments of $455.61 that Borrower did not make to the Trustee. Based upon this discrepancy, the subject lenders, through their loan servicers, considered the loan to be delinquent and charged a series of late fees. Borrower, on the other hand, claimed that he fully performed under the BK Plan and made all required payments.

Procedural history. Borrower filed a complaint against several lenders and servicers, asserting numerous claims related to the lenders’ and servicers’ continued assessment of fees, including attorney fees and late charges. As it relates to this post, Borrower asserted that the servicer acting on behalf of one of the lenders/mortgagees (Lender) violated TILA by failing to provide periodic billing statements and by failing to promptly credit payments to the loan. The Lender moved to dismiss the claim against it under Rule 12(b)(6).

Key rules. 15 U.S.C. 1639f requires that "[i]n connection with a consumer credit transaction secured by a consumer's principal dwelling, no servicer shall fail to credit a payment to the consumer's loan account as of the date of receipt . . . ."

“Section 1638(f) requires a creditor, assignee, or servicer with respect to any residential mortgage loan to send the obligor periodic statements containing information such as the remaining principal, the current interest rate, a description of late payment fees, and specific contact information through which the obligor can obtain more information about the mortgage”.

Borrower’s TILA claim depended upon the Lender being “a creditor who may be sued under Section 1640(a) or an assignee who may be sued under Section 1641(e)(1).”

    A creditor is a person who both "regularly extends . . . consumer credit" and "is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement." 15 U.S.C. 1602(g).

    Assignee liability under TILA “is much more limited than creditor liability.”

In the context of a mortgage loan transaction, an assignee is liable for conduct for which a creditor would be liable only if (1) "the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement" and (2) "the assignment to the assignee was voluntary." 15 U.S.C. 1641(e)(1). A violation is said to be "apparent on the face of the disclosure statement" where "(A) the disclosure can be determined to be incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the amount financed, the note, or any other disclosure of disbursement; or (B) the disclosure statement does not use the terms or format required to be used by this subchapter." 15 U.S.C. 1641(e)(2).

    TILA does not define “disclosure statement,” but case law provides that the statement refers to the mandatory “disclosure of certain terms and conditions of credit before consummation of a consumer credit transaction." The bottom line is that “an assignee of a mortgage is not subject to liability under TILA for violations that occur after the loan has been made.”

Holding. The district court granted the motion to dismiss. Borrower did not appeal.

Policy/rationale. In Crum, the Lender did not originate the loan. As such, the Lender could not be a “creditor” under TILA because it was not the person to whom the debt was “initially payable on the face of the” promissory note.

The Lender was thus an “assignee,” but as assignee the Lender was not liable for the alleged TILA violations because the nature of the violations “would never appear on the face of the disclosure statement” as Section 1641(e)(1) requires. “By definition, such noncompliance would occur after any pre-transaction disclosures. Hence, [the Lender] cannot be liable as an assignee under § 1641(e)(1) for alleged violations of §§ 1639f and 1638(f).
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I represent lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

In HAMP Case, Seventh Circuit Disposes Of Borrower’s Claims Of Wrongdoing

Lesson. It would seem to be extraordinarily challenging for a borrower to assert a viable claim against a lender arising out of a failed HAMP loan mod.

Case cite. Taylor v. JPMorgan Chase Bank, 958 F.3d 556 (7th Cir. 2020)

Legal issue. Whether Borrower’s claims for promissory estoppel, fraud, and intentional infliction of emotional distress should have been dismissed.

Vital facts. This is my third post about Taylor. See my March 11 and March 18 posts for background on this case, which centered on negotiations surrounding a potential loan mod under HAMP. To the Borrower’s chagrin, Lender did not ultimately grant the loan mod.

Among other things, Borrower pointed to language in the TPP indicating that Lender would modify the loan if Borrower qualified. Borrower also alleged that employees of Lender told him that his documents were "in receipt for processing" and that two other employees told him they had "received" his documents and were "forwarding" them. Basically, Borrower felt that he was misled and that Lender did not process the application in good faith.

Procedural history. The trial court granted Lender’s motion for judgment on the pleadings.

Key rules. “To hold [Lender] accountable under a theory of promissory estoppel, [Borrower] needed to allege that [Lender] made a definite promise to modify his loan.” An expression of intention or desire is not a promise.

A claim for fraud requires a misrepresentation about a past or existing fact. Indiana law does not support a claim based upon the misrepresentation of the speaker’s current intentions.

A claim for intentional infliction of emotional distress requires “extreme and outrageous” conduct.

Holding. Affirmed.

Policy/rationale. As to the promissory estoppel theory, the Court said that the statements at issue did not “convey a definite promise.” Indeed the commitment to modify “came with express strings” that were disclosed to Borrower.

Regarding the fraud claim, the Court found that the alleged misrepresentations “even if credited as entirely true,” could not “be construed as [Lender] committing to a permanent loan modification in the future.”

With respect to the action for intentional infliction of emotional distress, the Court didn’t buy the idea that the alleged conduct was extreme or outrageous. The Court followed the Indiana Court of Appeals decision in Jaffri (see HAMP post below): “‘any mishandling of’ HAMP by a loan servicer, ‘even if intentional,’ did not establish the tort of emotional distress because the HAMP applicant's options ‘would have been even more limited’ if the program were not in place.” That rationale carried the day in Taylor.

Related posts.

• Indiana Upholds Dismissal Of Residential Borrower’s Tort Claims Arising Out Of Alleged HAMP Violations
• Email Evidence Of Alleged Loan Modification And Promissory Estoppel Defeats Auto Dealer Lender’s Summary Judgment Motion
• Borrowers Sue Lender Over Alleged Wrongs From Loan Modification Agreement

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Part of my practice includes representing lenders, as well as their mortgage loan servicers, entangled in consumer finance disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Seventh Circuit Rejects Borrower’s HAMP Contract Breach Claim: Part 2 of 2

Lesson. Statements by Lender’s employees about the status of a HAMP loan modification, coupled with Lender’s acceptance of reduced payments during the period of negotiations, should not result in a waiver of the countersignature condition precedent.

Case cite. Taylor v. JPMorgan Chase Bank, 958 F.3d 556 (7th Cir. 2020)

Legal issue. Whether lenders waive the HAMP countersignature requirement through statements made by their employees and acceptance of borrowers’ reduced payments.

Vital facts. Today follows-up last week’s post, which I recommend you read for context: Seventh Circuit Rejects Borrower’s HAMP Contract Breach Claim: Part 1 of 2.

Borrower claimed that employees of Lender told him that Borrower’s loan mod document submissions were “in receipt for processing” and that they “did not know of” Lender ever returning fully-executed copies of TPP’s to customers (despite the contract requirement). Also, Lender accepted Borrower’s reduced payments during the application period.

Procedural history. The U.S. District Court for the Northern District of Indiana granted Lender’s motion for judgment on the pleadings and dismissed Borrower’s breach of contract claim.

Key rules. As mentioned last week, the Taylor opinion has an informative introduction to HAMP. If you’re not familiar with the program, please read the case for background.

In Indiana, “a party who benefits from a condition precedent can waive it.” The waiver does not have to be in writing but “can be inferred if the waiving party shows an intent to perform its obligations under the contract regardless of whether the condition has been met.”

Holding. The Seventh Circuit affirmed the district court’s order dismissing the contract claim.

Policy/rationale. The Court found that Borrower failed to allege any action on Lender’s part from which the Court could reasonably infer that Lender intended to proceed with the trial modification without a signature by Lender. First, the alleged statements by Lender’s employees did not promise eligibility. “[Borrower’s] discussions with bank personnel cannot reasonably be viewed as binding [Lender]—with no accompanying writing of any kind—to each of the terms and conditions otherwise part of the TPP or, by extension, any agreement for a permanent mortgage modification.”

Second, as to the interim payments, the Court reasoned:

By its terms, the TPP proposal made plain that [Borrower] would need to keep paying on his mortgage. More specifically, the TPP stated that [Lender] would accept the modified and reduced payments whether or not [he] ultimately qualified for permanent loan modification. Indeed, the Frequently Asked Questions document appended to the TPP application explained that if the bank found him ineligible for HAMP, [Borrower's] first trial period payment would "be applied to [his] existing loan in accordance with the terms of [his] loan documents." So [Lender's] decision to accept [Borrower's] trial period payments was not inconsistent with its intent to rely on the countersignature condition precedent and cannot establish waiver.

Because there was no agreement for a loan modification, there was no claim for breach in Taylor. But, remain mindful that the Court dismissed the case based upon the allegations in Borrower’s complaint. It’s conceivable that a different set of facts could have caused a different result. Having said that, the language in these HAMP and TPP documents is awfully clear in terms of what needs to happen before a HAMP loan mod will occur.

In my next post, I'll discuss Borrower's promissory estoppel theory.  

Related post.  Lender’s Acceptance Of Partial Payments Did Not Waive Default

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My practice includes representing lenders, as well as their mortgage loan servicers, in connection with consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Seventh Circuit Rejects Borrower’s HAMP Contract Breach Claim: Part 1 of 2

Lesson. Under Indiana law, if a lender or its loan servicer does not sign the proposed HAMP TPP agreement, then there is no binding contract.

Case cite. Taylor v. JPMorgan Chase Bank, 958 F.3d 556 (7th Cir. 2020)

Legal issue. Whether the borrower had a viable Home Affordable Mortgage Program (HAMP) breach of contract claim against his lender.

Vital facts. Today’s post relates to the borrower’s appeal of the district court’s decision, about which I discussed in 2018: Indiana Federal Court Dismisses Borrower’s Contract Claim Against Lender Because Lender Never Executed The HAMP Trial Period Plan.

Lender informed Borrower of a HAMP-related loan mod opportunity and sent him a proposed Trial Period Plan (TPP) to be signed and returned in order to start the process. The agreement stated that the trial period would not begin until both sides signed off and until Lender returned the signed agreement to Borrower. Borrower executed, but Lender never did. The loan was never modified. The reason Lender did not execute the agreement and modify the loan was that Borrower did not qualify.

Procedural history. Borrower sued Lender alleging that Lender failed to honor the loan modification offer. As it relates to this post, Borrower sued for breach of contract. Lender filed a Rule 12(c) motion for judgment on the pleadings for failure to state a claim. The U.S. District Court for the Northern District of Indiana granted the motion, and Borrower appealed.

Key rules. The opinion in Taylor contains a very helpful introduction to HAMP. If you’re not familiar with the program or the TPP, you should read the case.

In Indiana, to have an enforceable contract, the elements of offer, acceptance, and consideration must be present. “The agreement comes into existence when one party (the offeror) extends an offer, and the other (the offeree) accepts the offer and its terms.” However, an offer can be qualified or held in abeyance until a condition is fulfilled. This is known as a condition precedent. “If an offer contains a condition precedent, a contract does not form unless and until the condition is satisfied.”

Holding. The Seventh Circuit affirmed the district court’s order dismissing the contract claim.

Policy/rationale. The Court concluded as follows:

The TPP unambiguously stated that the trial modification would "not take effect unless and until both [Borrower] and [Lender] sign it and [Lender] provides [Borrower] with a copy of this Plan with [Lender’s] signature." And if [Lender] did "not provide [Borrower] a fully executed copy of this Plan and the Modification Agreement," then "the Loan Documents will not be modified and this Plan will terminate." This language is clear and precise and created a condition precedent that required Borrower to countersign the TPP and return a copy to Borrower before the trial modification commenced.

The Court’s rationale was that, since the TPP never came into effect, no contractual obligations were imposed on Lender. One of the underlying policies behind the decision was that there “were other constraints on Lender's consideration of Borrower's loan modification request—not the least of which were imposed by the federal HAMP guidelines—but none could arise from the unsigned, ineffective TPP proposal.”

My next post will address Borrower’s waiver theory.

Related posts.

• Indiana Federal Court Dismisses Borrower’s Contract Claim Against Lender Because Lender Never Executed The HAMP Trial Period Plan
• Lender Overcomes Borrower’s Allegations Of Misconduct Surrounding Settlement Negotiations
• Indiana Upholds Dismissal Of Residential Borrower’s Tort Claims Arising Out Of Alleged HAMP Violations

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My practice includes representing lenders, as well as their mortgage loan servicers, in connection with consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Northern District of Indiana Court Dismisses Borrower’s FDCPA Claim Concerning Force-Placed Insurance Notices

Lesson. Force-placed insurance letters issued to a borrower following a Chapter 7 BK discharge generally should not violate the FDCPA.

Case cite. Mohr v. Newrez_ 448 F. Supp. 3d 956 (N.D. Ind. 2020)

Legal issue. Whether a mortgage loan servicer’s post-bankruptcy, force-placed hazard insurance notices to the borrower violated the Fair Debt Collection Practices Act (FDCPA).

Vital facts. Plaintiff borrower/mortgagor sue defendant servicer. Borrower had been discharged through a Chapter 7 bankruptcy. Borrower and servicer had agreed that servicer could foreclose on the subject real estate, and servicer (for the lender/mortgagee) filed the foreclosure action. Allegedly, “nothing was done to advance the foreclosure for six months.” While the foreclosure case was pending, the servicer sent the borrower three “warning letters” related to the expiration of borrower’s hazard insurance. Specifically, the letters informed borrower “that hazard insurance was required on his property, demand[ed] proof of insurance, and inform[ed] him that [servicer] would purchase hazard insurance for the property on his behalf and ultimately at his expense.” Two of the letters had language about the servicer being a debt collector but stated that, if the borrower were the subject of a bankruptcy stay, the notice was “for compliance and informational purposes only and does not constitute a demand for payment or any attempt to collect such obligation.”

Procedural history. The defendant filed a motion to dismiss the plaintiff’s complaint. The U.S. District Court for the Northern District of Indiana granted the motion. The borrower appealed to the Seventh Circuit, but the appeal was dismissed before any ruling.

Key rules.

The FDCPA “bans the use of false, deceptive, misleading, unfair, or unconscionable means of collecting a debt.”

The Court stated that “for the FDCPA to apply, however, two threshold criteria must be met. First, the defendant must qualify as a ‘debt collector[.]’” “Second, the communication by the debt collector that forms the basis of the suit must have been made ‘in connection with the collection of any debt.’” (quoting 15 U.S.C. §§ 1692c(a)–(b), 1692e, 1692g).

The opinion went on to tell us that “whether a communication was sent ‘in connection with the collection of any debt’ is an objective question of fact.” Having said that, “the FDCPA does not apply automatically to every communication between a debt collector and a debtor.” Further, the Act “does not apply merely because a letter bears a disclaimer identifying it as an attempt to collect a debt.”

The Seventh Circuit “applies a commonsense inquiry” into the question of whether a communication is “in connection with the collection of any debt.” The district court noted that the Seventh Circuit examines several factors, including:

whether there was a demand for payment, the nature of the parties' relationship, and the purpose and context of the communications—viewed objectively. None of these factors, alone, is dispositive.

Holding. The Court found that the three letters were not communications “‘in connection with’ the collection of a debt,” and thus did not fall “within the ambit of the FDCPA.”

Policy/rationale. The Court addressed each the factors involved in the “commonsense inquiry,” and for that detailed analysis please review the opinion. The Court also touched upon other published decisions across the country on the issue. The opinion is well-written and seems to suggest that the outcome may have been a tough call, particularly considering that it resulted in a dismissal of the complaint. Having said that, this quote from the opinion is pretty strong:

These letters notified plaintiff that insurance was required for the property, and that if he did not provide proof of insurance or obtain insurance himself, insurance would be obtained at his expense. The letters explained that it may be in plaintiff's interest to obtain his own insurance policy, and encouraged him to do so by identifying the ways in which force-placed insurance was not to his benefit. Viewed objectively, the letters were merely informational notices, explaining plaintiff's options.

Related posts.

• Worried About The Fair Debt Collection Practices Act?
• See also, the "Fair Debt Collection Practices" Category

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My practice includes representing lenders, as well as their mortgage loan servicers, in connection with consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected].  Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

 

Lender’s Failure To Comply With HUD’s Face-To-Face Meeting Requirement Dooms Indiana Mortgage Foreclosure Action

Lesson. A borrower/mortgagor may be able to defeat a foreclosure action if a lender/mortgagee does not comply with HUD regulations designed to be conditions precedent to foreclosure. For example, in certain cases, a failure to have an in-person meeting with the borrower/mortgagor before the borrower becomes more than three full months delinquent in payments, could lead to the dismissal of a subsequent foreclosure case.

Case cite. Gaeta v. Huntington, 129 N.E.3d 825 (Ind. Ct. App. 2019). NOTE: Gaeta is a so-called “memorandum decision,” meaning that, under Indiana law, the opinion is not supposed to be regarded as precedent or cited before any court. Nevertheless, the analysis and outcome are noteworthy.

Legal issue. Whether, in the context of a HUD-insured loan, a lender violated 24 C.F.R. 203.604 by failing to have a face-to-face meeting with the borrower before three monthly installments due on the loan went unpaid and, if so, whether the violation constituted a defense to the lender’s subsequent foreclosure suit.

Vital facts. The nine pages summarizing the underlying facts and the litigation in the Gaeta opinion tell a long and complex story. From the view of the Indiana Court of Appeals, the keys were: (1) the borrower defaulted under the loan by missing payments, (2) the lender failed to have a face-to-face interview with the borrower before three monthly installments due on the loan went unpaid, and (3) the lender filed a mortgage foreclosure action without ever having the face-to-face meeting.

Procedural history. This residential mortgage foreclosure case proceeded to a bench trial, and the court entered a money judgment for the lender and a decree foreclosing the mortgage. The borrower appealed.

Key rules.

24 C.F.R. 203.604(b) requires certain lenders to engage in specific steps before they can foreclose. One of those steps is to seek a face-to-face meeting with the mortgagor (borrower) “before three full monthly installments due on the mortgage are unpaid….” Click here for the entire reg.

There are exceptions to the face-to-face requirement, one of them being if the parties enter into a repayment plan making the meeting unnecessary. See, Section 604(c)(4).

The Court cited to and relied upon its 2010 opinion in Lacy-McKinney v. Taylor, Bean & Whitaker Mortgage, 937 N.E.2d 853 (Ind. Ct. App. 2010). Please click on the “related post” below for my discussion of that case.

“Noncompliance with HUD regulations [can constitute] the failure of the mortgagee to satisfy a HUD-imposed condition precedent to foreclosure.”

Not all mortgages are subject to HUD regs – only loans insured by the federal government.

Holding. The Court of Appeals reversed the trial court’s in rem judgment that foreclosed the mortgage. However, the Court affirmed the money judgment.

Policy/rationale. The Court concluded that the lender’s failure to conduct, or even attempt to conduct, a face-to-face meeting with the borrower before he became more than three months delinquent was a “clear violation” of applicable HUD regs. The lender made several arguments – very compelling ones in my view – as to why it substantially complied with the reg or did not violate the reg to begin with. The trial court agreed. The Court of Appeals disagreed, choosing to apply a strict reading of the law.

See the opinion for more because no two cases are the same, and the outcome could be different in your dispute. The silver lining, if there was one, for the lender was that the in personam judgment on the promissory note stood and thus created a judgment lien on the subject property. The debt was not extinguished - only the mortgage.

Related post. In Indiana, Failure To Comply With HUD Servicing Regulations Can Be A Defense To A Foreclosure Action 
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Part of my practice includes representing lenders, as well as their mortgage loan servicers, entangled in contested residential foreclosures and servicing disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

No Harm No Foul – 7th Circuit Dismisses RESPA Case

Lesson. A mortgage loan servicer can achieve summary judgment in a RESPA qualified written request case if the borrower fails to establish that the statutory violations caused any actual damage.

Case cite. Moore v. Wells Fargo, 908 F.3d 1050 (7th Cir. 2018)

Legal issue. Whether a borrower can recover RESPA-based damages “when the only harm alleged is that the response to the borrower’s qualified written request did not contain information … to help him fight a state-court mortgage foreclosure he had already lost.”

Vital facts. The plaintiffs in the Moore case were a borrower/mortgagor (Borrower) and his wife, and the defendant was the mortgage loan servicer (Servicer). The opinion thoroughly details the background of the loan, the default, the state court foreclosure and the plaintiffs’ bankruptcy case. This post focuses on Borrower’s RESPA qualified written request (QWR), which Borrower sent to Servicer about two months before a scheduled sheriff’s sale of the Borrower’s house. Two days before Servicer’s response was due, plaintiffs filed the subject federal court case against Servicer, apparently as part of an effort to delay the sale.

Servicer timely responded to the QWR, which included 22 “wide-ranging” questions, with a three-page letter and 58 pages of enclosures. The response addressed most but not all of Borrower’s questions. About six weeks later, the plaintiffs’ house was sold at a sheriff’s sale. Borrower alleged that he suffered damages, including emotional distress injuries, arising out of the fact that he had to fight the state court foreclosure case without certain information requested from Servicer.

Procedural history. The district court granted Servicer’s summary judgment motion, and plaintiffs appealed to the Seventh Circuit.

Key rules. The Real Estate Settlement Procedures Act (RESPA) at 12 U.S.C. 2601 “is a consumer protection statute that regulates the activities of mortgage lenders, brokers, servicers, and other businesses that provide services for residential real estate transactions.”

Section 2605(e) “imposes duties on a loan servicer that receives a ‘qualified written request’ for information from a borrower.” Among other things, Section 2605(e)(2) requires servicers, upon receipt of a QWR, to do one of three things within 30 days: (1) correct the account and notify the borrower, (2) explain why a correction is not needed, or (3) provide the requested information or explain why it cannot be obtained.

Subsection (f) provides a private right of action for actual damages that result from any violations of Section 2605. However, RESPA does not provide relief for “mere procedural violations … [only] actual injury” caused by the statutory violations.

Holding. The Seventh Circuit affirmed the district court’s summary judgment in favor of Servicer.

Policy/rationale. The Court noted that the policy behind RESPA is “to protect borrowers from the potential abuse of the mortgage servicers’ position of power over borrowers, not to provide borrowers a federal discovery tool to litigate state-court actions.” The Court concluded that, even assuming an incomplete response to the QWR, Borrower did “not present any evidence that there is a material dispute regarding any harm he suffered due to this violation.” The opinion in Moore tackles each item of Borrower’s alleged damages, including out-of-pocket expenses and emotional distress injuries, so please review the decision for additional information.

Related post.

Borrower’s Failure To Prove Actual Damages Leads To Summary Judgment In RESPA Case
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Part of my practice involves defending mortgage loan servicers in lawsuits brought by borrowers/consumers. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Mortgage Loan Servicer Sued For Race Discrimination After Denying Loan Assumption

Lesson. Creditors cannot discriminate against an applicant for a credit transaction based on race, but a plaintiff applicant needs to put forth evidence of discrimination in order to survive a creditor’s motion for summary judgment.

Case cite. Sims v. New Penn, 906_F.3d_678 (7th Cir. 2018)

Legal issue. Whether there was sufficient evidence of racial discrimination to avoid the entry of summary judgment against the Plaintiffs.

Vital facts. Plaintiffs, an African-American couple, bought a house that was subject to a mortgage that secured a loan to the seller. The loan later went into default. Upon learning of the mortgage and the default, the Plaintiffs tried to assume the loan in order to avoid a foreclosure sale. This went on for years. The mortgage contained language that purchasers of the mortgaged property could assume the loan if the loan servicer (a) received information to evaluate the purchasers “as if a new loan were being made” and (b) determined that the assumption “would not impair its security.”

At one point in time, the defendant loan servicer advised the Plaintiffs of what was needed in order to apply for a loan assumption, and the servicer postponed a foreclosure sale to give the Plaintiffs an opportunity to submit the required paperwork. The servicer contended that the Plaintiffs did not submit a proper application. In addition, the servicer required that the loan be made current before an assumption could occur but refused to disclose information about the status of the loan without the seller/mortgagor’s written consent, which evidently never occurred. In the end, the servicer did not approve a loan assumption.

The Plaintiffs alleged that the loan servicer denied the loan assumption based upon race. They alleged that they were treated rudely. The Plaintiffs also claimed that an African-American employee of the servicer told them over the phone: “[t]hese people, you know how they treat us.”

Procedural history. The Plaintiffs sued the loan servicer in federal court and alleged race discrimination under the Equal Credit Opportunity Act, 15 USC 1691-1691f (ECOA). The United States District Court for the Northern District of Indiana entered summary judgment for the defendant loan servicer, and the Plaintiffs appealed to the Seventh Circuit.

Key rules. The ECOA makes it “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race….” Section 1691(a)(1).

Holding. The Seventh Circuit affirmed the district court’s ruling.

Policy/rationale. The Plaintiffs argued that the defendant loan servicer discriminated against them when the servicer prohibited the Plaintiffs from assuming the loan. Specifically, the Plaintiffs claimed that the servicer delayed the application process and required them to first make all of the seller/mortgagor’s overdue payments as a condition of assumption, which condition was not required by the mortgage.

The Court concluded that the Plaintiffs’ “evidence of racial discrimination [was] too speculative to establish a dispute of material fact.” For the Plaintiffs to survive summary judgment, they needed to put forth more evidence than the employee’s alleged statement, which the Court found to be “vague and require[d] too much speculation to conclude that their race motivated [the servicer] to require them to satisfy [the seller’s] outstanding loan payments.” Further, the Plaintiffs did not tender any proof to dispute the servicer’s evidence that the Plaintiffs never produced a complete application.

As an aside, there was a question as to whether the ECOA applied in the first place because the Plaintiffs were trying to assume credit rather than “extend, renew or continue” credit.

Related posts.

• Discrimination Allegations Unavailing For Borrower In Post-Foreclosure Eviction
• 8 of 9 Consumer Finance Race-Based Claims Against Servicer Dismissed In Recent Indiana Federal Court Case

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I sometimes represent mortgage loan servicers in foreclosure-related litigation. My firm also has employment lawyers who defend race discrimination cases. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Residential Borrower Denied Second Settlement Conference

Lesson. If borrowers fail to appear at a court-ordered, pre-judgment settlement conference that they requested, then their post-judgment request for a second conference will be denied. Borrowers – appear at the conference. Lenders – move toward a judgment if borrowers fail to comply with the court’s settlement conference order.

Case cite. El v. Nationstar Mortgage, 108 N.E.3d 919 (Ind. Ct. App. 2018)

Legal issue. Whether the trial court abused its discretion in denying a borrower’s motion for a second, post-judgment settlement conference.

Vital facts. El was a standard residential mortgage foreclosure case. The summons and complaint served upon the borrower contained the appropriate notices to the borrower regarding her rights, including the right to a settlement conference with the mortgage company. The borrower appeared in the action pro se and requested a settlement conference. However, she failed to show up at the court-ordered conference. She also failed to submit certain settlement-related documents required by court's order.

Procedural history. Following the settlement conference, which the lender attended, the lender filed a motion for an in rem summary judgment against the borrower. The trial court granted the motion. The borrower then moved for a second settlement conference. The trial court denied the motion, and the borrower appealed.

Key rules. Ind. Code 32-20-10.5, entitled “Foreclosure Prevention Agreements for Residential Mortgages,” outlines the rules and procedures surrounding the facilitation of settlement conferences and loan modifications. In particular, Section 10 outlines in detail rights and responsibilities of the parties and the courts with regard to settlement conferences.

Although Section 10 “contemplates the possibility of” a second settlement conference, the trial court’s decision on the matter is discretionary:

For cause shown, the court may order the creditor and the debtor to reconvene a settlement conference at any time before judgment is entered. 

Holding. The Indiana Court of Appeals affirmed the trial court’s decision.

Policy/rationale. The El opinion indicates that both the lender and the trial court complied with the statutory requirements of I.C. 32-20-10.5. The borrower did not. The Court of Appeals noted that the borrower filed her second motion two months after judgment had been entered. Interestingly, the Court went so far as to say the trial court had no discretion to reconvene the settlement conference because the case had already been resolved. The Court also stated that the borrower did not show any “cause” for a second bite at the apple.

Related posts.

• Indiana's Pre-Suit Notice And Settlement Conference Statute Not Intended For Commercial Foreclosures
• Certain Summonses In Indiana Residential Mortgage Foreclosure Cases Deemed Confidential
• Indiana State Courts Cannot Modify (Cram Down) A Mortgage
• Indiana Code 32-30-10.5-8.6: Can Foreclosing Lenders Obtain Provisional Court Orders Requiring Borrowers To Make Monthly Payments?
• Lender Overcomes Borrower’s Allegations Of Misconduct Surrounding Settlement Negotiations

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Lenders and mortgage loan servicers sometimes engage me to handle contested foreclosure cases. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Perplexing Result In “Bona Fide Mortgagee” Case

Lesson. The bona fide mortgagee defense, where a lender claims priority in title over another lender or an owner, may be a difficult on which to win on summary judgment. These cases can be somewhat fact sensitive. If filing an MSJ, dot i’s and cross t’s for all the necessary undisputed facts.

Case cite. Chmiel v. US Bank, 109 N.E.3d 398 (Ind. Ct. App. 2018)

Legal issue. Whether the assignee of a mortgage was a “bone fide mortgagee,” such that the assignee’s lien was valid and enforceable.

Vital facts. The thirty-page Chmiel opinion arises out of a quiet title dispute and is chock full of facts and legal issues. For purposes of this post, there was a dispute between an individual, who I will call “Son,” and the assignee of a mortgage loan, which I will call “Mortgagee.” Another character in this story is the Son’s mother (“Mom”). Here’s what happened:

1991: Mom deeded her real estate to Son subject to her life estate, meaning that Mom basically owned the property until her death at which point title passed to Son.

2005: Son purportedly deeded his residual interest in the real estate back to Mom, and Mom then got a mortgage loan secured by the property.

2007: Son wrote a letter to Mom’s mortgage lender/servicer at the time and disputed the validity of the 2005 deed. Specifically, Son claimed that his signature on the deed was forged and that, to the extent the mortgage loan was valid, it was only secured by Mom’s life estate interest and not Son’s residual ownership interest. In other words, Son claimed that the mortgage was invalid or, at best, the mortgage was only valid as to Mom during Mom’s lifetime.

2009: Son wrote a second letter to the mortgage lender/servicer at the time.

2010: Son wrote a third letter to the mortgage lender/servicer at the time. (The servicer and holder of the mortgage loan changed over the years). This time, the mortgage servicer simply acknowledged receipt of the letter.

2011: Mom defaulted under the mortgage loan. MERS, as nominee of the mortgage lender, executed an assignment of mortgage to Mortgagee, which initiated foreclosure proceedings. Son intervened in the case and claimed that the 2005 deed was forged. Mom later filed bankruptcy, which stayed the foreclosure, and a Chapter 13 Plan was approved.

2015: Mom died, and the Plan payments stopped.

Procedural history. In 2016, Son filed the instant quiet title action to, among other things, terminate Mortgagee’s lien. Mortgagee counterclaimed to foreclose its mortgage. The trial court granted summary judgment for Mortgagee, and Son appealed.

Key rules. To qualify as a bona fide mortgagee, one must purchase in good faith, for valuable consideration, and without notice of outstanding rights of others. Indiana law recognizes both constructive and actual notice. Notice is actual when “it has been directly and personally given to the person to be notified.” Further, in Indiana, actual notice may be implied or inferred from “the fact that the person charged had means of obtaining knowledge that he did not use.”

Holding. The Indiana Court of Appeals reversed the trial court and found there to be genuine issues of material fact regarding whether Mortgagee was a bona fide mortgagee – in other words, whether its mortgage was valid and enforceable. The Court therefore sent the case back for a trial.

Policy/rationale. Son contested the “consideration” and “notice” elements of Mortgagee’s defense. Regarding consideration, the Court found that, although the original lender received money/consideration from Mom for the mortgage, “Mortgagee did not designate any evidence of the consideration it gave for the assignment” of the loan. Mortgagee, or rather its servicer, didn’t help its cause when it answered discovery actually denying, apparently on technical terms, that it gave consideration.

As to notice, Son asserted that Mortgagee received actual notice of his forgery claims before Mortgagee became the assignee of the loan. Specifically, Son pointed out that, in the bankruptcy case, the mortgage servicer (as an agent of the mortgagee/holder of the loan) received his 2010 letter - before MERS assigned the mortgage to Mortgagee. Thus, there was a question of fact as to whether Mortgagee, via its loan servicer, had actual notice of Son’s rights/interests before Mortgagee acquired the loan.

Honestly, I struggle with the Court’s analysis and, frankly, disagree with its conclusion on the bona fide mortgagee issue. The result (denial of summary judgment) may have been correct simply because of the factual density of the case. Nevertheless, to me, the Court’s stated rationale focused on the incorrect time frame. The Court examined the circumstances surrounding the loan assignment transaction, as opposed to the facts associated with the original loan closing. The opinion identified no evidence that, in 2005, the original lender/mortgagee had any reason to believe that the recorded 2005 deed was invalid. In other words, the original lender had to be a bone fide mortgagee. To me, the 2005 closing was the operative moment, not what the assignee paid or knew years later. My view is that the assignee should step into the shoes of the original assignor and possess all its rights and defenses. Case closed. The opinion did not address my theory one way or the other, however, so admittedly I may be missing something. Please email me or post a comment below if you have any insights.

Related posts.

• Absence Of Legal Description Dooms Mortgage In Lien Priority Dispute
• Indiana Court Discusses Whether A Lender Was A “Bona Fide Mortgagee”

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Lender Overcomes Borrower’s Allegations Of Misconduct Surrounding Settlement Negotiations

Lesson. In the wake of an undisputed consumer/residential mortgage loan default, lenders and their servicers generally are not compelled to enter into loan modification agreements with their borrowers. Lenders really must only participate in a settlement conference, if requested, or consider whether a borrower qualifies for a loan mod.

Case cite. Feehan v. Citimortgage, 97 N.E.3d 639 (Ind. Ct. App. 2018).

Legal issue. Whether the lender should have been denied the remedy of foreclosure based upon alleged misconduct during and after a court-ordered settlement conference.

Vital facts. Borrower executed a promissory note that was secured by a mortgage on his real property. Borrower later defaulted under the loan, at which point the lender sent him a “notice and cure” letter. Following the borrower’s failure to cure, the lender filed a mortgage foreclosure action. The parties then became involved in lengthy and somewhat complicated workout discussions following the trial court’s order compelling a settlement conference. Distilled to their essence, the borrower’s contentions were (1) the lender did not participate in the settlement conference in good faith, mainly because a lender rep with settlement authority did not appear in person and (2) the lender refused to consider a loan modification. The opinion (link above) outlines the circumstances in greater detail. There was one other significant fact: the subject loan was a conventional non-government-sponsored enterprise with a private investor, which denied all of the borrower’s loan mod requests based in part on the housing expense-to-income ratio. Thus this was not a HUD loan, which may or may not have triggered different loan mod standards.

Procedural history. The trial court granted summary judgment and a decree of foreclosure in favor of the lender. The borrower appealed.

Key rules.

Ind. Code 32-30-10.5-9 states, in part, that “a court may not issue a judgment of foreclosure until a creditor has given notice regarding a settlement conference and, if the debtor requests a conference, upon conclusion of the conference the parties are unable to reach agreement on the terms of a foreclosure prevention agreement.” (This statute does not apply to commercial foreclosures.)

As with some Indiana counties, St. Joseph County has a local rule that also provides for the scheduling of a settlement conference upon a demand by the borrower.

Feehan cited to a number of cases from Indiana and elsewhere holding that alleged violations of the Home Affordable Modification Program (HAMP) do not give rise to a private right of action by a borrower against a lender or its servicer.

Holding. The Indiana Court of Appeals affirmed the summary judgment in favor of the lender:

[The lender] has satisfied its burden of establishing that, even if another foreclosure-prevention settlement conference was scheduled and a personal representative of [the lender] with the authority to enter a loan modification or make a loan modification offer was present at the conference, [the borrower] is not eligible for or entitled to a loan modification, a loan modification offer, or further consideration of the possible loan modification options.

Policy/rationale. The defendant borrower in Feehan claimed that the Court should have denied the lender the equitable remedy of foreclosure given the lender’s alleged misconduct surrounding the settlement conference and its failure to appropriately process the borrower’s loan mod applications. In response, the Court reasoned that, among other things, the borrower was unable to point to any terms in the loan documents requiring the lender or its servicer to consider, upon a default for non-payment, a loan modification on any certain terms. Indeed the borrower never went so far as to assert that the lender was required to agree to a particular loan modification. In the end, the lender was able to designate evidence establishing that it did consider loss mitigation and loan mod options but determined that the borrower was not eligible.

Related posts.

• Indiana's Pre-Suit Notice And Settlement Conference Statute Not Intended For Commercial Foreclosures
  Notices Of Default: Who Should Send The Letter?
• Indiana Federal Court Dismisses Borrower’s Contract Claim Against Lender Because Lender Never Executed The HAMP Trial Period Plan
  
• Indiana Code 32-30-10.5-8.6: Can Foreclosing Lenders Obtain Provisional Court Orders Requiring Borrowers To Make Monthly Payments?
  
• Indiana Upholds Dismissal Of Residential Borrower’s Tort Claims Arising Out Of Alleged HAMP Violations
  
• In Indiana, Failure To Comply With HUD Servicing Regulations Can Be A Defense To A Foreclosure Action

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Part of my practice is to represent lenders, as well as their mortgage loan servicers, entangled in contested foreclosures. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Borrower’s Failure To Prove Actual Damages Leads To Summary Judgment In RESPA Case

Lesson. A mortgage loan servicer in a RESPA case can successfully defend the matter if it can show that it did not injure the borrower/mortgagor, even if the defendant did not adequately respond to the qualified written request (QWR).

Case cite. Linderman v. U.S. Bank, 887 F.3d 319 (7th Cir. 2018)

Legal issue. Whether Borrower’s alleged non-receipt of a Servicer’s QWR response caused or aggravated her alleged injuries.

Vital facts. Plaintiff Borrower bought a house in 2004 and lived there with multiple family members. Borrower’s mother later asked her to move out, at which point Borrower stopped paying on her mortgage loan. In 2014, the last remaining family member moved out of the house, leaving it vacant and subject to vandalism. The vandalism produced insurance money that went to Defendant mortgage loan servicer (Servicer) to be held in escrow. Servicer disbursed a portion of the insurance proceeds to pay a contractor, which later abandoned the job due to fears over being paid in full for its work. In 2015, the house was vandalized twice more and was further damaged from a storm. Borrower sent Servicer a letter on September 5, 2015 asking about the status of her loan and how the 2014 insurance money was being handled. Servicer sent a response ten days later, but Borrower said she never received it. Borrower claimed that suffered from depression and anxiety arising out of the issues with her house, as well as problems from divorce, foreclosure proceedings and money concerns.

Procedural history. Based upon the assertion that she did not receive the letter response from Servicer, Borrower filed suit against Servicer in federal court under the Real Estate Settlement Procedures Act (RESPA). The U.S. District Court for the Southern District of Indiana granted summary judgment for Servicer, and Borrower appealed to the Seventh Circuit Court of Appeals.

Key rules. For purposes of their decisions, both the district court and the Seventh Circuit in Linderman assumed that Borrower’s September 5, 2015 letter to Servicer constituted a QWR under RESPA, 12 USC 2605(e)(1)(B). The Linderman opinion also assumed that Servicer breached RESPA based upon Borrower’s allegation that she did not receive the letter response, even though RESPA, including specifically 12 CFR 1024.11, provides that the mailing of a timely and properly-addressed response to a QWR likely satisfies the requirements under the statute – whether or not the response is received. Even with these favorable assumptions, Borrower still lost.

RESPA requires servicers upon receipt of a QWR to, among other things, (a) correct errors in records or (b) provide appropriate information if no error needs fixing. Section 2605(e)(2)(A-B). RESPA also requires servicers to refrain for sixty days from taking steps that would jeopardize a borrower’s credit rating. Section 2605(e)(3). But to ultimately prevail on a claim for money damages, a borrower still must prove “actual damages” under Section 2605(f)(1)(A) – something Borrower failed to do in Linderman.

Holding. The Seventh Circuit affirmed the summary judgment for Servicer.

Policy/rationale. Borrower contended that Servicer’s alleged lack of response to the QWR aggravated her house, family and financial-related problems, but the Court found that “she did not explain how.” The Court reasoned that “the ongoing foreclosure and need of money for repairs,” and not the alleged lack of response to the QWR, contributed to Borrower’s mental issues. Importantly, RESPA “does not require a servicer to pay money in response to a [QWR].” The Court went on to preach that Borrower may have had state law tort or contract remedies available to her that she did not pursue against various parties. “The sole claim in this [federal court suit] is that [Servicer] injured her by not adequately responding to her letter. That claim fails for the reasons we have given.”

Related posts.

• 7th Circuit Rejects Alleged RESPA Violations Based Upon Inadequate QWR
• Another Indiana Decision Concerning RESPA: Mixed Result For Servicer

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My practice includes defending lenders, as well as their mortgage loan servicers, in federal court cases brought by borrowers. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Indiana Federal Court Dismisses Borrower’s Contract Claim Against Lender Because Lender Never Executed The HAMP Trial Period Plan

Lesson. Absent a fully-executed TPP, signed by a lender or its mortgage loan servicer, no enforceable contract exists, and a borrower’s claim against a lender based upon a TPP, or under HAMP, will be dismissed. In other words, an alleged loan modification agreement requires the signature of the lender.

Case cite. Taylor v. JP Morgan, 2017 WL 3754607 (N.D. Ind. 2017) (Judge Lozan's opinion); Taylor v. JP Morgan, 2017 WL 7370978 (N.D. Ind. 2017) (Magistrate Judge Martin's order)

Legal issue. The main question in Taylor was whether the Home Affordable Modification Program's Trial Period Plan constituted an enforceable contract between a lender and a borrower. A secondary issue was whether the lender was liable for breach of an implied covenant of good faith and fair dealing.

Vital facts. Borrower and his residential/consumer lender discussed a loan modification pursuant to the Home Affordable Modification Program (“HAMP”). Specifically, the lender sent the borrower a letter offering a HAMP Trial Period Plan (“TPP”). The TPP had certain terms and included certain steps for the borrower to complete before the lender would modify the mortgage loan. One of the conditions to the TPP was that the lender must provide the borrower with a fully-executed copy of the TPP; otherwise, there would be no loan modification. In Taylor, the borrower purportedly submitted the necessary paperwork, but the lender never returned an executed copy of the TPP. The borrower claimed that he qualified for a loan modification under HAMP but that the lender improperly denied the request.

Procedural history. The borrower filed a breach of contract action against the lender. The lender filed a motion for judgment on the pleadings. The U.S District Court for the Northern District of Indiana granted the lender’s motion and dismissed the borrower’s case.

Key rules.

Indiana case law involving HAMP provides that the language of the TPP is clear that it is not an offer by lenders that borrowers can accept simply by providing further documentation. Instead, the TPP is an invitation for borrowers to apply to the program, which requires the borrowers’ compliance to be considered. Cases around the country generally provide that a TPP does not take effect until the lender provides a signed copy.

There is no separate cause of action in cases like these for breach of an implied covenant of good faith and fair dealing.

Holding. Since the lender was required to execute the TPP but did not, no contract was formed and thus no viable breach of contract claim existed. Also, the Court rejected the borrower’s claim breach of good faith and fair dealing. (This case is now on appeal to the 7th Circuit.)

Policy/rationale.

TPP’s are not agreements to provide borrowers with a loan at a specified date, but rather are agreements governing obligations of both lenders and borrowers over a trial period after which lenders may extend a separate permanent loan modification should lenders determine that borrowers qualify.

The alleged contract was not for the sale of goods governed by the Uniform Commercial Code and was not the sale of insurance. Moreover, the mortgage did not give rise to any fiduciary or other special relationship. Thus the borrower’s complaint did not articulate the independent tort of breach of good faith/fair dealing.

Related post. Indiana Upholds Dismissal Of Residential Borrower’s Tort Claims Arising Out Of Alleged HAMP Violations
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I represent lenders, as well as their mortgage loan servicers, in connection with contested mortgage foreclosures and related litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Indiana Federal Court Concludes That Servicer Is Not A Debt Collector and Did Not Violate The IHLPA

Lesson. Although servicers usually are not the actual owners of residential mortgage loans, they nevertheless may be the proper party to resolve the foreclosure action or to negotiate a settlement. Also, unless the debt was in arrears when the servicer obtained its role, the Fair Debt Collection Practices Act will not apply to communications by the servicer.

Case cite. Turner v. Nationstar, 2017 U.S. Dist. LEXIS (S.D. Ind. 2017) (pdf).

Legal issues. Whether the defendant loan servicer was a “debt collector” subject to the Fair Debt Collection Practices Act (“FDCPA”), specifically 15 U.S.C. 1692e(2)(A). Also, whether the defendant committed a “deceptive act” in violation of the Indiana Home Loan Practices Act (“IHLPA”), Ind. Code 24-9-1 et seq.

Vital facts. For background, click on last week’s post, which also discussed Turner. The borrower claimed that, during a mediation conference, the servicer committed a deceptive act by leading the borrower to falsely think that the servicer owned the loan “such that [borrower] believed he was bargaining with the owner of the loan when he agreed to exchange his counterclaim against [servicer] for a loan modification.” The borrower also alleged that, after the entry of the state court foreclosure judgment, the servicer wrongfully sent the borrower account statements with a debt amount different from the judgment amount.

Procedural history. The defendant servicer filed a motion for summary judgment. Judge Young’s ruling on the motion is the subject of this post.

Key rules.

The IHLPA at I.C. 24-9-2-7(1)(a) defines a deceptive act as:

(1) an act or a practice as part of a mortgage transaction . . . , in which a person at the time of the transaction knowingly or
intentionally:
(A) makes a material misrepresentation; or
(B) conceals material information regarding the terms or conditions of the transaction. . . .

For the FDCPA to apply, “two threshold criteria must be met:” (1) the defendant must be a “debt collector” and (2) the communication by the debt collector forming the basis of the claim “must have been made in connection with the collection of any debt.” 15 U.S.C. 1692a(6), c, e and g.

A “debt collector” is:

any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Loan servicing agents are not “debt collectors” unless the debt was in arrears at the time the servicer obtained that role.

Holding. The Southern District of Indiana granted summary judgment for the servicer on the IHLPA and FDCPA claims brought by the borrower.

Policy/rationale.

As to the IHLPA action, the Court concluded that the servicer did not conceal “material” information about its role/status because the servicer established that it was the proper party to resolve the foreclosure action. In other words, whether the servicer was or was not the owner of the loan was immaterial in the Court’s view.

Regarding the FDCPA claim, the Court found that the defendant was the agent of the original creditor and acted as the servicer “well before [the loan] was in default.” As such, the servicer did not meet the definition of a “debt collector” under the FDCPA.

Related posts.

Click on the "Fair Debt Collection Practices" category to your right

Loan Servicers As Plaintiffs In Foreclosure Cases (also the Turner dispute)

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I frequently represent lenders, as well as their mortgage loan servicers, entangled in consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Another Indiana Decision Concerning RESPA: Mixed Result For Servicer

Lesson. In defending RESPA QWR cases, first examine whether the subject letter is in fact a QWR. Next, assess whether the borrower suffered any actual damages arising out of the alleged failure to respond.

Case cite. Turner v. Nationstar, 2017 U.S. Dist. LEXIS (S.D. Ind. 2017) (.pdf).

Legal issue. Whether the lender/servicer was entitled to summary judgment on the borrower’s three theories for RESPA violations.

Vital facts. The procedural history and the underlying facts of Turner are quite involved. For purposes of today’s post, which focuses on the REPSA claims, the borrower sent three letters (alleged “QWRs,” see last week’s post) to the defendant’s lawyer seeking information. Letter 1 asked for the name of the owner of the loan. The defendant (a residential mortgage loan servicer) responded to that letter by identifying both the servicer and the owner of the loan. Later, the borrower, following the entry of a state court foreclosure judgment and a denial of a loan modification request, sent Letter 2 asking for the “amount of the proposed monthly payment” under a requested loan modification that had been denied. That information was never provided. The third alleged QWR, Letter 3, surrounded an inquiry into payments the borrower made that had only been partially refunded, despite a request for a full refund. The servicer did not respond to that letter either.

Procedural history. The parties ultimately entered into a Home Affordable Modification Agreement that vacated the foreclosure judgment. Despite the settlement, the borrower filed suit against the servicer in federal court alleging, among other things, violations of the Real Estate Settlement Procedures Act (“RESPA”). The servicer filed a motion for summary judgment that led to Judge Young’s opinion, which is the subject of today’s post.

Key rules.

1. Borrowers may recover actual damages, including emotional distress, caused by a failure to comply with a Section 2605(e) qualified written request, per Section 2605(f)(1)(A).
2. 12 U.S.C. 2605(e)(1)(B) defines a QWR. Case law has interpreted that provision to include “any reasonably stated written request for account information.” However, the duty to respond “does not arise with respect to all inquiries or complaints from borrowers to servicers.” The focus is on the servicing of the loan, not on the origination of the loan or modifications to the loan.
3. 12 U.S.C. 2605(e)(1) and (2) deal with the timing of certain responses to certain QWRs. For example, Section (e)(2)(C)(i) sets a thirty-day deadline for certain servicing requests related to loan mods. See also 12 C.F.R. 1024.41 regarding timing for loss mitigation requests.
4. 12 U.S.C. 2605(k)(1)(D) requires a servicer to provide within ten business days “the identity, address, and other relevant contact information about the owner or assignee of the loan” when requested by the borrower.

Holding. The Southern District of Indiana granted in part and denied in part the servicer’s summary judgment motion. The servicer prevailed on the Section 2605(k)(1)(D) and Section 2605(e)(2) claims about Letters 1 and 2. The Court denied summary judgment on the Section 2605(e)(1) claim for Letter 3.

Policy/rationale. As to Letter 1, the Court noted that the faulty timing of the response to the QWR did not cause actual damages. The distress alleged instead arose out of other factors in the borrower’s life. Letter 2 concerning loss mitigation options did not qualify as a QWR in the first place. Information related to a failed loan mod falls outside of RESPA. However, the Court concluded that Letter 3, a letter request seeking information about the servicer’s refund of payments made to stave off foreclosure, was a viable QWR because the letter involved the servicing of the loan. Since the servicer never responded to that letter, the claim regarding Letter 3 passed the summary judgment stage, although the opinion did not address the matter of damages.

Related posts.

• 7th Circuit Rejects Alleged RESPA Violations Based Upon Inadequate QWR
• Borrower’s Claims For Violations of RESPA, TILA, FDCPA, RICO And FPRAM, Together With Claims for Various Torts, Dismissed

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I frequently represent lenders, as well as their mortgage loan servicers, entangled in consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

7th Circuit Rejects Alleged RESPA Violations Based Upon Inadequate QWR

Lesson. Careful compliance by mortgage servicers should lead to a favorable summary judgment rulings in RESPA cases brought by borrowers.

Case cite. Perron v. JP Morgan Chase, 845 F.3d 852 (7th Cir. 2017).

Legal issue. Whether the lender violated the Real Estate Settlement Procedures Act (RESPA), specifically the statutory duty to respond to a “qualified written request” from the borrower.

Vital facts. The lender erroneously paid the wrong insurer for homeowner’s coverage using funds from the borrowers’ escrow account. However, the borrowers switched insurers without informing the lender. Upon learning of the error, the lender paid the new insurer and informed the borrowers that the prior insurer would be sending a refund. The lender requested that the borrowers remit the refund to the lender so the depleted escrow account could be replenished, but the borrowers failed to do so. As a result, the lender adjusted the monthly mortgage payment to make up for the shortfall, but the borrowers failed to pay the higher amount and went into default. Instead of curing, the borrowers sent a RESPA “qualified written request” to the lender and demanded reimbursement of their escrow. The lender responded to the requests but still got sued.

Procedural history. The borrowers filed an action in federal court alleging that the RESPA responses were inadequate and that they had suffered 300k in damages. The district court granted summary judgment to the lender, and the borrowers appealed to the Seventh Circuit.

Key rules. The Perron opinion provides a great summary of the QWR duties in RESPA, 12 U.S.C. 2601-2617. Here are some of the key legal principles outlined by the Court:

1. Generally, the statute “requires mortgage servicers to correct errors and disclose account information when a borrower sends a written request for information” known as a “qualified written request” or QWR.
2. RESPA gives borrowers a cause of action for actual damages incurred “as a result of” a failure to comply with the duties imposed on servicers of mortgage loans.
3. If borrowers prove the servicer engaged in a “pattern or practice of noncompliance,” then statutory damages of up to 2k are available. Also, successful plaintiffs may recover attorney fees.
4. RESPA does not impose a duty to respond to all borrower inquiries or complaints. The statute “covers only written requests alleging an account error or seeking information relating to loan servicing.”
5. “Servicing” means “receiving … payments from a borrower pursuant to the terms of the loan … and making the payments … with respect to the amounts received from the borrower as may be required by the terms of the loan.” 12 U.S.C. 2605(i)(3). A QWR “can’t be used to collect information about, or allege an error in, the underlying mortgage loan.”
6. Upon receipt of a valid QWR, RESPA requires the servicer to take the following action “if applicable”: (A) make appropriate corrections in the account, (B) after investigation, provide a written explanation or clarification explaining why the account is correct, (C) provide the information requested by the borrower or explain why it is unavailable and (D) provide the contact information of a servicer employee who can provide further assistance. 12 U.S.C. Sec 2605(e)(2).

Holding. The Seventh Circuit affirmed the district court’s summary judgment for the lender.

Policy/rationale. In Perron, the lender “almost perfectly” complied with its RESPA duties by providing a complete account and payment history, as well as a complete accounting of the escrow payments. The only area where the lender fell short was its failure to identify one of the insurers at issue, but the Court noted that the borrowers already had that information. The Court concluded that the borrowers were not harmed by an uncorrected account error or lack of information. “Simply put, [the borrowers] weren’t harmed by being in the dark because the lights were on the whole time.”

Related posts.

Borrower’s Claims For Violations of RESPA, TILA, FDCPA, RICO And FPRAM, Together With Claims for Various Torts, Dismissed
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I frequently represent lenders, as well as their mortgage loan servicers, entangled in consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Borrower’s Claims For Violations of RESPA, TILA, FDCPA, RICO And FPRAM, Together With Claims for Various Torts, Dismissed

Following his unsuccessful defense of a state court foreclosure action, a borrower filed a multi-count complaint in federal court against six defendants. Mains v. Citibank, et. al., 2016 U.S. Dist. LEXIS 43874 (S.D. Ind. 2016) (.pdf) is a 34-page opinion by Judge Barker in which she methodically explains why all the counts against all the defendants must be dismissed with prejudice based upon the Rooker-Feldman doctrine.

“At the core” of the borrower’s case, he alleged that the defendants, which included lenders and law firms, (1) wrongfully assigned the subject promissory note, (2) lacked standing to foreclose the subject mortgage and (3) committed fraud against him and the state court. The borrower asserted the following legal claims: (a) Real Estate Settlement Procedures Act [RESPA] violations, (b) Truth In Lending Act [TILA] violations, (c) Ind. Code 32-30-10.5 Indiana Foreclosure Prevention Agreements for Residential Mortgages violations, (d) negligent and intentional infliction of emotional distress, (e) fraud, (f) negligence, (g) Fair Debt Collection Practices Act [FDCPA] violations and (h) violations of the Racketeer Influenced and Corrupt Organizations Act [RICO].  In other words, the borrower threw in everything but the kitchen sink....

Even though the case ultimately was dismissed on jurisdictional grounds, Judge Barker’s court took the time and effort to analyze the substantive legal claims involving RESPA, TILA, I.C. 32-30-10.5, torts, fraud, FDCPA and RICO. If lenders or their counsel face these claims in a similar context (following a state court foreclosure case), the Mains opinion would be a good place to start one’s research.

In the end, this case is another in line of recent federal court cases I’ve discussed that dismisses a borrower’s post-foreclosure claims and defenses. For more on the Rooker-Feldman doctrine, click here for my 8/24/16 post.

UPDATE:  Seventh Circuit Affirms Dismissal Of Borrower’s Post-Foreclosure Federal Claims Based On Rooker-Feldman and Res Judicata

Loan Servicers As Plaintiffs In Foreclosure Cases

Lesson.  Mortgage loan servicers can, in certain circumstances, prosecute foreclosure actions on behalf of lenders/mortgagees. 

Case cite.  Turner v. Nationstar, 45 N.E.3d 1257 (Ind. Ct. App. 2015).

Legal issue.  How can a servicer of a mortgage loan, instead of the lender itself, be the plaintiff in a foreclosure case?

Vital facts.  Nationstar sued Borrowers to foreclose a mortgage.  The parties entered into a settlement agreement that the Borrowers later breached.  Nationstar filed a motion to enforce the settlement agreement and sought to proceed with the foreclosure.  During the proceedings, facts surfaced that JPMorgan Chase Bank as Trustee for CHEC 2004-C (Chase) was the actual owner of the loan and that Chase had hired Nationstar to service the loan.  The Turner opinion is not altogether clear as to whether Nationstar or Chase actually possessed the original promissory note (endorsed in blank), other than to make an inference that, for purposes of its servicing, Nationstar probably held it.  There was proof that Nationstar’s servicing obligations obligated it to, among other things, handle foreclosure proceedings. 

Procedural history.  Borrowers filed a motion to dismiss Nationstar’s complaint because it was not prosecuted in the name of the owner of the loan (Chase).  In other words, Borrowers contended that Chase should have been the plaintiff.  The trial court denied the motion and granted foreclosure.  Borrowers appealed.

Key rules.  Indiana Trial Rule 17(A) deals with who is the “real party in interest,” and every action must be prosecuted by such party.  T.R.17(A)(1) suggests that in certain instances a party can sue for the benefit of another after “stating his relationship and the capacity in which he sues.”   

Indiana’s UCC at Ind. Code 26-1-3.1-301 outlines persons “entitled to enforce” a promissory note that include the “holder” of the note.  I.C. 26-1-1-201(2)(a) defines “holder” of a note, which can be a person in possession of the note if the note is endorsed in blank. 

Holding.  The Indiana Court of Appeals affirmed the trial court’s denial of Borrowers’ motion to dismiss and affirmed the decision to foreclose. 

Policy/rationale.  Borrowers argued that, under Rule 17(A)(1), Nationstar was required to disclose (plead) its relationship to Chase and the capacity in which it was suing.  The Court disagreed.  Although Chase owned the note, Nationstar was its holder and, by statute, had the right to enforce it.  It followed that Nationstar was a real party in interest.  Furthermore, as to the settlement agreement, the Court pointed out that, as servicer, Nationstar’s role was to negotiate such agreements and that Chase was not a necessary party to any such negotiations.  In the end, although the evidence seemed shaky as to whether Nationstar actually possessed the original promissory note, as a practical matter the Court had enough facts upon which to base its decision that Nationstar was a proper party to enforce the settlement agreement and take the matter through foreclosure. 

(The opinion did not address in any way whether Nationstar or Chase held the underlying mortgage.  In other words, Turner was silent on what assignment(s) of mortgage had been recorded.  As such, I think this case may be unique with regard to traditional standing issues given that the context was the enforcement of a settlement agreement as opposed to a straight foreclosure action.)      

Related posts. 

• Employees Of Mortgage Loan Servicers Are Competent To Testify About Default And Damages In Foreclosure Cases
• Trustees Have Authority To Foreclose For Trusts
• Promissory Notes “Endorsed In Blank” Are Perfectly Fine
• Proving You’re The Holder Of The Note
• Is The Citimortgage Opinion Flawed For Not Requiring Proof Of Assignment Documents?

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Part of my practice is to defend lenders and their servicers in contested foreclosures and consumer finance litigation.  If you need assistance with such matters in Indiana, please call me at 317-639-6151 or email me at [email protected].  Also, you can receive my blog posts on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Breaches Of Pooling And Servicing Agreements Are Not A Defense To Foreclosures

Lesson.  If you are a borrower or a guarantor in Indiana, or are defending such parties in a contested mortgage foreclosure, defeating a motion for summary judgment on the basis of an alleged breach of a pooling and servicing agreement isn’t going to happen. 

Case cite.  Wilmington v. Bowling, 39 N.E.3d 395 (Ind. Ct. App. 2015).

Legal issue.  Whether the plaintiff/lender was the holder of the promissory note and entitled to enforce it.  In other words, did the lender have standing to sue the borrower?

Vital facts.  The lender, an assignee of a securitized mortgage loan, possessed the original note, which had been endorsed in blank.  The lender also had a complete chain of recorded assignments establishing who held the note at various times.  Nevertheless, the borrower found on the internet what he believed to be the applicable pooling and servicing agreement (PSA), which “reflects that the assignees of the mortgage and note were required to transfer possession by a special endorsement that must be reflected on an allonge.”  There was an absence of evidence of such an allonge and, as such, arguably there had been a breach of the PSA.   

Procedural history.  The trial court granted summary judgment for the lender on the standing issue, and the borrower appealed.

Key rules.  Generally, “only the parties to a contract … have rights under the contract.”  The exception is “where it can be demonstrated that the parties clearly intended to protect a third party by imposing an obligation on one of the contracting parties….”  The law has developed in the country, which law the Indiana Court of Appeals adopted in Wilmington, is that borrowers lack standing to (a) challenge the validity of mortgage securitization or (b) request a judicial determination that a loan assignment is invalid due to noncompliance with a PSA.     

Holding.  The evidence did not establish that the borrower was a party to the PSA.  The evidence also failed to show that there was an intent to protect the borrower as a third party such that he could enforce any obligation under the PSA.  The trial court properly found that the lender was entitled to enforce the note under Ind. Code 26-1-3.1-301.

Policy/rationale.  Parties to PSA’s typically are the certificate holders, a trustee, and a servicer.  Borrowers have no contractual privity with these parties.  Any breach of a PSA, and any damages arising out of such breach, are relevant only as between the parties that signed the PSA.  Alleged breaches do not inure to the benefit of borrowers (or guarantors), who only are in privity of contract with the lenders/mortgagees under the notes and mortgages (or guaranties) – not the securitization documents. 

Related posts. 

• Proving You’re The Holder Of The Note
• Promissory Note = Negotiable Instrument
• Successor Bank Has Standing to Enforce

Employees Of Mortgage Loan Servicers Are Competent To Testify About Default And Damages In Foreclosure Cases

This is a spin on my 09/10/13 post discussing how to prove a default.  Many mortgage loans, both residential and commercial, are “serviced” by companies separate and distinct from the lender itself.  In a nutshell, servicers are the liaison between the lender and the borrower (my definition).  Servicers are therefore agents of the lenders.  Whether and to what extent employees of servicers can testify at a trial on behalf of the lender was at issue in Riviera Plaza v. Wells Fargo, 2014 Ind. App. LEXIS 208 (Ind. Ct. App. 2014). 

Objection.  In Riviera, a case I discussed last week, the defendants in the commercial mortgage foreclosure objected to the testimony of witnesses who serviced the loan on behalf of the plaintiff, Wells Fargo, as well as predecessors in interest to Wells Fargo.  All of the witnesses testified about the borrower’s default on the promissory note, including that the borrower failed to make scheduled loan payments during the time each specific witness serviced the loan.  The borrower challenged whether the witnesses were competent to testify and specifically claimed that the witnesses lacked the requisite personal knowledge. 

Competent.  Indiana Rule of Evidence 602 “Lack of Personal Knowledge” provides that a “witness may testify to a matter only if evidence is introduced sufficient to support a finding that the witness has personal knowledge of the matter.”  So, a lack of personal knowledge renders the witness incompetent.  A determination of competency is a determination of whether, and to what extent, a witness may testify at all.  Indiana case law provides that “a witness’ personal knowledge of a situation can be inferred from his or her position or relationship to the facts set forth in his or her testimony or affidavit.”  Moreover, Indiana cases hold specifically that personal knowledge can be inferred from a witness’ position as a recovery specialist for a loan servicer.  Further, an asset manager “and his possession of files relating to the debt” justifies admission of the testimony concerning a borrower’s default and the amounts owed on the debt. 

Admissible.  The upshot is that employees of mortgage loan servicers are indeed the proper witnesses to prove a lender’s case to enforce its loan, assuming a proper foundation is laid for that particular witness to testify.  The Court expanded on this idea:

Here, each of the challenged witnesses testified that [the borrower] failed to make scheduled loan payments during the time in which each serviced the loan pursuant to their positions in loan recovery for the appropriate loan services.  Each of the challenged witnesses further testified to the amount owed and indicated that they had personal knowledge of the loan and serviced the loan in a manner consistent with the policies employed in the loan servicers’ normal courses of business.  As such, we conclude that the trial court did not err in determining that each of the challenged witnesses held the requisite personal knowledge to testify about [the borrower’s] default of the loan.

Normally the basis of this kind of testimony will be on the witness’ review and analysis of the records maintained by the servicer.  Although the Court in Riviera did not dwell on the records review concept, experience tells me that the review of loan records is the primary way to form a basis for the requisite personal knowledge of servicer witnesses.  Riviera supports this proposition. 

In Indiana, Failure To Comply With HUD Servicing Regulations Can Be A Defense To A Foreclosure Action

While not directly applicable to commercial cases, Lacy-McKinney v. Taylor, Bean & Whitaker Mortgage, 937 N.E.2d 853 (Ind. Ct. App. 2010) is worth mentioning here. If you are involved in residential mortgage foreclosures in Indiana, you should be aware of the Lacy-McKinney decision. The case addressed the question of whether a lender/mortgagee’s lack of compliance with federal mortgage servicing responsibilities may be raised as an affirmative defense to the foreclosure of an FHA-insured mortgage.

HUD language. The Lacy-McKinney note and mortgage, which were in default for non-payment, referenced the applicability of HUD regulations to the loan. The terms of the loan documents clearly spelled out that regulations limited the lender’s right to accelerate and foreclose. For example, the borrower claimed that the lender did not satisfy a HUD regulation requiring a face-to-face meeting before the filing of a complaint for foreclosure.

The issue. The main issue in Lacy-McKinney was: are the HUD regulations binding conditions precedent that must be complied with before a lender has the right to foreclose on a HUD-insured mortgage? (Please note that the quarrel over the condition precedent did not affect the validity of the mortgage, but only whether the lender had a right at the time to foreclose on the mortgage.)

First impression. The issue was one of “first impression” in Indiana – meaning that the legal question was entirely novel and could not be governed by any existing Indiana precedent. The opinion thoroughly outlined the background of HUD-insured mortgages and some of the applicable regulations. (Read the opinion for more detail.) The case also discussed other states’ positions on the issue.

Defense recognized. The Court concluded that an affirmative defense should be recognized for non-compliance with HUD regulations under the circumstances:

The above precedents, the language of the HUD regulations, and the public policy of HUD persuade us that the HUD servicing responsibilities at issue in this case are binding conditions precedent that must be complied with before a [lender] has the right to foreclose on a HUD property. As such [borrower] can properly raise as an affirmative defense that [lender] failed to comply with the HUD servicing regulations prior to commencing this foreclosure action.

Summary judgment reversed. The Court went on to hold that the trial court’s summary judgment in favor of the lender should be reversed. “The trial court erred in granting summary judgment in favor of [lender] on its action to foreclose on [borrower’s] HUD-insured mortgage without first determining that [lender] had complied with Subpart C – the conditions precedent to foreclosure.” The Court therefore remanded the case to the trial court for further proceedings – likely a dismissal of the case. Ultimately, the lender in Lacy-McKinney may win the foreclosure war, but the borrower won this battle.

Those who deal in this area, whether they be lenders, borrower or counsel, should be familiar with this case. The loan document provisions and regulations appear to be consistent with 2009 Indiana state and local law developments requiring pre-suit settlement conferences, etc. about which I discussed on March 15, 2009 and June 19, 2009. Depending upon the contents of the loan documents, HUD-related “i’s” need to be dotted and “t’s” need to be crossed before suit can even be filed.