alfn angle: in this issue FROM THE PRESIDENT
President & CEO Matt Bartel introduces this issue of the ALFN ANGLE and details some of this quarter’s contributions
BRIEFING: EVENTS + UPDATES + NOTICES
Review all the current member opportunities from the ALFN and make sure you’re up to speed on your member benefits
SPOTLIGHT: GILBERT GARCIA GROUP
Meet three attorneys from ALFN member Gilbert Garcia Group who talk about their entrepreneurial history and growth plans
SNAPSHOT: PTFA + SCRA + SCOTUS
ALFN’s Legislative & Regulatory Policy Group discusses sunsets and resets of important bills and a recent Supreme Court decision
American Legal & Financial Network (ALFN) 12400 Olive Blvd., STE 555 St. Louis, MO 63141 314.590.0859 (phone) 314.744.7738 (fax) www.alfn.org
ON THE BOOKS: COLORADO FORECLOSURE
Holly Shilliday discusses dramatic changes to the Colorado foreclosure landscape and details new state foreclosure laws
features & contributions Q&ALFN: BK PRACTITIONERS LOOK FORWARD p14
We asked bankruptcy practitioners across the nation to tell us what they see as the biggest challenge for 2015.
BANKRUPTCY: CHAPTER 7 LIEN STRIPS
Christopher Stasko and Peter Bastianen showcase lien stripping in Chapter 7 cases as the issue heads to the U.S. Supreme Court
COMMERCIAL BK: DISMISS OR CONVERT
Eric Dean returns in his regular Commercial Column, this time with a bankruptcy twist in “Dismiss or Convert”
BK MEDIATION: MMM PROGRAMS HIT NEVADA Michael Chen looks at a national trend, mortgage modification mediation, as it makes a hard landing in Nevada
organizational updates p32 p33
MEMBERS ON THE MOVE
Operational and personnel updates from across the country
MAX YOUR MEMBERSHIP
ALFN SVP Liz Potter discusses team-wide goal setting
Cade Holleman, M.A. AVP, Government Affairs & Communications email@example.com
Christopher Stasko, Esq. Peter Bastianen, Esq. Michael Chen, Esq. Holly Shillday, Esq. Mark T. Domeyer, Esq. Eric Dean, Esq.
PHOTO EDITING Allen Fernandez
Cade Holleman, M.A. AVP, Government Affairs & Communications firstname.lastname@example.org
Liz Potter SVP, Business Development & Member Relations email@example.com
Ashleigh Bouselli Administrative & Events Coordinator firstname.lastname@example.org
Vol. 2 / Issue 1 / Winter 2015
The ALFN ANGLE is a quarterly digital magazine published by the American Legal & Financial Network (ALFN) on behalf of its attorney/trustee, associate, and mortgage servicing members. Reprint permission is available by request. To contribute or advertise, please contact the ALFN directly.
BOLD PERSPECTIVES FROM UNIQUE ANGLES On behalf of the Board of Directors and Executive Team of ALFN, we hope that you are enjoying a prosperous new year. It has certainly been another interesting year in the industry, and we are pleased to have your support. As we all move forward in this evolving business environment, ALFN seeks to remain out in front and your go-to resource for Education, Advocacy, Leadership, Events and Networking in the Mortgage Servicing Industry. The focus of this first ANGLE in 2015 is on Bankruptcy, and we are excited to showcase the efforts of our Bankruptcy Practice Group. This group has had a productive year speaking on the latest issues in Bankruptcy at ALFN events and webinars, authoring comments regarding the proposed national Chapter 13 plan and rule changes and being a great source of education and expertise. In this edition of the ANGLE, our Bankruptcy practitioners address the mortgage modification mediation programs expanding into the US Bankruptcy Courts, the potential benefits of a motion to dismiss or convert in a Chapter 11 Bankruptcy, and the US Supreme Court agreeing to review mortgage lien-stripping in Chapter 7 Bankruptcy cases. The Bankruptcy Practice Group will also be submitting an Amicus Brief on an Oregon Bankruptcy case in which one of the Trusts of the servicer was compelled, pursuant to a Chapter 13 Bankruptcy plan, to take title to its collateral, subject to junior liens. As we hit the road running in 2015 we have a lot of exciting things planned. We will continue expanding our onsite servicer training programs, increasing our coverage of online education with our monthly webinars, hosting our annual Advocacy Day (April 13-14, Washington DC), TE@CH regional onsite servicer training events (Sept. 9 in Jacksonville, FL and again on Nov. 12 in Dallas, TX) and ANSWERS – ALFN’s 13th Annual Leadership Conference (July 19-22, Lake Tahoe). We would like to thank each and every one of you for your support and confidence and we look forward to continuing to be the leader in representing, defending and educating America’s mortgage servicing industry.
MATT BARTEL PRESIDENT & CEO, ALFN
contributors CHRISTOPHER J. STASKO
SUPERVISING ATTORNEY-BANKRUPTCY | CODILIS & ASSOCIATES CHRIS.STASKO@IL.CSLEGAL.COM
Mr. Stasko received his J.D. from Chicago-Kent College of Law in 1998. He concentrates his practice in representation of secured lenders in bankruptcy and currently serves as Supervising Bankruptcy Attorney for Codilis and Associates, P.C. He rejoined the firm in August, 2013, after an absence of some years during which he gained extensive experience in bankruptcy, foreclosure, evictions, and REO transactions both at his own firm and working for another firm which represented mortgage lenders and servicers.
PETER C. BASTIANEN
ATTORNEY AT LAW | CODILIS & ASSOCIATES PETER.BASTIANEN@IL.CSLEGAL.COM
Mr. Bastianen received his B.A. from Coe College in 1993 and J.D. from the New England School of Law in 1996. His practice focuses on bankruptcy and foreclosure matters. Since joining Codilis & Associates, P.C. in 2005, he has successfully argued multiple bankruptcy matters resulting in published opinions. He is a member of the Illinois State Bar Association, Chicago Bar Association, and Phi Alpha Delta Law Fraternity, International.
MICHAEL W. CHEN
ASSOCIATE ATTORNEY | MCCARTHY HOLTHUS MCHEN@MCCARTHYHOLTHUS.COM
Michael W. Chen is an associate attorney with McCarthy & Holthus, LLP, and is an active member of the state bars of Arizona (1997) and Nevada (2000). He specializes in the practice of mortgage creditor default servicing continuously since 1999. He graduated from the University of California at Berkeley in 1992, with a B.A. in History. He earned his J.D. from the University of Arizona in 1996.
MANAGING ATTORNEY - COLORADO | MCCARTHY & HOLTHUS HSHILLIDAY@MCCARTHYHOLTHUS.COM
ON THE BOOKS
Holly R. Shilliday is the Managing Attorney for the Colorado office of McCarthy & Holthus, LLP. She received a B.A. from the University of Denver and earned a J.D. from Pepperdine University School of Law. After law school, she clerked for the Honorable Samuel L. Bufford, a bankruptcy judge in the Central District of California. Ms. Shilliday is a frequent lecturer and author of articles on creditorsâ€™ rights issues.
MARK T. DOMEYER
SENIOR ATTORNEY - BANKRUPTCY | THE WOLF FIRM MARK.DOMEYER@WOLFFIRM.COM
Mark T. Domeyer is a Senior Attorney in the Bankruptcy Department at The Wolf Firm. Mr. Domeyer served as an assistant court administrator managing a County trial court and, while attending law school, served as the chief deputy clerk for the Bankruptcy Court for the District of Columbia. Over the last 20+ years he has concentrated his practice on the representation of secured creditors in Bankruptcy.
MEDIA KIT: 2015 PROMOTIONAL & SPONSORSHIP OPPORTUNITIES
On December 19 the ALFN opened registration for the Association’s annual legislative and regulatory policy summit held April 13-14 in Washington, DC. Registration and event details can be found online at ALFNevents.org.
ALFN AT MBA NATIONAL MORTGAGE SERVICING CONFERENCE
The ALFN will participate in the MBA’s National Mortgage Servicing Conference this February 23-26 in Dallas, Texas. Volunteer to work at the ALFN booth in the exhibit hall or set-up a time to meet with staff directly.
ALFN JPEG MIXER AT MBA NATIONAL MORTGAGE SERVICING CONFERENCE
On Tuesday, February 24, during the MBA’s National Mortgage Servicing Conference the ALFN Junior Professionals & Executives Group (JPEG) will host its second annual mixer. The event is invitation-only to ALFN members.
ALFN TE@CH ONSITE AT SELENE FINANCIAL
The ALFN has organized an onsite legal training for Selene Financial. Firms are chosen by Selene and a lottery process. Additional onsites will occur throughout 2015.
ALFN DALLAS TE@CH SETS RECORD FOR SERVICER ATTENDANCE
The ALFN TE@CH in Dallas set an association record with the highest number of servicer attendees at any event in the ALFN’s history. Nearly 100 registered servicers from 15 different mortgage servicing organizations attended the 2014 Dallas TE@CH event.
In early December the ALFN published its 2015 Media Kit, detailing promotional and sponsorship opportunities available to all ALFN members.
ALFN & INDUSTRY CALENDAR OF EVENTS
Concurrent to the 2015 Media Kit, the ALFN published an updated version of its annual industry calendar of events. The calendar, now paired with the Media Kit, includes all ALFN events and deadlines as well as details on other industry events likely to be attended by either the ALFN executive staff or its members.
WEBINAR INFORMATION & GUIDELINES
the ALFN and to understand the Association’s rules and restrictions on submissions.
ALFN GROUP RULES & RESPONSIBILITIES
Members interested in joining an ALFN Group should review the Rules and Responsibilities form detailing the Association’s expectations of members participating in any ALFN-organized Group. An updated version of the document was made available to members earlier this month and must be reviewed as part of the application process.
upcoming deadlines JANUARY 31: MEMBER DUES All members should be in receipt of their annual dues invoices. The deadline to pay 2015 dues is January 31, 2015.
An updated version of the ALFN Webinar Information & Guidelines form has been published. Important updates include requirements about template usage, submission deadlines and new pricing on certain types of webinars beyond the one complimentary presentation included in membership.
JANUARY 31: GROUP APPLICATIONS CLOSE
ALFN ANGLE SUBMISSION GUIDELINES
Early registration for Advocacy Day ends February 13. Advocacy Day includes face-to-face hill visits with members of Congress and their staff. Lead time is required for the ALFN to secure meaningful meetings for attendees.
A new guideline for ANGLE submissions was published and made available to members in mid-December 2014. Members should use this guide when submitting editorial content for use in the ALFN ANGLE.
LEGAL UPDATE SUBMISSION GUIDELINES A new guideline for ALFN Legal Update submissions was published and made available to members in mid-December. Members should use this guide when submitting Legal Updates for distribution
The application period to join an ALFN Group closes January 31. First quarter group-wide calls will commence in February 2015.
FEBRUARY 13: ADVOCACY DAY EARLY REGISTRATION
recent education LEGAL UPDATE: MICHIGAN
On December 5, 2014 the ALFN published a Legal Update for the State of Michigan. The Legal Update covered the City of Detroit repealing the pre-sale
inspection requirement and was provided by Potestivo & Associates, an ALFN member in Michigan.
PTFA and continuation of the SCRA.
LEGAL UPDATE: FLORIDA
HOT TOPIC WEBINAR: ROGERS TOWNSEND
On January 7, 2015 the ALFN hosted a Hot Topic Webinar covering the impact of the Consumer Financial Protection Bureau (CFPB), the Dodd-Frank Financial Reform Act, and the Fair Debt Collection Practices Act on default servicing. The webinar was provided by Rogers, Townsend & Thomas, PC, ALFN members in North & South Carolina.
ALFN ADDS TO EXECUTIVE TEAM
On October 7, 2014 the ALFN published a Legal Update for the State of Florida. The Legal Update covered the preparation of filing an Amicus Brief by seven ALFN member firms.
LEGAL UPDATE: FLORIDA
On November 18, 2014 the ALFN published a Legal Update for the State of Florida. The Legal Update covered the 4th District’s appeal that provided guidance on prior servicer business records issues and was provided by Quintairos, Prieto, Wood & Boyer, P.A., an ALFN member in Florida.
LEGAL UPDATE: SOUTH CAROLINA
On November 4, 2014 the ALFN published a Legal Update for the State of South Carolina. The Legal Update covered the federal court ruling for Fannie Mae and the permissible purpose under FCRA to access credit reports and was provided by Brock & Scott, PLLC an ALFN member in North Carolina.
LEGAL UPDATE: NORTH CAROLINA
On October 23, 2014 the ALFN published a Legal Update for the State of North Carolina. The Legal Update reviewed the additional guidance with Basmas v. Wells Fargo Bank and was provided by Shapiro & Ingle, LLP an ALFN member in North Carolina.
REGULATORY UPDATE: PTFA + SCRA
On December 17, 2014 the ALFN with the LRPG published a Legal Update that covered the impending sunset of the
On October 16, 2014 the ALFN announced the addition of Elizabeth Potter to the Executive team as SVP.
BOARD MAKES AT-LARGE SEAT APPOINTMENT
On October 22, 2014 the ALFN Board of Directors appointed Kelly Gring, Esq. as an at-large director. Gring is an attorney with Glasser & Glasser, an ALFN member in Virginia.
highlight: special member benefit ALFN PARTNERS WITH EC PURCHASING FOR MAJOR DISCOUNTS FOR MEMBER FIRMS
On December 1, 2014 ALFN sent out a reminder that our members may receive discounts from national companies including FedEx, UPS, Verizon, ATT, Sprint, Office Depot, Staples, Ricoh, Xerox, and much more through the ALFN’s partnership with EC Purchasing, an ALFN Associate Member. ALFN members can access their discounts, at no cost whatsoever, through EC Purchasing’s website after registering and authenticating your ALFN membership. For details or questions on this member benefit, contact Liz Potter at email@example.com to discuss this or other member benefits.
HOT TOPIC WEBINAR: WRIGHT FINLAY ZAK
On December 18, 2014 the ALFN hosted a Hot Topic Webinar covering the Nevada HOA Super Liens decision. The webinar was provided by Wright, Finlay & Zak, LLP, ALFN members in California.
BKPG WEBINAR: CHAPTER 13 CRAM DOWNS
On December 3, 2014 the ALFN hosted a Practice Group Webinar covering the Chapter 13 Cram Downs. The webinar was provided by the Bankruptcy Practice Group.
about these updates The ALFN publishes a series of emails branded as ALFN Legal Updates. Legal Updates are a company-wide member benefit and should be received by a member’s full staff. Contact firstname.lastname@example.org to confirm that your full employee roster is receiving ALFN e-communications to stay on top of member benefits, emerging opportunities, and has access to the industry legal education ALFN provides at no-cost to members and mortgage servicers.
PICTURED: JENNIFER LIMA-SMITH, MANAGING LITIGATION/RISK MANAGEMENT ATTORNEY (LEFT); MICHELLE GILBERT, PRINCIPAL AND MANAGING PARTNER (CENTER); AND LAURA LAYNE WALKER, MANAGING FIRST LEGAL ATTORNEY (RIGHT). CONTACT GILBERT GARCIA GROUP: GILBERT GARCIA GROUP IS AN ALFN MEMBER IN FLORIDA. TO LEARN MORE ABOUT THE FIRM, VISIT THEM ONLINE AT GILBERTGROUPLAW.COM OR CONTACT MGILBERT@GILBERTGROUPLAW.COM
spotlight STRONG WOMEN LEAD IN A TOUGH STATE Entrepreneurship is at the heart of the story behind the Gilbert Garcia Group, a women and minority-owned and operated ALFN attorney member in Florida. It’s also the impetus behind the firm’s expansion and its focus on community. Often representing the firm publicly is principal and Managing Partner Michelle Gilbert (pictured center), a woman who invests as much in her industry as she does in her own firm. “Investing in the communities that you work in, and I mean our physical communities and the community of professionals that we work with everyday, goes hand-in-hand with growing my own business,” says Gilbert. When defining her professional community, Gilbert paints with broad strokes.
“. . . ONCE AN ENTREPRENEUR, ALWAYS AN ENTREPRENEUR. RIGHT NOW, WE’RE TAKING ADVANTAGE OF THE RESOURCES LIKE THE ALFN TO BUILD OUT ADDITIONAL PRACTICE AREAS WHERE OUR CURRENT AND NEW CLIENTS NEED OUR EXPERTISE.” As a collaborative leader, Gilbert includes practitioners from across the country, competition down the street, her lawmakers and regulators on Capitol Hill, and both the consumers and clients on each side of the legal issues she weighs everyday. Looking back to the beginning of her firm, Gilbert adds, “I guess once an entrepreneur, always an entrepreneur. Right now, we’re taking advantage of the resources like the ALFN to build out additional practice areas where our current and new clients need our expertise. We’re also launching new business endeavors into other, ancillary services that compliment what we already excel at.” Gilbert’s partners, Jennifer Lima-Smith, Managing Litigation/Risk Management Attorney, (far left) and Laura Layne Walker, Managing First Legal Attorney, (right) manage key parts of the firm’s business.
PTFA + SCRA + SCOTUS SUNSETS, RESETS ON THE HILL; KEY DECISIONS ACROSS THE STREET
prepared by members of the ALFN Legislative & Regulatory Policy Group
113th CONGRESS ALLOWS PROTECTING TENANTS AT FORECLOSURE ACT TO SUNSET, POSSIBLE REINTRODUCTION IN 2015 As the dust continues to settle on the 113th Congress, which adjourned sine die on December 16, a review of last minute legislation passed by Congress indicates that it did not extend the “Protecting Tenants at Foreclosure Act (PTFA).” The law, first enacted in 2009 as Title VII of P.L. 111-22, was extended until December 31, 2014 by Section 1484(2) of the Dodd-Frank Wall Street Consumer Protection Act of 2010 (P.L. 111203). Legislation was introduced earlier in the 113th Congress to make the Act permanent (H.R. 3543 and S. 1761). But neither the House nor Senate acted on the measure. Efforts by housing advocacy groups to
extend the Act in the next Congress, which convenes in January, is uncertain at best. They will face an all Republican-controlled Congress that will be less receptive to arguments on why the Act, initially passed as part of foreclosure mitigation programs in the wake of the 2008 financial crisis, is needed or should be extended. ALFN will continue to monitor the situation carefully. ABOUT THE PTFA The PTFA attempted to address the plight of tenants caught unaware by landlords with pending foreclosure actions. The Act allows a tenant to remain in possession of a property until the later of their lease termination or ninety (90) days, provided they provide a bona fide lease, proof of fair market payments, and have no relation to the former borrower. Servicers resorted to offering cash-for-keys
(CFK) payments to these tenants, in an effort to move property to sale, rather than wait for expiration of a lease. CFK avoided placing servicers in role of a landlord with commensurate liability. FORECLOSURE RELIEF AND EXTENSION FOR SERVICEMEMBERS ACT OF 2014 EXTENDED S. 3008, the Foreclosure Relief and Extension for Servicemembers Act of 2014 was introduced and passed in the Senate on December 11, 2014. The Bill passed the House the next day on December 12. It now awaits signature and enactment by President Obama. INDUSTRY IMPACT It should be noted that, servicers are not prevented from continuing to implement PTFA protections, if con-
sistent with business objectives and avoidance of reputational risk. States may have similar tenant protections in effect; therefore, your ALFN attorney members can provide legal guidance in their respective states. UNITED STATES SUPREME COURT RULES FOR HOMEOWNERS IN TILA MORTGAGE RECENSION CASE On Tuesday, January 13, 2015, the United State Supreme Court ruled in favor of homeowners who attempted to rescind their 2007 mortgage by providing notice to their lender in accordance with a provision of the Truth in Lending Act (TILA). In the case of Jesinoski v. Countrywide Home Loans, Inc., the borrowers, Larry and Cheryle Jesinoski, notified Countrywide Home Loans, Inc., a subsidiary of Bank of America, of its rescission prior to the expiration of the three year statutory period. Bank of America refused to acknowledge the rescission. One year later, the Jesinoski’s filed a complaint in the United States District Court of the District of Minnesota seeking to enforce the rescission. Section (a) of TILA provides the borrower with the “right to rescind the transaction until midnight of the third business day following the consummation of the transaction…by notifying the creditor”. Section (f) of TILA further states that this right to rescind “shall expire three years after the date of consummation of the transaction”. The District Court held in favor of the lender since the complaint was filed more than three years after the consummation of the transaction. The Jesinoski’s appealed this decision to the United States Court of Appeals for the Eight Circuit. However, the Court affirmed the District Court’s opinion as it had recently held in Keiran v. Home Capital, Inc. that “a party seeking to rescind a loan transaction must file suit within three years of consummating the loan.” 720 F.3d
721, 726-29 (8th Cir. 2013). This central question of whether a borrower exercises the right to rescind a loan transaction by notifying the creditor in writing or by filing a lawsuit within three years of the consummation of the loan was granted certiorari by the Supreme Court as there is an apparent conflict of decisions in the Courts of Appeal. The Third, Fourth, and Eleventh Circuits have held that the plain text of TILA should be followed that written notice to the creditor is sufficient. “The plain meaning of the applicable statute and regulation” to hold that a borrower exercises the right to rescind by notifying a creditor.” Gilbert v. Residential
Servicers are not prevented from continuing to implement PTFA protections, if consistent with business objectives and avoidance of reputational risk. States may have similar tenant protections in effect; therefore, your ALFN attorney members can provide legal guidance in their respective states. Funding LLC, 678 F.3d 271 (4th Cir. 2012). The First, Sixth, Ninth, and Tenth Circuits have previously entered opinions similar to that of the Eighth Circuit treating the three year period as a statute of repose. After hearing arguments in November 2014, the Supreme Court reversed the Eighth Circuit’s judgment by holding that a “borrower exercising his right to rescind under the Act need only provide written notice to his lender within the 3-year period, not file suit within that period.” By virtue of this opinion, the Supreme Court has effectively settled the conflicts found among the Circuit Courts.
A SPEC IA L ED I TO RI A L F O C U S F RO M TH E A L FN BA N KR U P T C Y P RAC T I C E GRO U P
The ALFN Bankruptcy Practice Group (BKPG) is comprised of bankruptcy attorneys practicing in jurisdictions throughout the country. In 2014, the BKPG met on a monthly basis to discuss happenings in members’ various jurisdictions. The goal of the group is to get in front industry trends, assess whether a trend is likely to have a positive or negative impact on the industry, and, once assessed, the BKPG then creates educational tools for the industry at-large or takes action to support or mitigate an issue’s impact on industry practitioners. DECISIVE ACTION: RULE-MAKING & AMICUS BRIEFS In early 2014 the BKPG reviewed and discussed the Proposed Amendments to Federal Rules of Bankruptcy Procedure and Official Bankruptcy Forms. While there was much to be concerned about within the proposed rules, there were several items that could be viewed in a more positive light. In the end, the group submitted a well thought out and very balanced comment to the Judicial Conference Advisory Committees on Bankruptcy Rules. A second public comment period on changes to bankruptcy forms ends February 17, 2015. Not only will the group consider submitting an updated comment, the BKPG actively encourages individual members to submit comments on behalf of their firms in support of the official ALFN position. The BKPG is currently drafting an amicus brief to be filed on behalf of the ALFN in an Oregon bankruptcy case, In Re Watt. WORKING WITH THE JUDICIARY As part of an ALFN Guest Speaker Series, the BKPG hosted the Honorable Judge Michael B. Kaplan as a guest speaker. The discussion focused on several cases, including a case out of Hawaii that dealt with the issue of whether a Chapter 13 Plan can vest property back into the first mortgagee upon confirmation. Though originating in Hawaii, the vesting issue has grown legs and is appearing in other jurisdictions. The discussion and comments about the case during the teleconference were essential to developing a strategy each attorney might employ to defend against proposed Chapter 13 Plans containing this type of provision. EDUCATING THE INDUSTRY Over the last year, the BKPG has presented webinars that were attended by both attorneys and servicers through out mortgage servicing industry. The webinars covered subjects such as: cram downs in Chapters 7, 11 and 13 and the ever-evolving issues arising from Rule 3002.1. The cram downs were addressed, in part, due to the serious risk they pose to lenders but also because, in the Chapter 7 arena, there is now have a split in authority and the issue is headed for the Supreme Court. Rule 3002.1 was addressed due to the vast differences in implementation of the Rules from one jurisdiction to another. The webinars facilitated the communication and understanding of the issues at hand as well as practitioners’ combined thoughts and strategies. The high attendance and popularity of the webinars serve as a measure of their overall success. The BKPG continued its tradition of putting together a current issues seminar for the ALFN annual leadership conference, ANSWERS. Once again, the Group was fortunate to have a member of the judiciary present to contribute his point of view on the proposed national Chapter 13 plan (now scheduled for implementation in December, 2016), Chapter 20 lien strips, and other hot topics. The session was highly attended. The BKPG plans to have another bankruptcy session at the 2015 annual conference, ANSWERS, and continue its efforts to have at least one judge, trustee, and servicer representative on the panel. MEMBERS OF THE ALFN BKPG Lisa Caplan, Rubin Lublin 2015 BKPG CHAIR
Bill Schiller, Schiller Knapp 2015 BKPG CO-CHAIR
Kristin Zilberstein, McCarthy & Holthus 2015 BKPG CO-CHAIR
Michael J. McCormick, McCalla Raymer ALFN BOARD OF DIRECTORS LIAISON
Anthony Maselli, Pendergast & Associates Barbara Dunleavy, Rosicki, Rosicki & Associates C. Anthony Crnic, Klatt Law
Jerry Howard, Gerner & Kearns, Co. David Nalley, Reisenfeld & Associates Eric Donowho, BDF Law Group Larry Foyle, Kass Law Lee Raphael, Prober & Raphael Michelle Riel, RCO Legal Christopher Kennedy, Carlisle Law Nicole Mariani, Kass | Shuler Christopher Stasko, Codilis & Stawiarski Leslie Mann, Mackie Wolf Zientz & Mann
BKPG MEMBERS TALK HOTTEST TRENDS, BIGGEST CHALLENGES FACING PRACTITIONERS LEE S. RAPHAEL, ESQ. PROBER & RAPHAEL LRAPHAEL@PRALC.COM ALFN BKPG MEMBER
THE PROPOSED NEW POC RULES, DEADLINES AND FORMS, ALONG WITH THE PROPOSED NATIONAL CHAPTER 13 PLAN, IF NOT MODIFIED OR ADJUSTED TO ACCOMMODATE SERVICER/ LENDER TIMELINE NEEDS COULD BECOME A REAL PROBLEM. IT IS CRITICAL THAT SERVICERS/LENDERS TIMELY COMMENT ON THESE PROPOSALS.
DAVID C. NALLEY, ESQ. REISENFELD & ASSOCIATES DAVID.NALLEY@RSLEGAL.COM ALFN BKPG MEMBER
2015 PROMISES TO BE AN INTERESTING YEAR FOR BANKRUPTCY PRACTITIONERS.
With overall filing numbers continuing to trend downward, many of our entrepreneurial colleagues on the “other side of the fence” are looking for creative claims and issues to litigate on behalf of debtors in bankruptcy. In our states where our firm practices, we have typically not had an overly activist debtor bar. But we are seeing more efforts to challenge mortgage holders – whether it be new standing theories, or more often, objections to claims and supplemental claims. Debtor attorneys have fewer clients these days, and the creative ones are looking for more sources of revenue. We are seeing a spike in stay enforcement and discharge violation cases in our area. Often, these seem to be related to servicing transfers where the new servicer may not have been advised or may have failed to code the loan as active in bankruptcy in their system. We are also seeing more attempts to of force lienholders to accept title to surrendered property. While our jurisdictions have typically held the line that a lienholder cannot be forced either into a short sale or a non-consensual deed to the property, we are seeing more attempts by debtors to do just that – either by way of creative plan provisions, or by motions to sell free and clear of liens. Recent decisions in some jurisdictions have allowed these forced transfers, and we expect that appellate decisions in some of those cases could have an impact on the landscape.
KIMBERLY D. RAYBORN, ESQ. KDR@MCCALLARAYMER.COM MCCALLA RAYMER, LLC ALFN JPEG MEMBER
THE GREATEST CHALLENGE
that bankruptcy practitioners will face in 2015 is undoubtedly the transition to the proposed Forms 410 and 410A for filing a proof of claim with a mortgage proof of claim attachment. The changes take effect on December 1, 2015. Form 410, while substantively the same as the current Form B10, changes the layout of the proof of claim. While rearranging Form B10’s information to comply with Form 410 is not too difficult, Form 410A provides a myriad of compliance challenges to bankruptcy practitioners. Form 410A requires that a new mortgage proof of claim attachment be filed under Bankruptcy Rule 3001(c)(2)(C), including a payment history dating back to the first date of default. At this point, many bankruptcy practitioners, if not all, do not have the technological or administrative resources to include a payment history dating back to the first date of default prior to December 1, 2015. If bankruptcy practitioners look to rely on servicers when the mortgage proof of claim attachment changes, then they should otherwise prepare. For most servicers of loans, it is an impossibility to get the information required to complete a payment history dating back to the first date of default from the prior transferor or
ERIC L. DONOWHO THE BDF LAW GROUP ERICD@BDFGROUP.COM ALFN BKPG MEMBER
LARRY FOYLE, ESQ. LFOYLE@KASSLAW.COM KASS SHULER, P.A. ALFN BKPG MEMBER
THE STATUTE OF LIMITATIONS
is front and center in the Florida Supreme Court in Bartram in 2015. Whatever the result, it will impact bankruptcy courts in Florida. Mortgagees are required to file Claims under penalty of perjury. Statutes of Limitations are regarded as affirmative defenses to such claims. Defendants argue that most notes and mortgages contain no contractual provisions to decelerate previously accelerated debt. Mortgagees argue that following acceleration, the failure to file an action in Court within the statute of limitations is not fatal because each monthly payment creates its own statute of limitation. Defendants feel that if they can hold a creditor at bay for more than 5 years without a commenced lawsuit, they should be absolved of any obligation. These same Defendants often become Debtors in Chapter 13 cases. Ironically, the game plan in 13 is for a Debtor to perform a Plan whose final goal is to bring the loan current, decelerate the loan and reinstate. Thus bankruptcy when filed without agenda provides a non contractual means to decelerate debts. Still, a number of nuanced issues have emerged in the lower courts which may give each side in the fight, ample ammunition post
WANT TO PARTICIPATE? SUBMIT QUESTIONS OR LET US KNOW YOU’D LIKE TO PARTICIPATE VIA ANGLE@ALFN.ORG
DEBTORS, JUDGES AND THE
US Trustees provide a constant test of our legal talents and careful eye for quality and accuracy. But new regulatory and contractual process requirements bestowed upon our mortgage clients may pose the greatest challenge for bankruptcy practitioners. Added process steps, quality control checks and validation requirements have improved the quality of claims and pleadings in recent years but have severely stretched the creditor and counsel resources and slowed the timely flow of legal actions. A bankruptcy file that may have previously taken sixty days to complete a claim or motion or objection action with a dozen touch points by the law firm and their client – has now stretched to 120+ days and three dozen touch points or more. I believe that these timeline delays, extra steps, multi-level quality checks, increased pipeline, added costs and resource limitations by all parties will continue to create major struggles in 2015. Servicers and counsel must continue to partner on solutions that ensure not only compliance with the plethora of legal, regulatory and contractual requirements but also support the timely administration and hopeful success of the debtor’s
ASK & ALFN ANSWERS
U.S. SUPREME C OUR T TO REVIEW MOR TGAGE LIE N-STRIPPING IN C HAPTER 7 BANKR UPTCY CASE S by Christopher Stasko & Peter Bastianen
On November 17, 2014, the United States Supreme Court agreed to hear Bank of America’s appeal of two rulings from the Eleventh Circuit Court of Appeals which held that §506 of the Bankruptcy Code authorizes debtors to entirely avoid (“strip-off”) second mortgages in chapter 7 cases.1 The final brief is due February 17, 2015. The High Court’s decision in this case will have wide-ranging and potentially damaging implications for mortgage lenders throughout the nation. This article will discuss the issues, the possible outcomes, and the reasons the Supreme Court should reverse the Eleventh Circuit. Section 506(a) of the Bankruptcy Code provides that a creditor secured by a lien on property has a secured claim equal to the amount of the value of the property and an unsecured claim for any amount that exceeds the value of the property.2 Section 506(d) provides that to the extent a lien secures a claim against the debtor that is not an “allowed secured claim,” the lien is void.3 In 1989, the Eleventh Circuit Court of Appeals held in Folendore v. Small Business Administration that §506 of the Bankruptcy Code allowed a chapter 7 debtor to entirely avoid (“strip-off”) a second mortgage where the balance owed on a first mortgage exceeded the value of the property.4 The Court reasoned that the phrase “allowed secured claim” as used in §506(d) was defined by §506(a) to mean the amount of a claim that is supported by value in the collateral.5 Accordingly, the Court held that the “plain language” of §506 renders a mortgage void to the extent that it is unsupported by value in the collateral.6 Under this view, when there is no value in property over and above the balance owed on a first mortgage, a second mortgage is deemed to be unsecured under bankruptcy law even though it is secured under state law. The entire 1 In re Caulkett, 556 Fed. Appx. 879 (11th Cir. 2014), cert. granted, 2014 U.S. LEXIS 7812 (U.S., Nov. 17, 2014); In re Edelmiro Toledo-Cardona, 556 Fed. Appx. 911 (11th Cir. 2014), cert. granted, 2014 U.S. LEXIS 7663 (U.S., Nov. 17, 2014). 2 11 U.S.C. §506(a). 3 11 U.S.C. §506(d). 4 Folendore v. Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989). 5 Id. 6 Id.
THE ELEVE NTH C IRC UI T’S C ONTINUED PRAC TIC E OF A LLOWING SEC OND MOR TGAGE LIE NS TO BE STRIPPEDOFF IN C HAPTER 7 CASE S IS WHAT LED THE SUPREME C OUR T TO HEAR BANK OF AMERICA’S APPEA L.
second mortgage can be stripped-off and the corresponding debt discharged in chapter 7. In 1992, however, the Supreme Court implicitly rejected the Eleventh Circuit’s reading of §506, holding in Dewsnup v. Timm that §506 does not allow a chapter 7 debtor to partially avoid (“strip-down”) a first mortgage to the extent the balance owed on the first mortgage exceeds the value of the property.7 The Court found that the competing interpretations of §506 set forth by the parties to the case rendered it ambiguous, and noted that the legislative history of §506 provided no clarity.8 The Court observed that under long-standing pre-bankruptcy code principles, liens pass through bankruptcy unaffected, and any increase in the value of the real estate serving as collateral should accrue to the benefit of the creditor.9 Finally, the Court noted that part of the agreement between the parties in a consensual mortgage is that the lien shall stay with the property until foreclosure or 7 8 9
Dewsnup v. Timm, 502 U.S. 410 (1992). Id. Id.
until the debt has been paid in full.10 Against this background, the Court concluded that Congress did not intend the phrase “allowed secured claim” in §506(d) to be defined by §506(a), but rather intended it to mean a claim that is, first, “allowed” under §502, and second, “secured.”11 Section 502 sets forth various grounds to disallow a claim, but a claim based on a note and mortgage can generally only be disallowed on the debtor’s objection if the note or mortgage is unenforceable under state law.12 Essentially, the holding of Dewsnup is that the value of the real estate securing a mortgage is irrelevant. As long as the note and mortgage are enforceable under state law, the mortgage cannot be partially avoided (stripped-down) under §506 in a chapter 7 case. The Bankruptcy Code has been substantively amended twice since Dewsnup was decided, in 1994 and 2005, but the relevant language in §506 has not changed, 10 Id. 11 Id. 12 11 U.S.C. §502(b)(2).
indicating that Congress agrees with the Supreme Court’s holding in Dewsnup. Although Dewsnup was decided in the context of an attempt to partially stripdown a first mortgage, an overwhelming majority of courts, including the Court of Appeals in the Fourth, Sixth and Seventh Circuits, have held that it also applies to prohibit an attempt to entirely strip-off a second mortgage.13 These Courts reason that a strip-off is really the same thing as a strip-down to zero, and that since value is irrelevant under Dewsnup, no mortgage lien (regardless of priority) can be avoided based on lack of value. In 2012, the Eleventh Circuit had an opportunity to overrule its holding in Folendore and fall in line with Dewsnup, but it declined to do so, holding once again in McNeal v. GMAC Mortgage, LLC that wholly underwater second mortgages unsupported by any value 13 Ryan v. Homecomings Financial Network, 253 F.3d 778 (4th Cir. 2001); In re Talbert, 344 F.3d 555 (6th Cir. 2003), Palomar v. First American Bank, 722 F.3d 992 (7th Cir. 2013);
can be stripped-off in chapter 7.14 The Eleventh Circuit relied on its “prior panel precedent” rule that a Supreme Court case only overrules an Eleventh Circuit case when it is based on exactly the same issue.15 Because Dewsnup was a strip-down case, and Folendore was a strip-off case, the Eleventh Circuit held in McNeal that Dewsnup did not overrule Folendore.16 The Eleventh Circuit’s continued practice of allowing second mortgage liens to be stripped-off in chapter 7 cases is what led the Supreme Court to hear Bank of America’s appeal. There are likely three rulings the Supreme Court could issue. First, it could reverse the Eleventh Circuit and clarify that Dewsnup forbids both strip-downs and strip-offs. Second, it could affirm the Eleventh Circuit, and somehow distinguish strip-downs from strip-offs. Third, it could affirm the Eleventh Circuit, overrule its own holding in Dewsnup, and allow both strip-downs and strip-offs. If the Supreme Court reverses the Eleventh Circuit, it will confirm that no mortgage (first or second) can be avoided in chapter 7 regardless of the value of the underlying collateral. This would require the bankruptcy courts in Alabama, Florida and Georgia (over which the Eleventh Circuit has jurisdiction) to join the vast majority of bankruptcy courts in the rest of the country that already prohibit lien-stripping in chapter 7 under §506. If the Supreme Court affirms the Eleventh Circuit, it will have to make a distinction between mortgages partially supported by some value and mortgages wholly unsupported by any value. There does not appear to be a principled way to make such a distinction, but if the Court finds a way to do so, then it will overrule all other courts which have held that second mortgages cannot be stripped-off in chapter 7. This would likely result in a wave of chapter 7 cases for the purpose of avoiding and discharging wholly underwater second mortgages. If the Supreme Court affirms the Eleventh Circuit and overrules its own holding in Dewsnup, it will have done a complete about-face on the issue of mortgage 14 McNeal v. GMAC Mortgage, LLC, 735 F.3d 1263 (11th Cir. 2012). 15 Id. 16 Id.
lien avoidance in chapter 7 cases. This would be a crushing blow to mortgage lenders. The potential for monetary loss would be staggering, as there is currently approximately ten-trillion dollars ($10,000,000,000,000) in outstanding mortgage debt on residential real property.17 If only five percent (5.00%) of that debt were discharged in bankruptcy, then an estimated five-hundred billion dollars ($500,000,000,000) of mortgage debt would be wiped out. Similar to the mortgage crisis in the mid-2000’s, the market for secondary lending may come to a standstill as lenders would carry an extraordinary amount of risk if debtors could partially or completely avoid mortgages in chapter 7 cases. Dewsnup was a 6-2 decision. Only three (3) Justices remain on the Court from when the case was decided in 1992. Justice Kennedy was in the majority, holding that first mortgage liens cannot be stripped-down in chapter 7. Justice Scalia, however, authored the dissent in favor of the opposing view. Justice Thomas did not participate. Currently, the Supreme Court is split into a more conservative group (Justices Alito, Thomas, Scalia, and Roberts), and a more liberal group (Justices Kagan, Sotomayor, Ginsburg, and Breyer), with Justice Kennedy right in the middle.18 If the Justices who participated in Dewsnup have not changed their position, and the Justices who did not participate in Dewsnup follow their ideological tendencies, then the Court could issue a 5-4 decision sustaining the Eleventh Circuit, and overruling Dewsnup. In this scenario, Justice Scalia would be likely to write the majority opinion explaining why his dissent in Dewsnup was correct, and be joined by liberal Justices Kagan, Sotomayor, Ginsburg, and Breyer, with conservative Justices Kennedy, Thomas, Alito, and Roberts in the dissent. If the Court overrules Dewsnup, that would pave the way for mortgages to be partially or completely avoided and the corresponding debt discharged in chapter 7 cases. Of course, Congress could 17 http://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm. 18 Hannah Fairfield and Adam Liptak, A More Nuanced Breakdown of the Supreme Court, N.Y. TIMES, June 26, 2014, http://www.nytimes. com/2014/06/27/upshot/a-more-nuancedbreakdown-of-the-supreme-court.html?_r=0& abt=0002&abg=0
abrogate such a ruling by amending the Bankruptcy Code, but absent an amendment, borrowers might file chapter 7 cases en masse to discharge of hundreds of billions of dollars of mortgage debt. For several reasons, the Supreme Court should reverse the Eleventh Circuit and extend Dewsnup to clarify that mortgages cannot be partially or wholly avoided in under §506 in a chapter 7 case. First, Congress has substantively amended the Bankruptcy Code twice since Dewsnup was decided. On neither occasion did they see fit to amend the relevant language that remains in §506(a) and (d), which indicates that Congress agrees with Dewsnup. Second, every other court outside the Eleventh Circuit to have considered the issue, including the Fourth, Sixth and Seventh Circuit Courts of Appeals have held that although Dewsnup was decided in the context of a first mortgage strip-down, it applies equally to a second mortgage strip-off. Third, an adverse ruling would require Congressional intervention to avoid potentially devastating effects on mortgage lending and the economy.
ABOUT THE AUTHORS Christopher J. Stasko is the Supervising Attorney-Bankruptcy, at Codilis & Associates, P.C. based out of Burr Ridge, Illinois. Mr. Stasko is also a member of the ALFN Bankruptcy Practice Group. He can be reached at Chris.Stasko@il.cslegal. com Peter C. Bastianen is an attorney with Codilis & Associates, P.C., also in the firm’s Burr Ridge, Illinois office. Mr. Bastianen can be reached at Peter.Bastianen@il.cslegal.com
POTENTIAL BENEFITS IN A CHAPTER 11 BANKRUPTCY by Eric Dean with Mark T. Domeyer
ERIC DEAN, ESQ. IS VICE CHAIR OF THE COMMERCIAL & REAL ESTATE GROUP OF THE WOLF FIRM. DEAN ALSO SERVES AS CHAIR OF THE ALFNCOMMERCIAL LAW PRACTICE GROUP AND IS A REGULAR FEATURED COLUMNIST IN THE ALFN ANGLE. DEAN CAN BE REACHED AT ERIC.DEAN@ WOLFFIRM.COM MARK T. DOMEYER IS A SENIOR ATTORNEY IN THE BANKRUPTCY DEPARTMENT OF THE WOLF FIRM. HE CAN BE REACHED AT MARK. DOMEYER@WOFLFIRM.COM
All too often mortgage servicers view a Motion for Relief from stay as their only way to obtain relief from stay to foreclose. Where a loan is subject to a Chapter 11 bankruptcy proceeding, a Motion for Dismissal or Conversion of a Case (“Motion to Dismiss”) offers a viable alternative to Motion for Relief from Stay and in certain limited circumstances can prove even more effective than a Motion for Relief from Stay. Those circumstances largely deal with those cases where a Chapter 11 is filed in bad faith as a stalling tactic to delay the foreclosure sale as opposed to an honest attempt to reorganize. A Motion for Relief from Stay is generally considered a better method to obtain relief from stay because it is heard on an expedited basis and the burden of proof on all issues, except the value of the property, rests with the debtor. But these advantages can sometimes be offset by advantages unique to a Motion to Dismiss. For example, instead of the debtor merely facing the servicer, in a Motion to Dismiss the debtor must fight against a united front of many creditors, and often the US Trustee. The united front adds considerable weight to the granting of the Motion. Similarly, since the focus of a Motion to Dismiss is not on any one property, the fact that the servicer’s property may have some equity does not weigh in the analysis and should not be grounds to deny the Motion to Dismiss. And even though the burden of proof in a Motion to Dismiss is on the mortgage servicer bringing the motion, it must be emphasized that the servicer need only show some proof after which the burden of proof shifts back to the Debtor.
For example, unless the Debtor can establish a “business purpose” for its filing, the burden shifts to the Debtor to prove that the case was not filed in bad faith. Similarly, if the servicer’s loan is secured by a Single Asset Real Estate (“SARE”) or if the property was transferred to a newly created owner just prior to bankruptcy filing (the “New Debtor Syndrome”), the burden shifts back to the debtor to prove good faith. In a Motion to Dismiss, the Court may consider a number of factors that while relevant, are not the prime focus in a Motion for Relief from Stay. These factors include: (a) if the debtor suffered substantial losses from which it is not likely to rehabilitate and recover (b) if the Debtor has engaged in bad faith acts (c) if the Debtor is not likely or able to cure its bad faith within a reasonable period of time (d) whether or not the Debtor is collecting rent from its affiliated tenant (e) whether the debtor has not made payments for many months (f) whether there is sufficient evidence to support any proposed source of reinstatement funds. The starting point of an analysis on a Motion to Dismiss or Convert is 11 U.S.C. § 1112, which provides: §1112. Conversion or dismissal (a) The debtor may convert a case under this chapter to a case under chapter 7 of this title unless— (1) the debtor is not a debtor in possession; (2) the case originally was commenced as an involuntary case under this chapter; or (3) the case was converted to a case under this chapter other than on the debtor's request. (b)(1) Except as provided in paragraph (2) and subsection (c), on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate. (2) The court may not convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter if the court finds and specifically identifies
unusual circumstances establishing that converting or dismissing the case is not in the best interests of creditors and the estate, and the debtor or any other party in interest establishes that— (A) there is a reasonable likelihood that a plan will be confirmed within the time frames established in sections 1121(e) and 1129(e) of this title, or if such sections do not apply, within a reasonable period of time; and (B) the grounds for converting or dismissing the case include an act or omission of the debtor other than under paragraph (4)(A)— (i) for which there exists a reasonable justification for the act or omission; and (ii) that will be cured within a reasonable period of time fixed by the court. (3) The court shall commence the hearing on a motion under this subsection not later than 30 days after filing of the motion, and shall decide the motion not later than 15 days after commencement of such hearing, unless the movant expressly consents to a continuance for a specific period of time or compelling circumstances prevent the court from meeting the time limits established by this paragraph. (4) For purposes of this subsection, the term “cause” includes— (A) substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation; (B) gross mismanagement of the estate; (C) failure to maintain appropriate insurance that poses a risk to the estate or to the public; (D) unauthorized use of cash collateral substantially harmful to 1 or more creditors; (E) failure to comply with an order of the court; (F) unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter; (G) failure to attend the meeting of creditors convened under section 341(a) or an examination ordered under rule 2004 of the Federal Rules of Bankruptcy Procedure without good cause shown by the debtor; (H) failure timely to provide information or attend meetings reasonably requested by the United States trustee (or the bankruptcy administrator, if any); (I) failure timely to pay taxes owed after the date of the order for relief or to file tax
returns due after the date of the order for relief; (J) failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of the court; (K) failure to pay any fees or charges required under chapter 123 of title 28; (L) revocation of an order of confirmation under section 1144; (M) inability to effectuate substantial consummation of a confirmed plan; (N) material default by the debtor with respect to a confirmed plan; (O) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; and (P) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition. (c) The court may not convert a case under this chapter to a case under chapter 7 of this title if the debtor is a farmer or a corporation that is not a moneyed, business, or commercial corporation, unless the debtor requests such conversion. (d) The court may convert a case under this chapter to a case under chapter 12 or 13 of this title only if— (1) the debtor requests such conversion; (2) the debtor has not been discharged under section 1141(d) of this title; and (3) if the debtor requests conversion to chapter 12 of this title, such conversion is equitable. (e) Except as provided in subsections (c) and (f), the court, on request of the United States trustee, may convert a case under this chapter to a case under chapter 7 of this title or may dismiss a case under this chapter, whichever is in the best interest of creditors and the estate if the debtor in a voluntary case fails to file, within fifteen days after the filing of the petition commencing such case or such additional time as the court may allow, the information required by paragraph (1) of section 521(a), including a list containing the names and addresses of the holders of the twenty largest unsecured claims (or of all unsecured claims if there are fewer than twenty unsecured claims), and the approximate dollar amounts of each of such claims.
(f) Notwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter. Section 1112(b)(4) sets out a list of events that provide cause, but this list is not exhaustive. St. Paul Self Storage Ltd. P’Ship v. Port Authority of the City of St. Paul (Inre St. Paul Self Storage Ltd. P’Ship), 185 B.R. 580, 582 (9th Cir. B.A.P. 1995). Rather, a court has broad discretion to dismiss a Chapter 11 case for “cause” under section 1112(b), including a determination that the petition was filed in “bad faith.” Marsch v. Marsch (In re Marsch), 36 F.3d 825, 828 (9th Cir. 1994). In fact, case law is clear that good faith is a predicate to the right to file a petition in bankruptcy, as only the “honest but unfortunate debtor” is eligible to avail itself of the protections afforded by the Bankruptcy Code. Marrama v. Citizens Bank of Mass., 549 U.S. 365, 374 (2007) (quoting Grogan v. Garner, 498 U.S. 279, 287 (1991)). The analysis of the statute and case law can generally be divided into three parts: (1) Badges of Bad Faith, (2) the presence of specific enumerated grounds for dismissal, (3) the failure to follow the US Trustee’s Chapter 11 policies and procedures. Each is discussed briefly below. THE “NEW DEBTOR SYNDROME” and consideration of certain indicia or badges of fraud or “Bad Faith” factors are a starting point in the analysis for many courts. The test for a “bad faith” filing in the Ninth Circuit asks “whether a debtor is attempting to unreasonably deter and harass creditors or attempting to effect a speedy, efficient reorganization on a feasible basis.” Marsch, 36 F.3d at 828 (citing In re Arnold, 806 F.2d 937, 939 (9th Cir. 1986)). In deciding whether a case was filed in bad faith, courts can weigh factors such as: (i) the debtor has only one asset; (ii) the mortgage servicer’s lien encumbers that lone asset; (iii) there are generally no employees except for the principals; (iv) there is little or no cash flow, and no available sources of income to sustain a plan of reorganization or to make adequate protection payments;
(v) there are few, if any, unmortgage servicers whose claims are relatively small; (vi) there are allegations of wrongdoing by the debtor or its principals; (vii) the debtor is afflicted with the “new debtor syndrome” when an entity having one primary asset has been created or revitalized on the eve of foreclosure to isolate the insolvent property and its creditors; and (viii) bankruptcy offers the only possibility of forestalling loss of the property. In re Stolrow’s Inc., 84 B.R. 167, 171 (9th Cir. B.A.P. 1988); see also St. Paul Self Storage, 185 B.R. at 582-83; In re WLB-RSK Venture, 296 B.R. 509, 514 (Bankr. C.D. Cal. 2003). A finding of “bad faith” is “based on a conglomerate of factors rather than on any single datum.” Can-Alta Properties, LTD., v. State Savings. SPECIFIC ENUMERATED GROUNDS for cause commonly come into play for mortgage servicers and can be effectively pursued. While a motion based on a lack of good faith is often very effective for the mortgage servicer particularly where multiple indicia of a lack of good faith appear to be present and the allegations themselves put the Debtor on the defensive, the analysis in this arena can get murky. As noted by Judge Ayer of the Bankruptcy Court for the Central District of California, the concept of good faith “covers too many different kinds of conduct, in too many different situations” and “functions at such a high level of abstraction that one can scarcely discern what might be underneath it.” In re Victory Constr. Co., 42 B.R. 145, 149 (Bankr. C.D. Cal. 1984). Many times evidence of the specific enumerated grounds as cause for relief in addition to allegations of a lack of good faith can be decisive. Resort to the monthly operating reports and a request for judicial notice may be sufficient to establish continuing loss or diminution of the estate. Schedules, operating reports and even applications to employ professionals can yield information tending to show gross mismanagement of the estate. Several areas of particular concern (and within the knowledge of the mortgage servicer) can serve as statutory grounds for dismissal or conversion, including, failure to maintain appropriate
insurance (11 U.S.C. § 1141(b)(4)(C)); unauthorized use of cash collateral (11 U.S.C. § 1141(b)(4)(D)); and failure to timely pay taxes owed post-petition (11 U.S.C. § 1141(b)(4)(I)). The Mortgage servicer client can advise counsel if it is forced to make out-of-pocket advances to maintain insurance or to pay delinquent property taxes and this shortcoming supports a powerful argument that a Debtor is not serving as an appropriate steward of their case. FILING A MEMORANDUM IN support of a US Trustee motion or joining in the request to dismiss or convert can be highly effective. A Motion to Dismiss by The US Trustee’s Office, like a motion by a Mortgage servicer, is based under 11 USC §1112 of the Bankruptcy Code. Any opposition to the motion must be in writing and duly served and filed. There are numerous facts that Court will consider when ruling on such a motion. The Court in ruling on the motion will consider such things as: a. Whether the Debtor placed in title to the property that is the subject of the motion far in advance of the filing of the petition; b. The purpose of title to the property being placed in the Debtor. c. The relationship between the Debtor and the owner to the property; d. Whether adequate protection payments are being paid by the Debtor to the Mortgage servicer. e. Whether the Debtor has any equity in the subject property. f. Whether the Debtor paid any substantial consideration for the property g. Whether the Debtor demonstrated the ability to reorganize. h. Whether the property duly insured and whether the insurance and taxes paid current. i. Whether the Debtor’s Schedules accurate and complete. j. Whether the Debtor timely complied with the requirements of the US Trustee’s Office. k. Whether the property transferred to the Debtor to avoid an imminent foreclosure. l. Whether the Bankruptcy petition was filed in good faith: US Trustee motions understandably tend to focus on the failure of a particular debtor to comply with duties that often are administrative in nature, such
as filing monthly operating reports, tax returns and cooperating with the office of the US Trustee. Often the views of mortgage servicers can be an essential factor for a court presented with facts showing that some form of relief is warranted, but input by the mortgage servicer can be vital to the determination of what is in the best efforts of mortgage servicers and the estate. Courts very often appreciate of the input of mortgage servicers that can be presented in a very cost effective manner when making the determination of whether conversion or dismissal is in the best interest of creditors. Generally both form of relief will be beneficial to creditors and at times conversion will be a better remedy than a dismissal, which is often followed by another bankruptcy filing. A chapter 7 debtor is not in a position to lien strip under Dewsnup v. Timm, 503 U.S. 410, 112 Sup. Ct. 773, 116 L. Ed. 2d 903 (1992), or to cram down and modify loan terms. Moreover, an independent chapter 7 trustee will typically move quickly and dispassionately in making decisions on how to best liquidate estate assets. Motions to dismiss or convert or a memorandum in support of a US Trustee motion can be a very cost effective way to end a Chapter 11 bankruptcy that has little shot at success. Such motions may have unique advantages over a motion for relief from stay, where in the beginning stages of the case the Debtor will enjoy a presumption that a plan will be forthcoming in a reasonable period of time. While a motion for relief from the automatic stay limited to a specific piece of collateral may be the preferred remedy for a mortgage servicer, there are occasions when a motion to dismiss or convert, or joining in such a motion may provide unique advantages. In addition, if the Court enters an order to show cause re dismissal or conversion, a memorandum in support of conversion or dismissal can prove highly effective. Practitioners should consider these tactics when the unique circumstances of the case warrant.
TAKE A SEAT.
A NATIONAL TREND HITS NEVADA. HARD. In a growing federal trend, Nevada becomes the latest jurisdiction to adopt a “Mortgage Modification Mediation Program” (“MMMP”) in cases filed in the United States Bankruptcy Courts. The stated goal, adopted from the Florida Courts in which Nevada’s program will be based, is: “…Designed to function as a forum for eligible Debtors to explore loss mitigation options with their lenders (“Lender”) for real property in which the Debtors have an interest and are obligated on the promissory note or mortgage. The goal of LMM is to facilitate communication and exchange of information in a confidential setting and encourage the parties to finalize a feasible and beneficial agreement with the assistance and supervision of the United States Bankruptcy Court for the Southern District of Florida. Loss mitigation options include modification of a mortgage or surrender of real property owned by an individual Debtor(s).” Administrative Order 13-01 and AO 14-03 (Florida) The rollout date for the Nevada MMMP is slated to be January 1, 2015. The program is initially a “pilot” in the District of Nevada, and will be limited only to Chapter 13 bankruptcy cases filed in the Southern District. The model for the procedural rules of this program were largely based on the Rules of Procedure penned in the Bankruptcy Courts of the District of Florida. Mortgage mediation programs are no stranger to the mortgage servicing industry. Traditionally, these programs have been creatures of state law and have affected lenders in the realm of foreclosure actions. The Consumer Law Center currently shows that more
by Michael Chen, Esq.
than half of the states/jurisdictions in the United States have some sort of borrower elected mediation programs that must conclude before a mortgage creditor may seek foreclosure remedies. These programs have been ad hoc creatures of individual state legislative bodies, and as to be fully expected, that the range and variation of the legal and practical rules of conduct within such mediation programs vary wildly from state to state. Given the above, the growing trend of alternative mediation programs within the bankruptcy courts, at first blush, would seem to add yet another undesirable wrinkle to the landscape, but this may not be the case. The notion of a Mortgage Modification Mediation Program in the context of a bankruptcy case filing is not a new concept, either. The earliest efforts involve various courtrooms in the Eastern District of New York Bankruptcy Courts: their initial program was created (General Order #543) in December 8, 2009 and termed the “Loss Mitigation Program.” Various Districts in the Bankruptcy Courts of Wisconsin adopted by administrative order a Loss Mitigation Modification Program (“LMMP”) in April 2011, which was succeeded by the MMMP April 2013. The Florida Bankruptcy Courts adopted the LMMP in April 2013, and again, succeeded by the MMMP in February 2014 (Administrative Order 13-01 and 14-2). The Western District of Pennsylvania
has adopted a version of the LMMP on April 1, 2014 (General Order 14-2). The Bankruptcy Court, Eastern District, in Indiana has also adopted the LMMP in February 2014 (General Order 14-0002). Other select courts in New Jersey and Rhode Island has also adopted similar programs. For a current status of the various jurisdictions that have/are considering these programs, please consult the National Consumer Law Centers “Bankruptcy Mortgage Project” at.bankruptcymortgageproject.org. Furthermore, the precedents for such bankruptcy programs are already quite familiar to bankruptcy practitioners and lenders: settlement/mediation conference vehicles are commonly available to litigants in adversary matters and Judge Barry Russell’s Alternative Dispute Resolution program(s) in the Central District of California Bankruptcy Courts are both long established and well regarded. (See the Hon. Susan V. Kelley’s article “Bankruptcy Court Mediation Programs: Ever Evolving, Improving, and Inspiring.”) Accordingly, the development of MMMPs is a natural evolution of mechanisms that the Bankruptcy Courts/debtors/creditors/ litigants are already familiar with, and its propagation is a natural consequence of the need for such in some of the hardest hit jurisdictions vis-à-vis real property foreclosure volumes: such as Florida and now most recently in Nevada.
THE NOTION OF A MORTGAGE MODIFICATION MEDIATION PROGRAM IN THE CONTEXT OF A BANKRUPTCY CASE FILING IS NOT A NEW CONCEPT, EITHER. THE EARLIEST EFFORTS INVOLVE VARIOUS COURTOOMS IN THE EASTER DISTRICT OF NEW YORK BANKRUPTCY COURTS.
As further evidence of its traction in the Federal Bankruptcy Courts, a recent “National Summit on Loss Mitigation Through Bankruptcy” conference was held on October 8, 2014, and ran concurrently with the 88th Annual National Conference of Bankruptcy Judges held October 8-11, 2014 in Chicago, Illinois. Several of the sitting judges in the districts mentioned above, Hons. Susan V. Kelley (E.D.WI), Elizabeth Stong (E.D.NY), Michael Williamson (M.D.FL) and Catherine McEwen (M.D.FL), served as panel speakers on the value and effectiveness of the such MMMPs in their respective jurisdictions. Due to its coincidence with the NCBJ, this conference was well attended by various Chapter 13 Trustees such as Laurie Weatherford (M.D. FL), Ronda Winnecour (W.D. PA), Nancy Whaley (N.D. GA), Margaret Burkes (S.D. OH and president of the National Association of Chapter 13 Trustees), as well as the Hon. Keith Lundin, commonly regarded as the leading commentator on national Chapter13 bankruptcy issues and practices. Hot on the heels of the National Summit, a nationally sponsored workshop by “Mortgage Modification Education,” a private entity which has experience in the logistics of implementing the document portal and other logistics of the MMMP in the Florida bankruptcy courts, was held on October 20, 2014 in Orlando, Florida. The purpose of the workshop
was to share the experience and expertise of the Florida program for any and all prospective adopters of the LMMP or MMMP in their jurisdiction. By most accounts, the reception to the Summit and Workshop was quite positive and in the opinion of this author, the transition from individual or home-grown mortgage mediation programs in select courtrooms, to widespread, pervasive and seasoned district-wide programs (along with the availability of “turn key” and uniform logistical support from 3rd party vendors) is now complete with the institution of such programs in Florida and Nevada. The proverbial “tip of the spear,” the industry will best be served in understanding and embracing the MMMP hereafter. Proponents of the program, as debated in the aforementioned Summit/workshop, tout several benefits of this program: • The program is a streamlined process that will yield a disposition on modification applications within 180 days of the bankruptcy case filing. • A confidential electronic “DMM portal” for the efficient exchange of documents in the modification
application process is trackable, visible and verifiable as to satisfaction of duties and obligations required in the modification application process. Many mortgage servicers are already familiar with its usage. Mortgage modification efforts in these programs are ideal as they are negotiated in the context of a debtor reorganization where the financial condition of the borrower is readily visible through the schedules and in relation to an over-arching plan of reorganization in which its effect thereon will be taken into consideration for the purposes of assuring successful reorganization of the debtor’s finances. The collegial rather than adversarial mindset governs the parties in these programs, and takes its que from the purpose of Chapter 13 and the trustee’s mandate: to facilitate compromise and/or accept sacrifice in the pursuit of feasible plan of reorganization. With a fairly similar and uniform set of rules in the federal system, national
mortgage creditors/servicers can “hit the ground running” and quickly be familiar with the required processes, which is in direct contrast to state court mediation programs which have wildly varying sets of rules and procedures. “Coming soon to a court near you” may best describe the take away from this story. The continuing maturity and propagation of the MMMP appears to be rule rather than the exception, and practitioners and mortgage lenders are best served in gaining the valuable early experience and logistical familiarity from these cutting edge jurisdictions. To that end, the Southern District of Nevada Chapter 13 Trustees and “Mortgage Modification Education” will be tentatively sponsoring a training session on the soon to be adopted MMMP in Las Vegas, Nevada on December 12, 2014. Michael Chen is an attorney with McCarthy Holthus. He can be reached at email@example.com
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HOSTING AN ALFN WEBINAR JUST MIGHT SURPRISE YOU: + AVERAGE ATTENDANCE OF 200+ INCLUDING MORTGAGE SERVICERS + PRESENTERS RECEIVE CONTACT INFORMATION FOR ALL ATTENDEES + POSITION YOURSELF AS A SUBJECT-MATTER OR STATE-SPECIFIC EXPERT + EXPOSURE TO OVER 6,000 MORTGAGE SERVICING INDUSTRY PROFESSIONALS + BUILD CREDENTIALS OF YOUR YOUNGER ASSOCIATES + EACH MEMBER RECEIVES ONE COMPLIMENTARY WEBINAR OPPORTUNITY* *Each ALFN member has the opportunity to conduct one complimentary webinar each calendar year. Additional webinars are offered at a nominal $1,000 fee. Participants of ALFN Committees, Groups and those participating at the request of the ALFN are exempt. Shop the ALFN Media Kit (alfn.org/media_kit) or contact us at firstname.lastname@example.org for more details.
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COLORADO RECLAIMS ‘NEW FRONTIER’ MONIKER AS FORECLOSURE INVESTIGATION WRAPS, NEW LAWS HIT THE BOOKS
Foreclosure landscape in Colorado changes dramatically The foreclosure landscape in Colorado dramatically changed over the past year. Following a two-year investigation, Colorado Attorney General John Suthers filed civil law enforcement actions against eight foreclosure law firms. Suthers sued the firms for fraud and accused them of inflating foreclosure costs charged to homeowners. In particular, Suthers alleged the firms formed affiliated vendors that charged inflated amounts for items such as the property postings and title work. Consequently, at least two of the firms entered into consent decrees with the Attorney General’s Office. Over the last year, the Colorado Legislature has passed bi-partisan foreclosure reform legislation during both recent legislative
sessions. Summaries of the three most relevant new laws are below. HB 14-1130: FORECLOSURE CURE REMIT UNPAID FEES TO BORROWER EFFECTIVE DATE: 5/9/20141 HB14-1132 was enacted in response to the aforementioned Attorney General investigation. The aim of the Bill is ensur1 CO HB 14-1130 is applicable to Colorado nonjudicial foreclosures where first action occurs post-May 9, 2014 – with first action being the foreclosure law firm filing a Notice of Election and Demand (NED) with the public trustee (“PT”). 2 CO HB 14-1130 is codified in Colorado’s nonjudicial foreclosure statutes at: C.R.S. § 38-38-100.3 (Definitions); § 38-38-101 (“Holder of evidence of debt may elect to foreclose”); and § 38-38-104 (“Right to cure when default is nonpayment - right to cure for certain technical defaults”).
ing transparency and fairness regarding the amount of foreclosure fees and costs assessed to parties seeking to avoid foreclosure by tendering a pre-sale cure payment. In furtherance of this aim, the Bill requires that these sums be accurately accounted for throughout the foreclosure process3 and adds new consumer rights to the statutory cure process – the majority of which only apply after a loan is validly reinstated4 – including the following: 3 See generally C.R.S. § 38-38-104(2)(a) (as amended by CO HB 14-1130). 4 As such, CO HB 14-1130 makes relatively minor changes to Colorado’s general nonjudicial foreclosure process – circumstances warranting the applicability of the new cure rules required under the Bill are unlikely to arise in every foreclosure (or even the majority of Colorado nonjudicial
ONE: Cure Statement Requested – New Disclaimer Required in Public Trustee Response. Colorado affords qualifying individuals a pre-sale right to request an itemized statement of the amount required to cure a default (also known as a “cure statement.”) The public trustee (“PT”) procures the required information and provides the cure statement to the requestor.5 In furnishing this information, HB 14-1130 includes a new requirement that PTs concurrently provide notice that if a cure payment in tendered, the curing party has the right to request copies of receipts supporting all foreclosure charges in the cure statement during the 90-days following payment.6 TWO: Cure Statement Provided – Discovery Inaccurate, Duty to Provide New Statement. If a cure statement is discovered to be inaccurate, HB 14-1130 requires “immediate” notification to the PT and the provision of an updated cure statement. PTs may also postpone a scheduled sale for up to one week if the latter is untimely furnished by the lender, servicer, or their counsel.7 THREE: New Post-Cure Duty to Provide Receipts for Certain Attorney Costs. After a valid cure payment is made, the PT must notify all interested parties. Within seven days thereafter, HB 14-1130 further requires that proof of certain attorney costs be delivered to the PT. Specifically, “receipts or invoices” for all Rule 120 docket costs and statutorily mandated postings costs.8 FOUR: Cure Payment Made – Duty to Provide Statement Omitting Pre-Cure Estimates. Within this same 7-day timeframe, a lender, servicer, or their counsel must also deliver a new “final statement” to the PT. This statement must contain a “reconciled” cure amount, defined as one omitting any “estimated amounts [quoted in the previously sent cure statement] foreclosures). Awareness of the new requirements is nonetheless important for circumstances where a valid pre-sale cure payment is remitted, and also because – if invoked – some new rules contain precure record-keeping requirements by lenders and servicers pertaining to foreclosure fees and costs. 5 See C.R.S. § 38-38-104. 6 C.R.S. § 38-38-104(2)(a)(I)(B) (as amended by CO HB 14-1130). 7 C.R.S. § 38-38-104(2)(a)(III) (as amended by CO HB 14-1130). 8 C.R.S. § 38-38-104(2)(a)(IV) (as amended by CO HB 14-1130).
Over the last year, the Colorado Legislature has passed bi-partisan foreclosure reform legislation during both recent legislative sessions.
that were not or could not [have] be[en] incurred as of the date the cure proceeds were [actually] received.’9 FIVE: Cure Payment Made – Refund for Fee and Cost Overpayments Now Required. HB 14-1130 also contains a new statutory mechanism by which a curing party is entitled to receive a prompt refund from the PT if the cure amount tendered included any “overpayments”10 (defined as amounts attributable to foreclosure fees or costs that were not actually incurred as-of the cure payment date). The refund will equal the total amount of any such overpayments.11 SIX: Cure Payment Made – New Right of Curing Party to Receive Proof of All Costs. Finally, under HB 14-1130, the curing party has a right to request copies of receipts or other credible evidence supporting all foreclosure costs in the operative cure statement from the lender, servicer, or their attorney within the 90 days following tender of the cure payment, This documentation must be 9 C.R.S. § 38-38-104(2)(a)(IV) (as amended by CO HB 14-1130). 10 These overpayments may be attributable to prepayments or estimates included in a reinstatement quote/cure statement provided to a borrower that he or she relied upon in submitting the cure payment. For example, a cure payment tendered may be more than the figure set forth in the new final statement if a previously provided cure statement contained estimated fees and costs good-through the month’s end, but payment was tendered two-weeks prior to this good-through date. Please note that 14-1130 specifically allows the continued used of estimated fees and costs in cure statements. See C.R.S. § 38-38-104(a)(2)(III) (as amended by CO HB 14-1130). 11 C.R.S. § 38-38-104(2)(a)(IV)-(V) (as amended by CO HB 14-1130).
sent no later than 30 days after such a request is received.12 HB 14-1295: FORECLOSURE SPOC & NO DUAL TRACKING EFFECTIVE DATE: 1/1/201513 HB 14-129514 is another Colorado consumer protection law passed in 2014. The goal of the Bill is foreclosure avoidance, with many provisions directly mirroring the Consumer Financial Protection Bureau’s (CFPB) loss mitigation rules and others aimed at ensuring the foreclosure process is fair, transparent, and affords borrowers ample pre-sale opportunities to explore foreclosure prevention alternative (FPA) options. ONE: New Colorado SPOC & No Dual Tracking15 Rules. For example, HB 141295 creates new statewide foreclosure rules pertaining to “dual tracking”16 and
12 C.R.S. § 38-38-104(2)(a)(VI) (as amended by CO HB 14-1130). Unlike the 7-day post cure requirement to provide invoices for certain foreclosure attorney costs (discussed above), this requirement: (1) is not automatic – it is only implicated if affirmatively invoked by the curing party in writing; and (2) is not limited to two classes of foreclosure attorney costs – it applies to all other foreclosure attorney costs, as well as all lender and servicer foreclosure costs. 13 CO HB 14-1295 is applicable to Colorado nonjudicial foreclosures where first action occurs post-1/1/2015 – first action being the filing of the NED with the PT. 14 CO HB 14-1295 is codified in Colorado’s nonjudicial foreclosure statutes at: C.R.S. § 38-38-100.3; § 38-38-102.5(2); § 38-38-103.1; § 38-38-103.2; § 38-38-103; and § 38-38-105(3). 15 Like the CFPB’s loss mitigation regulations, CO HB 14-1295 prohibits the process of “dual tracking” whereby a lender simultaneously negotiates with a borrower regarding FPA options and pursues foreclosure. 16 A written notice of receipt of a complete FPA application must now be sent to borrowers CO
the imposition of a single point of contact (SPOC)17 directly analogous to the relevant CFPB rules18 – with one exception. Specifically, HB 14-1295 contains a statutory dual tracking mechanism not found in the CFPB rules under which a PT may postpone a scheduled foreclosure sale if: • Either: o (1) The servicer sent a written notice acknowledging receipt of a complete FPA application to a borrower and the application is still under review by the servicer; or o (2) An FPA offer was extended, accepted, and the borrower is presently in compliance with the terms of the offer; and • The borrower requests a postponement from the PT at least 14-days prior to the sale date. TWO: New Combined Notice and Rule 120 Disclaimers – SPOC & Dual Tracking Rules. Both the PT’s combined notice19 and the lender or servicer's posted notice20 must also include a new statement regarding a borrower's ability to file a complaint with state and federal authorities if the borrower believes the lender or servicer has violated the SPOC or no dual tracking provisions promulgated by HB 14-1295. THREE: Pre-Foreclosure HOPE Letter – New Foreclosure Consultant Disclaimer HB 14-1295 (as under the CFPB rules). Servicers must also exercise reasonable diligence in obtaining any missing information required to complete an incomplete FPA application submitted by a borrower. 17 For example, a servicer must also establish a SPOC for a borrower under CO HB 141295 within 45 days after the borrower becomes delinquent and “promptly” provide written notice regarding one or more direct means of communicating with the SPOC. 18 See C.R.S. § 38-38-103.1 (CO SPOC rules); 38-38-103.2 (CO dual tracking rules). However, please note that both new corollary Colorado rules provide that “[a] servicer who…is exempt from compliance with…[the relevant] CFPB rules…is [also] deemed in compliance with th[ese] section[s] [of CO HB 14-1295].” [See C.R.S. § 38-38-103.1(4) (14-1295 SPOC exemption for entities exempt from the CFPB’s SPOC rules); § 38-38-103.2(6) (analogous 14-1295 dual tracking exemption).] 19 CO HB 14-1295 revises the required content of Colorado’s combined notice to include a new “statement that, if the borrower believes that a lender or servicer has violated the [new] requirements for a single point of contact…or the prohibition on dual tracking…the borrower may file a complaint with the Colorado attorney general, the CFPB, or both, but the filing of a complaint will not stop the foreclosure 20 See C.R.S. § 38-38-105(3)(b).
Required. HB 14-1295 also revises the 30-day pre-foreclosure “HOPE notice” to include a new disclaimer warning against up-front fees charged by foreclosure consultants.21 HB 13-1307: LEGAL DESCRIPTIONS IN RECORDED TRUST DEEDS EFFECTIVE DATE: RETROACTIVE HB 13-1307 was passed in 2013 but is very important to Colorado’s real property laws. Prior to the enactment of this Bill, the Colorado bankruptcy court certified a question to the Colorado Supreme Court regarding a lender’s failure to attach a legal description to a deed of trust. The Supreme Court accepted the certification and ruled that the failure to include the legal description made the security instrument defectively recorded and therefore did not provide constructive notice of the lien to a hypothetical purchaser.22 The Colorado Supreme Court further held actual knowledge could not be imputed to the Chapter 7 trustee given the facts presented. Following the Supreme Court’s decision, the Colorado Legislature unanimously passed HB 13-1307 to clarify the Legislature’s intent regarding C.R.S. § 38-35-122, the statute interpreted by the Supreme Court. C.R.S. § 38-35122(1)(a) requires recorded documents to contain the legal description and street address or other identifying number. If there is a variance between the two, then the legal description governs. HB 131307 revised Section 122 to make clear that the absence of a legal description, by itself, does not render a recording to be defective as a matter of law. The legislation made a specific reference to the Supreme Court decision and expressly stated it was meant to clarify the existing statute. After the bill was enacted, the Supreme Court withdrew its opinion as “having been improvidently granted.”23 Sender v. Cygan (In re Rivera), 2013 Colo. LEXIS 634 (Colo. Aug. 19, 2013). Holly Shilliday is an attorney with McCarthy Holthus. She can be reached at email@example.com 21 See C.R.S. § 38-38-102.5 (as amended by CO HB 14-1295). 22 See Sender v. Cygan, 2012 CO 43 (Colo. 2012). 23 Sender v. Cygan (In re Rivera), 2013 Colo. LEXIS 634 (Colo. Aug. 19, 2013).
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THE 2015 ALFN MEDIA KIT AVAILABLE NOW FIND IT AT ALFN.ORG/MEDIA_KIT OR PICK UP A COPY AT THE ALFN’S MBA SERVICING CONFERENCE BOOTH #809
MEMBERS ON THE MOVE ROGERS TOWNSEND ELECTS TWO SHAREHOLDERS Rogers Townsend & Thomas, PC, is pleased to announce that Robert P. Davis and Michael L. Spicer have been elected Shareholders in the Firm. Mr. Davis is the SC Operations Attorney for the Firm's Default Services Department in Columbia. He concentrates his practice in the areas of real estate, mortgage foreclosures, contested foreclosure, evictions and other foreclosure related matters. Managing Rogers Townsend's large default services staff in South Carolina, Davis represents mortgage lenders and servicers in residential and commercial foreclosure actions. Mr. Spicer is the managing attorney for Default Services in North Carolina, and is based in the Firm’s Charlotte office. He primarily focuses his practice in the areas of uncontested foreclosures, evictions, and other foreclosure-related matters, with ancillary work related to contested foreclosures and real estate. This representation includes clients such as mortgage lenders, mortgage servicers, and substitute trustees in residential and commercial foreclosure actions and related litigation in North Carolina.
POTESTIVO & ASSOCIATES, P.C. ANNOUNCES THE HIRING OF LISA BARWICK, ASSOCIATE ATTORNEY On January 7 Potestivo & Associates, P.C., announced the hiring of Lisa Barwick, an Associate Attorney who joined the firm’s Litigation Department at the Rochester Hills, Michigan office. Barwick earned her B.A. in Political Science at Tennessee State University in 2003 and completed her J.D. at Thomas M. Cooley Law School in 2008. While earning her J.D., she served as the Managing Associate Editor for her school’s Law Review. Lisa is also certified as a Credit Union Compliance Expert and a Bank Secrecy Act Compliance Specialist. Barwick worked for the Michigan State Bar Association before moving onto her most recent former position as Staff Attorney for a local credit union. She also possesses a multitude of experience in Bankruptcy Law. “We are proud to bring in another attorney who has demonstrated consistent interest and dedication to this area of practice,” said President & Founder Brian A. Potestivo. In addition to being a licensed member of the State of Michigan, Lisa has been admitted to practice in both the Eastern and Western Federal District Courts of Michigan.
ALAN WOLF OF THE WOLF FIRM RECOGNIZED BY ‘BEST LAWYERS’ Alan S. Wolf, President and Managing Attorney of The Wolf Firm, A Law Corporation, was recently selected by his peers for inclusion in the 21st Edition of The Best Lawyers in America© in the field of Mortgage Banking Foreclosure Law. Since it was first published in 1983, Best Lawyers has become universally regarded as the definitive guide to legal excellence. Best Lawyers is based on an exhaustive peer-review survey. Over 52,000 leading attorneys cast more than 5.5 million votes on the legal abilities of other lawyers in their practice areas. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.” Mr. Wolf was the lead attorney in the landmark bankruptcy cramdown case of Enewally v. Wash. Mut. Bank (In re Enewally), 368 F.3d 1165 (9th Cir. Cal. 2004). He has served as the Chair of the California Mortgage Bankers Association Legal Services Committee (1994-1995) and Co-Chair (1995-1996), helped found the USFN and served as a member of the USFN Board of Directors (1990-1996). Mr. Wolf lectures extensively throughout the country on a variety of loan servicing and mortgage banking issues. He has also written many articles for leading mortgage banking trade journals including Mortgage Banking Magazine, Servicing Management, California Finance, the CTA Newsletter and USFN Report and has authored sections in the Mortgage Bankers Association’s Handbook on Loan Administration and two chapters in the Mortgage Servicers National Reference Directory. Mr. Wolf is a member of the State Bar of California, a fellow in the College of Mortgage Attorneys, and is a member of a variety of mortgage industry trade groups. He is AV rated, listed in the Martindale-Hubbell Register of Preeminent Lawyers, was selected as one of the 2006 Southern California Super Lawyers as published in Los Angeles Magazine. Mr. Wolf is a 1977 cum laude graduate of Dartmouth College and a 1980 graduate of Southwestern University School of Law. EMAIL YOUR PRESS RELEASES AND UPDATES TO ANGLE@ALFN.ORG
The Wolf Firm was also recently awarded the 2014 Diamond Award of Excellence.
MAX YOUR MEMBERSHIP LIZ POTTER, ALFN SVP OF BUSINESS DEVELOPMENT & MEMBER RELATIONS SITS DOWN TO DISCUSS TEAM-WIDE GOAL SETTING A new year full of promise and full of promises we make to ourselves. We make resolutions to encourage ourselves to overcome past obstacles. We want to try harder, be better, gain financially and build our businesses. We start out the New Year with a giant push toward these goals. We personally commit. But what about goals and resolutions for the team you work with? Every team sets goals, some are clear, tangible goals while others are understood, and not necessarily communicated. As a law firm in our industry maybe your unspoken goal for the team is to succeed with compliance and run your business with high integrity in an ever challenging regulatory environment. Beyond your unspoken goals, it might be a good idea to gather the team and create a short list of mutually agreed upon goals. For those of you that decide to do this, I offer some things to consider as you work toward team goals: ONE: Commit to the Follow up! As a team and as individuals, follow up with contacts you make throughout the year and reach out to say hello to your current contacts. Following a major conference this past year, a default servicing executive told me that only four people that she met at the conference ever followed up. So shocking since we all know that we need to work hard at getting and keeping clients. So make it a habit, it costs nothing, takes only a couple minutes. The practice of law is a relationship business, so make and keep relationships. TWO: Create a “Can Do” environment for the team! We all know there are challenges to practicing law or working as a vendor to law firms. But the team that collectively decides that they will remain positive and work together toward solutions will succeed. Let go of what used to be, and what you cannot change about our industry and march ahead with a “Can Do” attitude.
WE ALL KNOW THERE ARE CHALLENGES TO PRACTICING LAW OR WORKING AS A VENDOR TO LAW FIRMS. BUT THE TEAM THAT COLLECTIVELY DECIDES THAT THEY WILL REMAIN POSITIVE AND WORK TOGETHER TOWARD SOLUTIONS WILL SUCCEEED. THREE: Participate as a member in ALFN! There are so many ways to be involved! Every ALFN member company has the opportunity to do a free webinar on a substantive topic that will edify your colleagues and inform potential clients. The ALFN produces the ANGLE every quarter and YOU can be a featured writer. Join in on speaking opportunities, ALFN has two regional TE@CH events and this year we are planning servicer onsite TE@CH training events as well. Let us know you want to be a panelist, or sponsor and attend at no charge, and be part of the TE@CH events! Join in on member advocacy and be part of ADVOCACY DAY in Washington D.C. FOUR: Dedicate a person to coordinate! Every Managing Partner and CEO is extremely busy. You read this and think “that’s right that’s what I should do” and it never happens. DELEGATE is the word! Assign someone on your team to be a primary contact for each person on the ALFN Executive Team and Staff to make sure your firm is participating in all ALFN has to offer! Use our Media Kit as a guide and establish a budget for sponsorship this year. Sponsorship along with your physical participation at our many events, brands your firm.
LIZ POTTER CAN BE REACHED AT LPOTTER@ALFN.ORG
Those of you that are parents know that raising children takes personal involvement and time. You also know that there are rewards for that involvement. The ALFN is yours, it exists for the benefit of the members. Those members that find it to be rewarding with high ROI, are those that are active through both physically and financially participating. My goal this year is to help you become more successful and through ALFN, give you more tools, better relationships and higher ROI for your active participation in the association. Look for us at our booth at the MBA National Mortgage Servicing Conference, February 23-26 in Dallas. Bring lots of business cards, your team and a “Can Do” attitude. See you in Dallas!
NO ELEPHA NTS IN THI S ROOM. FRANK DISCUSSIONS. ACCURATE ANALYSIS. HONEST ANSWERS.
A15 13TH ANNUAL ALFN LEADERSHIP CONFERENCE HYATT REGENCY LAKE TAHOE RESORT INCLINE VILLAGE, NEVADA JULY 19-22, 2015 DETAILS AT ALFNANSWERS.ORG