+ CHRONIC CHALLENGES
+ COMPLIANCE ISSUES + AND YOUR BOTTOM LINE
ANSWERS CONFERENCE CONTENT ON REVERSE SIDE SNAPSHOTS
AL, AR & ORp14
JPEG AND WILL
+SECTION STARTS ON p20
More you. Less us. Some companies concentrate solely on their own bottom line – jumping in and out of new areas to make a quick buck and leaving customers high and dry. At Stewart Lender Services®, that’s not how we do business. We believe the key to long term success for us is long term success for you. And, with over 17 years in the mortgage services industry and a parent company in business for over 120 years, we know long term. Our focus is on your big picture. We create solutions using tailored services that encompass all your needs today and into the future. And when you get to that future? We’ll still be there concentrating on your success. Want more information? Visit stewart.com/more. Stewart Lender Services. Dedicated to doing business right.™
© 2015 Stewart.
alfn angle: in this issue
FROM THE PRESIDENT
SPOTLIGHT: MCCALLA RAYMER
SNAPSHOT: AL + OR 12
ON THE BOOKS: ARKANSAS
BIG DEALS: JPEG AND WILL
MAX YOUR MEMBERSHIP
President & CEO Matt Bartel introduces this issue of the ANGLE
Five questions with industry-leading firm McCalla Raymer Snapshots of legal happenings in Alabama and Oregon New laws affect servicing and foreclosures in the natural state Two ALFN groups achieve major successes A new infograph highlights the value of volunteering
features & contributions
American Legal & Financial Network (ALFN) 12400 Olive Blvd., STE 555 St. Louis, MO 63141 636-257-4500 (phone) 636-216-0050 (fax) www.alfn.org
Cade Holleman, M.A. VP, Government Affairs & Communications firstname.lastname@example.org
INTRO: DEFAULTâ€™S FAULT LINES
SEISMIC SHIFTS IN SOL ISSUES
COMPLIANCE: TCPA: NEW TECH, OLD BILL
BUSINESS: INTENTIONAL GROWTH
Allison Lukan guides readers on intentional growth
Liz Potter SVP, Business Development & Member Relations email@example.com
COMMERCIAL: TERM SHEETS
Erica Fujimoto outlines key fault lines in the industry Members of the ALFN DSPG discuss major fault lines
John Hearn offers a look at SOL issues in Florida and the Carolinas Angela Fiorentino reviews the TCPA and related issues
Eric Dean outlines issues to watch for in term sheets
REVERSE SIDE: 2015 ALFN ANSWERS CONFERENCE GUIDE MATERIALS
Adam Wilde, Esq. | Codilis & Associates C. Tony Crnic, Esq. | Klatt Law Erica Fujimoto | Affinity Consulting Brian McGrath | ProVest
Cade Holleman, M.A. VP, Government Affairs & Communications firstname.lastname@example.org
Ashleigh Bouselli Administrative & Event Coordinator email@example.com
Vol. 2 / Issue 3 / Summer 2015 + CHRONIC CHALLENGES
+ COMPLIANCE ISSUES + AND YOUR BOTTOM LINE
ANSWERS CONFERENCE CONTENT ON REVERSE SIDE SNAPSHOTS
AL, AR & ORp14
JPEG AND WILL
+SECTION STARTS ON p20
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.
FOR OVER 40 YEARS, LOGS NETWORK HAS BEEN NAVIGATING THROUGH THE EVER CHANGING WORLD OF MORTGAGE BANKING. LOGS NETWORK is the nation’s most comprehensive organization of law ﬁrms, title agencies and trustee companies serving 28 states. OUR UNIQUE, WORKFLOW-BASED approach to delinquent loan resolution means quality and best-in-class performance for all your bankruptcy and foreclosure legal needs.
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NORTH CAROLINA* Shapiro & Ingle, LLP Partner: Grady Ingle gingle@LOGS.com
ARIZONA* Shapiro, Van Ess & Sherman, LLP Partner: Jason Sherman firstname.lastname@example.org
MARYLAND* Shapiro & Brown, LLP Partner: Kristine Brown email@example.com
CALIFORNIA Shapiro, Van Ess, Sherman & Marth, LLP Partner: Angie Marth firstname.lastname@example.org
MASSACHUSETTS* Korde & Associates, P.C. Partner: Sanjit Korde SKorde@kordeassoc.com
OHIO* Shapiro, Van Ess, Phillips & Barragate, LLP Cincinnati Partner Christopher Phillips cphillips@LOGS.com Cleveland Partner: Phillip Barragate email@example.com
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OKLAHOMA* Shapiro & Cejda, LLC Partner: Kirk Cejda kcejda@LOGS.com
FLORIDA* – BOCA RATON –TAMPA Shapiro, Fishman & Gaché, LLP Partner: Barry Fishman firstname.lastname@example.org
MISSISSIPPI* Shapiro & Massey, LLC Partner: J.G. (Pete) Massey pmassey@LOGS.com
OREGON* Shapiro & Sutherland, LLC Partner: Kelly Sutherland KSutherland@logs.com
MISSOURI* Shapiro & Kreisman, LC Mng Atty: John (Jack) Forsythe email@example.com
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NEW JERSEY* Shapiro & DeNardo, LLC Partner: Christopher DeNardo cdenardo@LOGS.com
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NEW YORK* – ROCHESTER Shapiro, DiCaro & Barak, LLC Partner: John DiCaro jdicaro@LOGS.com
TEXAS* Shapiro Schwartz, LLP Partner: Kirk Schwartz email@example.com
NEW YORK* – LONG ISLAND Shapiro, DiCaro & Barak, LLC Partner: Shari Seltzer Barak firstname.lastname@example.org
VIRGINIA* Shapiro & Brown, LLP Partner: Kristine Brown email@example.com
GEORGIA* Shapiro, Swertfeger & Hasty, LLP Partner: Philip Hasty firstname.lastname@example.org ILLINOIS* Shapiro Kreisman & Associates, LLC Mng Partner: David S. Kreisman email@example.com INDIANA* Shapiro, Van Ess, Phillips & Barragate, LLP Partner: Christopher Phillips cphillips@LOGS.com KANSAS* Shapiro & Kreisman, LLC Mng Atty: Linda Tarpley LTarpley@logs.com LOUISIANA* Shapiro & Daigrepont, LLC Partner: Penny Daigrepont pdaigrepont@LOGS.com
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WE KNOW THE MORTGAGE DEFAULT SERVICING INDUSTRY. assure360 was founded upon the belief that an attorney’s responsibility is to vigorously represent their clients’ best interests. Many firm functions are better handled by a trusted external partner that can build an economy of scale to boost the firm’s bottom line while increasing the quality of service to the firm.
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ARCHIVED ONLINE AT ALFN.ORG
ALFN WEBINARS NEVER STOP LEARNING CLASS ON AYS WEDNESD
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 email@example.com for more details.
Predictable results in an unpredictable industry
6 / ANGLE
welcome BOLD PERSPECTIVES FROM UNIQUE ANGLES The ALFN is pleased to be hosting ANSWERS, our 13th Annual Conference, this month in Lake Tahoe. With over 300 attendees and a record high attendance from mortgage servicers, we are thrilled with the industry support year over year at our flagship event. The line-up we have assembled is one you will not want to miss, and we will be featuring some of the industry’s leading experts to discuss regulatory compliance and other industry hot topics that continue to shape our industry and your specific operations. Included in our schedule are 14 educational sessions, networking activities and other events to encapsulate the ever important social aspects and relaxed atmosphere you have come to expect from ANSWERS. You will find this issue of our ANGLE to focus squarely on the issues that drive our discussion at ANSWERS, which are based around the common theme of regulatory compliance. This includes our cover story, Default’s Fault Line’s, where we discuss how law firms are dealing with increasing regulation, and still maintaining a healthy bottom line. This theme also continues in an article that addresses how to build success from intentional growth. Within this publication we also take a more comprehensive look at the ALFN Amicus Brief program that continues to make a difference in our industry by submitting briefs on issues that have a significant impact on mortgage servicing operations and creditor’s rights. This includes our recent success in the Oregon Bankruptcy Court regarding the Amicus we submitted in the Watt case. You will also enjoy reading about a top industry honor that the ALFN has received by ASAE (American Society of Association Executives) for our Junior Professionals & Executives Group (JPEG). In addition, learn about the newest group we have formed and how you can get involved, Women in Legal Leadership (WILL), which has already attracted over 150 members. We tackle a few state specific issues as well regarding the Alabama Right of Redemption changes that have occurred with the adoption of SB 124 back in April 2015, and four new bills that will impact mortgage servicing that recently became law in Arkansas. We analyze the statute of limitations in Florida and the Carolinas, and peer into the recent FCC rulings on the issues of vicarious liability in debt collection under the TCPA. Our Commercial feature for this issue will review often missed diligence and liability concerns in non-residential term sheets. Finally, learn how, although the ALFN is a large association, we continue to drive small experiences for our members and opportunities to get involved. The very first focus of the ALFN when we started the association 13 years ago was to be a forum for mortgage banking solutions. This hasn’t changed and we continue to be your forum, and advocate for our members best interests on a daily basis. Don’t miss an opportunity to plug in and get involved, as unlike other larger associations where you can get lost in the crowd, with the ALFN you will always have a place to stand out and reap the benefits of your membership. MATT BARTEL PRESIDENT & CEO, ALFN
8 / ANGLE
MEMBER DISCOUNT ON Registration for ANSWERS 2015 exceed- PRINT MATERIALS NOW: ANSWERS
ed 300 in late June. Servicer attendance was also at a record high as of late June with over 50 high-level mortgage servicing personnel registered.
UP NEXT: TEACH JACKSONVILLE
Save-the-date for TEACH Jacksonville, scheduled for September 9, 2015. The southeast regional servicer training will be held at the Hyatt Regency Jacksonville Riverfront. Registration opens late summer 2015.
UP NEXT: TE@CH DALLAS
Save-the-date for TEACH Dallas, scheduled for November 12, 2015. The southwest regional servicer training will be held at the Dallas Marriott Las Colinas. Registration opens late summer 2015.
SAVE THE DATE: ADVOCACY DAY
ALFN members will return to Washington, D.C. in early Spring 2016 for the association’s annual legislative & regulatory policy summit. Look for specific dates and other details soon.
BRAND NEW: #WILLPOWER
ALFN’s newest member-based group, Women in Legal Leadership (WILL), announced plans for a summit in early April 2016. #WILLPOWER will be hosted in conjunction with Advocacy Day in Washington, D.C.
Members can now receive a 15% discount on printed products from PrintCOR Solutions. This program is available at no cost, no obligation, and no minimum orders. They can print on everything. Visit their website for more information at www.printcorsolutions.com. Contact Liz Potter to sign-up.
MEMBER DISCOUNTS ON TRAVEL, PRODUCTS, ETC.
ALFN 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. Visit ECPurchasing.com
legal updates LEGAL UPDATE: ILLINOIS
On May 13, 2015 the ALFN published a Legal Update for the State of Illinois. The Legal Update covered the Illinois 7th Circuit Court of Appeals’ released decision on bankruptcy POC filing and was provided by Andrew Houha, Esq. and Josephine Miceli, Esq., of Johnson, Blumberg & Associates, LLC, an ALFN member in Illinois.
LEGAL UPDATE: GEORGIA
On May 20, 2015 the ALFN published a Legal Update for the State of Georgia. The Legal Update covered the GA law that establishes a deadline for the recording of foreclosure deeds and changes attestation requirements for security instruments. The Update was provided by Scott Michalove, Esq., of Baker, Donel-
son, Bearman, Caldwell & Berkowitz, PC, an ALFN member in TN and DC.
LEGAL UPDATE: RHODE ISLAND
On May 26, 2015 the ALFN published a Legal Update for the State of Rhode Island. The Legal Update covered the Rhode Island Foreclosure Mediation Law and its applicability regardless of whether a loan is over 120 days delinquent as of September 13, 2013. The Update was provided by Joseph Camillo, Esq., of Shechtman Halperin Savage, LLP, an ALFN member in Massachussetts.
LEGAL UPDATE: SUPREME COURT CHAPTER 7 LIEN STRIPPING DECISION
On June 2, 2015 the ALFN published a Legal Update on the United States Supreme Court Chapter 7 Lien Stripping Decision in Bank Of America V. Caulkett that wholly underwater second mortgages may not be stripped-off in Chapter 7. The Update was provided by Codilis & Associates, PC, an ALFN member in Illinois.
LEGAL UPDATE: ALFN AMICUS BRIEF IN WATT
On June 25, 2015 the ALFN published a Legal Update for the Association’s Amicus Brief Group. The Legal Update covered the ALFN’s successful amicus brief filed in Watt, an OR bankruptcy case. The Update was provided by Kristin Zilberstein, Esq. of McCarthy Holthus, an ALFN member in Arizona.
SUBMIT: 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 distribu-
MINI RECAPS OF RECENT ALFN UPDATES tion to the ALFN and to understand the Association’s rules and restrictions on submissions.
alfn webinars MEMBER WEBINAR: NETDIRECTOR
On June 23, 2015 the ALFN hosted a Member Webinar titled “Why Default Servicing Firms Should be Automating Business Processes and Workflows”. The Webinar was provided by Gretchen Borer at NetDirector, an ALFN Associate Member - Technology Provider.
HOT TOPIC WEBINAR: CHAPTER 11 BANKRUPTCY
On June 25, 2015 the ALFN hosted a Hot Topic Webinar titled “Individual Chapter 11 Bankruptcy - What Loan Servicers Can Do to Protect Their Interest”. The Webinar was provided by Lee Raphael, Esq., Joseph Garibyan, Esq. and Melissa Vermillion, Esq. with Prober & Raphael, ALC, an ALFN member in California.
PRACTICE BUILDING WEBINAR: LEADING DURING CHANGE
On June 30, 2015 the ALFN hosted a Practice Building Webinar titled “Leading Your Teams During Changing Times”. The Webinar was provided by Debbie Foster and Alison Lukan at Affinity Consulting Group, an ALFN Associate Member Consulting.
JPEG WEBINAR: MARKETING
On July 8, 2015 the ALFN hosted a JPEG Webinar titled “The Do’s and Don’ts of Networking”. The Webinar was provided by members of the ALFN JPEG and Marketing & Business Development Practice Groups.
HOST: ALFN WEBINAR INFORMATION & GUIDELINES
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.
recent deadlines BOARD OF DIRECTORS ELECTION
Voting is being conducted utilizing a secure online poll and available to all Non-Affiliated Attorney-Trustee members May 22 - July 6 for the three available Non-Affiliated Attorney-Trustee seats on the Board of Directors.
highlight: women in legal leadership ALFN ANNOUNCES NEW GROUP: WILL
In mid-May the ALFN announced its newest member-based group, Women in Legal Leadership (WILL). WILL is focused on fostering women leaders in the ALFN, its member businesses, and the industry at large. The Group functions as all other ALFN member-based groups, operates on the quarterly teleconference schedule, and is open to any woman or group of women employed by an ALFN attorney/ trustee, associate or servicing member. The Group’s roster quickly shot to over 150 volunteers, immediately becoming the ALFN’s largest member-based group. WILL plans to host a mini-summit in early 2016 in conjunction with Advocacy Day in Washington, D.C. The Group will also host a breakfast presentation during ANSWERS on Monday, July 20, titled “Working Together: Age and Gender in the Modern Workplace”. To join WILL, email Liz Potter at firstname.lastname@example.org for details.
The ALFN publishes a series of emails branded as ALFN Updates. Updates are a company-wide member benefit and should be received by a member’s full staff. Contact email@example.com 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.
10 / ANGLE
mccalla raymer FIVE QUESTIONS FOR AN INDUSTRY LEADER
PICTURED (L TO R): MELODY JONES, ESQ., MANAGING PARTNER (L); JANE BOND, ESQ., SHAREHOLDER (SEATED); CARL MCGEHEE, ESQ., SHAREHOLDER; MARTY STONE, ESQ., SHAREHOLDER (SEATED); AND ROBYN KATZ, ESQ., MANAGING PARTNER (R). CONTACT MARTY STONE TO LEARN MORE ABOUT MCCALLA RAYMER: MS@MCCALLARAYMER.COM; JANE.BOND@MCCALLARAYMER.COM; RRK@MCCALLARAYMER.COM
WHAT WOULD YOU SAY IS THE SINGLE MOST IMPORTANT ASSET YOU HAVE IN STAYING AHEAD OF THE “COMPLIANCE CURVE”? We have a dedicated Compliance division, headed up by our General Counsel Susan Reid, who in my (admittedly biased) opinion, is the best in the business. She has two other attorneys with dedicated compliance paralegals who coordinate all of audits, trainings, client questionnaires, etc. They work directly with the business units to make the process as seamless and painless as possible. Compliance has become embedded in every aspect of our work lives and is as important to our clients as it is to our teams. WE HEAR A LOT ABOUT THE SIZE OF FIRMS TODAY. WHAT IS THE RIGHT SIZE FOR MCCALLA RAYMER AND HOW DO YOU BALANCE STABILITY, GROWTH, AND QUALITY IN SUCH A VOLATILE MARKET ENVIRONMENT? That’s always a big question for firms, especially today. McCalla has been in Georgia for 33 years and then we started expanding to other states a few years ago. We moved into Alabama in 2008, Florida in 2010 and Mississippi earlier this year. For us, it was it was important to partner with experienced attorneys in the expansion states who really understood not just the process but also the judges and political climate in those states. We have brick & mortar with employees in all of these states, I also think that geographic proximity is important. You don’t want any office to feel like a branch office, but rather a key part of a larger team. DESCRIBE THE CULTURE AT MCCALLA RAYMER—WHAT ARE YOUR VALUES? IF WE WALKED INTO HEADQUARTERS RIGHT NOW, WHAT KIND OF ENVIRONMENT WOULD WE FIND OURSELVES IN? Three words spring to mind: diversity, empowerment and compassion. Diversity because we want our team to draw from all ranges of background, experience and knowledge. Empowerment because I want every employee, regardless of title, to feel that they have the tools and training they need to succeed. And compassion because regardless of practice group, everyone needs to remember that we are dealing with real people and our clients’ customers regardless of the underlying action. WE’VE SEEN A LOT OF LEADERSHIP FROM THE FIRM IN INDUSTRY ORGANIZATIONS AND A LOT OF STAND-OUT YOUNG PROFESSIONALS FROM THE FIRM, ESPECIALLY IN THE ALFN’S JPEG GROUP. WHAT’S THE SECRET TO ALL THAT STAR POWER? We have a lot of young professionals at the firm. Not only do they bring unique perspectives to our business, they also bring a lot of energy and enthusiasm. We always want to make sure that new attorneys and employees see a path of advancement in front of them. I always say that the best hire is someone that would eventually be able to take your job and do it better. SO, WHAT’S NEXT FOR THE FIRM? We’re certainly in a declining default market and while that’s a great thing for the economy as a whole, it certainly presents challenges for all of the firms in our space. In addition to exploring other geographic expansions, we have made a concerted effort expand into practice areas outside of the default area, but that still relate to real estate. We have 18 separate practice areas at the firm, including residential closings and commercial litigation. This diversification means that some groups at the firm will always be experiencing growth regardless of what the economy as a whole is doing.
12 / ANGLE
snapshot: ALABAMA RIGHT OF REDEMPTION CHANGE MCCALLA RAYMER TAKES A LOOK AT CHANGES TO THE RIGHT REDEMPTION PERIOD IN ALABAMA FORECLOSURES
by Scott V. Lofranco, McCalla Raymer
ALABAMA AT-A-GLANCE Non-judicial and judicial sales permitted. Judicial sales are less common. Notice of sale must run once a week for three successive weeks in a newspaper published in the county or counties in which the property is located. Foreclosed borrower(s) and other enumerated parties have a right to redeem the property from the purchaser at the foreclosure sale. See Ala. Code Sec. 6-5-248. For mortgages dated after January 1, 2016, this period has changed.
With the adoption of SB 124 in April of 2015 by the Alabama legislature, the 1 year right of redemption following a foreclosure, as set forth in Ala. Code §§ 6-5-247 et seq., will be reduced for certain types of properties. Please note that these changes to the redemption period and notice requirements are prospective and apply to mortgages dated after the bill’s effective date, January 1, 2016. Highlights of the changes in the law include the following: CHANGE TO THE REDEMPTION PERIOD The right of redemption following a foreclosure sale may be exercised within 180 days from the “date of the sale for residential property on which a homestead exemption was claimed in the tax year during which the sale occurred, or within one year from the date of the sale for all other property.” See New Ala. Code § 6-5-248(b). For mortgages dated prior to January 1, 2016, the 1 year right of redemption will still apply.
NEW NOTICE REQUIREMENT New subsection (h) to Ala. Code Sec. 6-5-248 will require the foreclosing mortgagee to provide additional written notice to the borrower regarding the redemption process and possible loss mitigation options. Again, this change applies to mortgages dated after January 1, 2016. “(h) The mortgagee who forecloses residential property on which a homestead exemption was claimed in the tax year during which the sale occurred shall give notice to the mortgagor who signed the mortgage in substance as follows: ‘Alabama law gives some persons who have an interest in property the right to redeem the property under certain circumstances. Programs may also exist that help persons avoid or delay the foreclosure process. An attorney should be consulted to help you understand these rights and programs as part of the foreclosure process.’
This notice shall be mailed to the mortgagor at the address of the property subject to foreclosure at least 30 days prior to the foreclosure sale date by certified mail with proof of mailing. This notice shall also be included in the notice required pursuant to Section 35-10-13. For foreclosed residential property on which a homestead exemption was claimed in the tax year during which the sale occurred, the period of time during which a right of redemption may be exercised shall not begin until notice is given in accordance with this subsection. A defective notice, or the failure to give notice, will not affect the validity of the foreclosure, including the transfer of title to the property. All actions related to the notice requirement must be brought within 2 years after the date of foreclosure, or the action will be barred.” CHANGE TO STATUTE OF LIMITATIONS FOR FILING AN ACTION TO ENFORCE THE RIGHT OF REDEMPTION Ala. Code Sec. 6-5-252 was amended to require that a party seeking to enforce its right of redemption must file suit within 180 days from the date of foreclosure “for residential property on which a homestead exemption was claimed in the tax year during which the foreclosure occurred.” For all other property, the action can be filed within 1 year from the date of the foreclosure. LIMITATIONS ON APPLICABILITY OF NEW LAW The effective date of this legislation is January 1, 2016. However, the change in the redemption period does not apply to any mortgages dated prior to this effective date. For mortgages dated prior to January 1, 2016, the 1 year right of redemption will still apply. Scott V. Lofranco, Esq. is an attorney with McCalla Raymer. Lofranco is based in the firm’s Georgia office and is licensed in both Georgia and Alabama. He can be reached at svl@ mccallaraymer.com
update: OREGON AMICUS SUCCEEDS MCCARTHY HOLTHUS PROVIDES UPDATE ON OREGON BANKRUPTCY CASE WHERE ALFN ACTED AS “FRIEND OF THE COURT”
by Kristin Zilberstein, McCarthy & Holthus
In the Watt case, the Oregon Bankruptcy Court confirmed a Chapter 13 plan wherein debtors included a provision that they would vest title to the real property to the creditor. The plan was silent, though, as to whether the property was actually surrendered. The creditor opposed the plan on the basis that it would require the creditor to take the property subject to junior liens and be obligated to pay post-petition homeowners association (HOA) dues and assessments. The court confirmed the plan over the creditor's objection, and the creditor appealed. The appeal focused on interpretation of 11 U.S.C. Section 1325, which allows confirmation of a plan where the debtor surrenders the property to a secured claim holder. The court noted that "surrender" of the property is not the same as "vesting" the property to the creditor because when a property is surrendered, the creditor is free to either accept or reject the collateral, whereas vesting involves a present transfer of title which would terminate the debtor's liability for ongoing HOA assessments. The Oregon District Court reversed the bankruptcy court's order, concluding that the plan couldn't be confirmed over the creditor's objection. The fact that another provision of the bankruptcy code allowed the debtor to vest the property in a third party didn't change the analysis because plan confirmation was governed by 11 U.S.C. Section 1325, which doesn't allow a plan to be confirmed where property is being surrendered without the consent of the creditor. Recently, Debtors filed a Notice of Appeal to the 9th Circuit. The matter is in the very preliminary stages. The ALFN anticipates filing an Amicus Brief with the assistance of McCarthy & Holthus, LLP. Kristin Zilberstein is an attorney with McCarthy & Holthus and is based in California. Zilberstein currently serves as co-chair of the ALFN Bankruptcy Practice Group. She can be reached at firstname.lastname@example.org
14 / ANGLE
arkansas ON THE BOOKS by J.P. Sellers, Mackie Wolf Zientz & Mann email@example.com
FOUR NEW BILLS BECOME LAW AFFECTING MORTGAGE SERVICING IN THE NATURAL STATE The regular session of the 90th Arkansas General Assembly concluded on April 22, 2015. Several bills were enacted which are of interest to the mortgage servicing industry. The new acts provide clarity to existing laws and set forth some new requirements. Collectively, this new legislation will have the biggest impact on those who work in the real estate title industry in Arkansas. To this point, the Act that has sparked the most conversation is Act 918. This act allows the release of a mortgage, deed of trust or other lien based on an affidavit by an attorney or a title agent who has affirmed that the lien has been satisfied. This satisfaction affidavit would be prepared in the
event a lender or servicer did not file a release of lien upon request within sixty days of receiving full satisfaction of the amount owed. A licensed attorney has authority to file a satisfaction affidavit if the attorney prepared the original lien or represents the individual or entity making or having received satisfaction. A licensed title agent that tendered the satisfaction on behalf of the individual making satisfaction will also have the authority to file the affidavit. Upon recordation, the satisfaction affidavit would release the lien, bar all actions brought on the lien, and vest title to the record owner. Subsequent to the enactment of Act 918, a title underwriterâ€™s bulletin was issued advising that similar statutes in
other states have not been utilized to satisfy liens for various reasons. As a result, the bulletin advised title agents who execute a satisfaction affidavit to proceed with caution. One area of concern is the notice requirement. The act requires a request be made to the lienholder for satisfaction of the lien sixty days prior to filing the affidavit. If the individual or entity who facilitates the payoff of the lien does not affirmatively request proof of satisfaction of the lien, the sixty day statutory period does not begin. A common practice utilized in the industry is to wire the funds to the lienholder without making request for proof of satisfaction. While the procedures may be changed moving forward, it
will be difficult to file satisfaction affidavits for liens paid off prior to enactment of Act 918. Another area of concern is the liability created by the individual who files the affidavit and releases the lien. If the lien was released in error the lienholder would likely pursue remedies against the individual or entity who filed the affidavit. Another act that will impact the mortgage servicing industry is Act 683. Prior to the passage of Act 683, the sale of real property as a result of delinquent real estate taxes could be contested within established statutory timeframes. Most notably affected is the previously mandated thirty day time period to redeem the property following the tax sale. Act 683 provides that upon filing a judicial action to confirm a tax sale or quiet title to real property following a tax sale any remaining redemption period is extinguished. As a result, the thirty day redemption period after a tax sale is no longer guaranteed. In addition, the one year right to challenge the conveyance is eliminated upon filing of the previously described judicial action. Pursuant to the changes established by Act 683, mortgage servicers should closely monitor any properties at risk of a tax sale and redeem the taxes timely. The following acts provide clarity to laws currently impacting the mortgage servicing industry. Act 1113 amends and clarifies the duration of judgment liens on real estate. Prior to enactment of Act 1113, a judgment lien filed in the real estate records was a lien on the real property owned by the debtor for ten years from the date of the lien. The statute was silent as to the effect tolling or renewing the ten year limitation period may have on the lien on real property. Act 1113 clarifies that any actions that toll or renew the ten year limitation period will not affect the ten year limitation period as to the real property owned by the debtor. Act 1098 amends and clarifies the laws concerning the tax of real property transfers in Arkansas. Prior to passage of Act 1098, Arkansas law specifically provided for a transfer tax exemption for properties that were sold at a judicial foreclosure sale. The statutes were silent in regard to properties sold at a non-judicial foreclosure sale. Act 1098 confirms that the provision that exempts conveyances undertaken as a result of a judicial foreclosure from the real property transfer tax also exempts conveyances resulting from a non-judicial foreclosure sale. This exemption is important to the mortgage servicing industry as it prevents double taxation if the property reverts to the lender or investor after the foreclosure sale. The current acts should provide minimal impact to the mortgage servicing industry, unlike their predecessors. Acts enacted in 2011 drastically changed the requirements to initiate foreclosure in Arkansas and eliminated dual tracking at the same time. These changes predated their federal counterparts and made an impact on the industry that was substantial. The clarity provided during the most recent session is beneficial to the industry and has provided resolve to some long disputed issues in the State of Arkansas.
PROGRAM CONTINUES TREK ACROSS SERVICING SHOPS, AR NEXT STOP Everyone knows the ALFN TEACH event series as backto-back regional servicer training events in Jacksonville, FL and Dallas, TX each fall. What most people donâ€™t know is that the program also includes smaller, servicer-specific on-site trainings coordinated between the ALFN and an individual mortgage servicing shop.
ALREADY IN 2015 THE ALFN HAS COORDINATED TWO ON-SITE SERVICER TRAININGS THAT HAVE PUT NEARLY 25 MEMBERS DIRECTLY IN FRONT OF NEW AND EXISTING CLIENTS. With on-sites, servicers are able to identify the issues and the states where they need training. In each instance, the ALFN works with servicers to identify firms with the right expertise and geographic footprint to best meet their needs. Generally, on-site participants are chosen directly by the servicer and pulled from the ALFN Member Directory. In instances where the servicer requires training from a particular state and does not currently have counsel in their vendor network for that area, the ALFN runs a lottery process that includes all members from that state. Once a firm is chosen by lottery and accepts an on-site TEACH role, they are then pulled from all future lotteries for the remainder of that calendar year. Already in 2015 the ALFN has coordinated two on-site servicer trainings that have put nearly 25 members directly in front of new and existing clients. Up next: the ALFN is heading to Arkansas for its second on-site training, a twoday event later this fall, in addition to the two open-invitation regional TEACH events in Jacksonville and Dallas.
16 / ANGLE
winning JPEG AWARDED TOP INDUSTRY HONOR JPEG [JUNIOR PROFESSIONALS & EXECUTIVES GROUP] WINS GOLD POWER OF A AWARD FROM AMERICAN SOCIETY OF ASSOCIATION EXECUTIVES, INDUSTRY’S TOP HONOR FOR INNOVATIVE MEMBERSHIP PROGRAMS ABOUT THE AWARD Over 140 national associations competed for 30 Gold Awards from the American Society for Association Executives (ASAE). This year was a first for JPEG or any ALFN program to be nominated for the Power of A Awards and marks the first time the Association has been recognized by its trade group and professional society peers. JPEG will publish it’s second annual Picture the Future publication, showcasing standout young professionals during a special luncheon and mixer on Monday, July 20 during ANSWERS.
ABOUT THE PROGRAM
JPEG is open to any young professional employed by an ALFN member (attorney/ trustee, associate or servicer). Members must be less than 40 years of age or have fewer than five years of industry experience. JPEG hosts quarterly teleconferences for Group members; periodic webinars open to all ALFN members; hosts two mixers each year; annually publishes the Picture the Future List, a publication of standout young professionals in the servicing industry; and offers a mentorship program to its members.
The ALFN has earned a 2015 ASAE Power of A Gold Award for its Junior Professionals and Executives Group (JPEG), a young professionals network created to help legal staff under 40 years of age gain exposure and opportunities to career-building relationships. “Over 140 associations from across the country nominated the very best of their member services and innovative programs. Even among such esteemed programs, JPEG stands out as a best-in-class young professionals network and we’re proud of this recognition from the ASAE,” said Matt Bartel, President & CEO of ALFN. “Congratulations to ALFN for helping make their community a better place,” said Hugh Cannon, MPA, CAE, Executive Director of ACEC of Metropolitan Washington, and chair of the Power of A Awards Judging Committee. “Their program exemplifies how associations make a difference every day – not just to the industry or profession they represent, but to society at large.” “Over 350 young professionals benefit from our mixers, webinars and other face-to-face events throughout the year,” said Kelly Gring, JPEG Chair and ALFN Board Member. “We’re helping young attorneys who face one of the most daunting challenges of any industry: ever increasing numbers of competing graduates, dwindling legal jobs, fewer roads to partnership, and a workload that means very few survive the first three years.” JPEG helps young professionals who experience few volunteer opportunities at the national level where the competition is fierce for the few slots that offer career development, exposure and positioning. JPEG coordinates networking mixers, regular teleconferences, publishes an annual profile of emerging leaders, and operates as a platform for JPEGs to access other leadership roles within the Association and to position themselves as subject matter experts through authorship and education. There is also a strong mentorship component to the program. ASAE’s Power of A (association) Awards, the industry’s highest honor, recognize the association community’s valuable contributions on the local, national and global level. The Power of A Awards reward outstanding accomplishments of associations and industry professionals for their efforts to enrich lives, create a competitive workforce, prepare society for the future, drive innovation and make a better world.
FOUNDING WILL MEMBERS Caren Castle, Chair Alicia Wood, Servicer Co-Chair Natalie Grigg, Attorney Co-Chair Kristina G. Murtha, Attorney Co-Chair Amanda V. Green, JPEG Co-Chair Erica Fujimoto, Associate Co-Chair Aimee Eller Alisha Brunson Alison Lukan Amanda Buffington Amber Lang Amy Cooper Amy Hanna Andrea Tromberg Angela Capling Angela Kirk Angela Veda Aurelia N Henry Candice Archibald Cathe Cole-Sherburn Catherine Higgins Charlotte Haack Chaunacie Wilkerson Cherisma Esteva Christina Crivello Cindy Donovan Corey Danzig Dawn Berry Dawnese Hawkins Debbie Foster Deborah Holm Debra L. Innocenti Denise Carlon Denise Vasquez Donni Matthew Elizabeth R. Wellborn Emily Mallor Erika Bennett Esther M. Torres Fran M Vater Gina Gray Gloria Rocha Haley Pope Hallie Greene Heather CM Rogers Heather Newman Irisa Staggers Jacqueline M. Comeau Jaleesa Komolafe Jan Duke Jane Bond Jeanne Kivi Jeanne Ward Fairweather Jennifer Dlugolecki Jennifer Gauthier Jennifer Lima-Smith Jennifer Payne Jennifer Warren Jennifer Wersal Jill Jenkins Jill Rein Joanne Lafontant-Dooley Joanne Ricardo Jodi Altwies Judy Mattingly Justine M. Smullen Karen Jennings Karen Kulwin Kate Meyer Kathleen Kramer Katie Dysart Katie Jo Keeling Kay Schinker
Kelley Ross Brown Kelly Gring Keri Ebeck Kim Andres Kim M. Hammond Kimberly Jannuzzi Korin Knutson Kris Morone Kristen Palumbo Kristin Zilberstein Kristy Calhoun Krys Fuller Laura Infante Laura Jackson Laura K. Conrad Laura Walker LeAnn Covey Leslie Mann Lindsay Niehaus Lorraine Gazzara Doyle Lynda J. Bird Malinda Edwards Mallory Myers Marcy Ford Margaret Love-Wolford Maria Lamas Maria Moskver Maria Satterfield Maria Tsagaris Maureen Vishion Maureen Zink Melissa Konick Melissa Middleton Sgroi Melissa Muros Melissa Porter Melissa Youngman Meredith Kidd Michelle Gilbert Mindi Robinson Natalie Kenny Natalie Mencia Nayeli Diaz-Febles Nicole Alling Nicole Mariani Noel Nikole Haltiwanger Pamela Murphy Phyllis Ulrich Randee Hedrick Rebecca Renee T Johnson Rita Lewis Robyn Katz Robyn S. Padgett Rosalie Marie Escobedo Rosanna Henry Rose Lara Rosemarie Diamond Sarah Murphy McDaniel Sasha Cohen Sommer Latimer Stacey Welchner Sue Ethridge Susan Reid Suzanne Bologna Sviatlana Liashchyna Tabitha Mangano Taylor R. Riley Tenise Cook Toniqua Green Tricia Patterson Vanessa Sloat-Rogers Wendy Reiss Wendy Walter Yimell M. Suarez Abreu
NEW GROUP, WILL, OPENS WITH OVER 150 GROUP MEMBERS IN ONE MONTH DEFAULT SERVICING WOMEN MADE THEIR VOICES HEARD AS THEY JOINED WILL [WOMEN IN LEGAL LEADERSHIP] IN LARGE NUMBERS, MAKING IT THE LARGEST GROUP IN ALFN HISTORY WITHIN JUST ONE MONTH OF LAUNCH. THE MISSION OF WILL IS SIMPLE: create a forum for women in the industry and to cultivate women leaders in their organizations, their membership associations, and the industry at large. The WILL Leadership Team will meet during ANSWERS 2015 to address planning and procedures for the 2015-2016 year. There will also be a breakfast during ANSWERS 2015 announcing the WILL Leadership Team Members to the full ALFN membership and a presentation titled “Working Together: Age and Gender in the Modern Workplace.” The group will start reaching out to member volunteers to join in the planning and coordination of the WILLpower Summit to be held in Washington D.C. alongside the ALFN Advocacy Day event sheduled for early spring 2016. The group plans to have opportunities for members to write, speak and create events in several venues throughout the default servicing industry which are centered on the WILL mission. WILL follows the ALFN Group plan in organization and will conduct quarterly group calls beginning in August. WILL membership is complimentary to all women employed by an AttorneyTrustee, Associate or Servicer member of the ALFN. Please contact Liz Potter at firstname.lastname@example.org for further membership information.
18 / ANGLE
Did you know the ALFN offers scholarships for servicers to attend events? Whatâ€™s more, you can offer this perk to your clients or potential clients and pay this value-add forward to those in your network. Ask us how @ALFN_Network
BALANCING YOUR VOLUNTEER EFFORT
20 / ANGLE
THORNY ISSUES. BURDENSOME REGULATION. OH YEAH, AND YOUR BOTTOM LINE. IT’S THE BUSINESS WE’RE IN AND THE BASICS OF BUSINESS: HOW DO WE DO A JOB THAT’S TOUGH AND STAY PROFITABLE DOING IT? by Erica Fujimoto, Affinity Consulting Group email@example.com
As the ALFN hosts its 13th annual Leadership Conference, ANSWERS, there is no question that our industry has been in a state of flux for the last eight years. We have seen extreme highs leading into arguably the worst mortgage crisis this country has seen, and it hasn’t been without its casualties. There used to be a certain level of job security working in the default industry. Regardless of whether the economy was good or bad, people were always in foreclosure. As I write this introduction, however, we are seeing yet another legal giant falling prey to the hardships that have made it more difficult for firms to stay successful in this market.
provements in both the total number of homes in default nationwide as well as in the foreclosure inventory versus the total number of mortgages. CoreLogic estimates that we are at the lowest overall rates since May 2008, a time when the magnitude of the crisis was just becoming clear. For default law firms, this means that there will likely not be any significant increase in the number of referrals in the foreseeable future, yet practitioners continue to battle chronic issues related to various statutes of limitation, whether those state laws are static or face considerable challenge, as John Hearn details in his article “Seismic Shifts”.
We have seen the market level off in the last few of years, lending is on a rise, and there are continuous im-
Governmental and client oversight have forced law firms to focus on compliance, while improving accuracy
and efficiency. Allowable fees have been increased to provide for fairer compensation rates but not at the rate firms would like to see. Firms are looking to expand by moving into new states or practice areas, or by strategically merging with competitors who have common goals. And yet firms are still struggling to succeed. There are many who look at their books every month and worry that they might not see a new year in business. So, with all that is being done, one must ask why are firms having such a hard time finding balance? Is it court, servicer, investor, and other requirements that are making it difficult, or are the firms’ procedures not keeping up with the changes? What must firms do to overcome the difficulties they are facing? Where can improve-
MEMBERS OF THE ALFN DEFAULT SERVICES PRACTICE GROUP Andrea Tromberg Gladstone Law Group, P.A. Angela Greenwell CoreLogic Default Technologies Anthony Maselli Pendergast & Associates, P.C. Bernard J LoVerde Jr Malcolm Cisneros, ALC Brian McGrath ProVest, LLC Crystal Saresky Gerner & Kearns Co., L:PA David Shore Hellerstein and Shore, P.C. Elizabeth Wellborn ERW Law Emily Mallor Kluever & Platt, LLC J. P. Sellers Mackie Wolf Zientz & Mann, PC Jan Duke Firm Solutions Joanne Lafontant-Dooley Klatt Law John Hearn Rogers Townsend & Thomas, PC Jon Broder MyMotionCalendar Jonathan Sawyer A | LAW
ments be made? Are mergers actually a good idea, and if so should most firms be considering this option? Should firms diversify and move into other practice areas, either real estate related or not? Also, what pitfalls should they be careful to steer clear of when considering mergers or building out new practice areas? On the pages of this issue, we have addressed these and other questions facing default firms, service providers, mortgage servicers, and government entities. There are no wrong questions, only those that go unasked. And so we invite you to engage in these frank and honest discussions addressed here, in the ANGLE, and during our sessions at ANSWERS and while networking and meeting with your colleagues, peers and clients.
Kelsey Grodzicki Campbell & Brannon, LLC Kyle M. Seay Potestivo & Associates, P.C. Kyle S. Kotake Brock & Scott PLLC Laura L. Walker Gilbert Garcia Group, PA Lindsey Purdy Klatt Law Mark Badanowski Jackson & McPherson, LLC Michael J. Woods Potestivo & Associates, P.C. Mike Schumann Kluever & Platt LLC Natalie A. Grigg Woods Oviatt Gilman LLP Robyn Katz McCalla Raymer, LLC Stuart Winneg Udren Law Offices, P.C. Toni Bramley MSI Victor Kang Rubin Lublin, LLC Zeeshain S. Pervaiz Kluever & Platt, LLC Tony Scarlato Felty and Lembright Co., L.P.A. Dean Kanellis Felty and Lembright Co., L.P.A. J. Skipper Ray Wilson & Associates, PLLC
22 / ANGLE
chatter PRACTITIONERS DISCUSS FAULT LINES WANT TO PARTICIPATE?
SUBMIT QUESTIONS OR LET US KNOW YOU’D LIKE TO PARTICIPATE VIA ANGLE@ALFN.ORG
Compliance is often considered the “necessary evil” in our industry. On one hand, we all acknowledge that it makes us better on many levels. However, many firms also feel that the inconsistencies; lack of direct communication; and seemingly unreasonable requests, make the process overwhelming and cost prohibitive. Some firms have reported spending as much as 10% of their salary dollars on the Compliance and QC/QA areas of their firm, which are, of course, non-revenue generating business units. We all know that compliance is not going away, so what can we do to approach it in a unified manner, to achieve the business results necessary for all impacted? That’s the question of the day.
Growing in a declining default services market requires firms to look to the diverse needs of clients and potential clients both big and small. Having the ability to address the needs of clients with more structured requirements and practices, as well as, those that ask for more flexibility and guidance beyond the traditional default services space enables a firm to assist clients across a broader spectrum. Additionally, recognizing and adapting to the changing needs of our diverse clients in both scope of law and territories of practice is also a means of growing during a cyclical downturn in volumes.
We know now more than ever that people learn and communicate differently. We also know that by embracing and learning from our differences, the results can be much more effective. With more and more women and minorities entering the mortgage servicing industry and growing in the ranks of their firms, we’re seeing a diversification of industry leadership that makes it a very interesting time to work in this field. In an industry that is so vital to the American economy, it is critical that we all not only have a voice, but that we listen to all those voices to create better solutions, balance, and understanding across the industry and with all those whom our jobs affect.
JAN DUKE FIRM SOLUTIONS JDUKE@FIRMSOLUTIONS.US
STEVE K. EISNEBERG, ESQ. STERN & EISENBERG SEISENBERG@STERNEISENBERG.COM
CAREN CASTLE, ESQ. THE WOLF FIRM CAREN.CASTLE@WOLFFIRM.COM
As an industry, we are rightly ever-mindful of antitrust issues when it comes to the fees we earn, i.e., we do not talk about them. Many (if not most) of our fee structures derive from GSE fee schedules, which are amended from time to time. It is important that we all know how that amendment process works and what data is used by the GSEs in setting allowable fees in our respective jurisdictions. Perhaps I am an outlier in this regard, but I do not understand that process, and I suspect there are others in the industry who would benefit from that discussion.
The cost of compliance for all industry players, including law firms, continues to increase despite the fact that market volumes and sometimes profits are declining. With a posture in the industry for a one-size- fits all approach to compliance we all must find effective compliance strategies and leverage technology in order to right-size operations. I see this as a current challenge in our industry and a discussion on this topic could be of benefit.
JOHN HEARN, ESQ. ROGERS TOWNSEND JOHN.HEARN@RTT-LAW.COM
AMANDA V. GREEN, ESQ. SHAPIRO KREISMAN & ASSOCIATES AVGREEN@LOGS.COM
â€œAudits provide a unique opportunity to more nearly align client objectives and the constraints of legal practice. With many different forms of evaluation currently being employed across the industry, it is crucial to maintain communication to further attorney and client understanding alike. By bridging the gap between attorney and client, evaluative conversation can only further advance attorney ability to achieve client goals.â€? LINDSEY PURDY, ESQ. KLATT LAW LPURDY@KLATT-LAW.COM
ASK & ALFN ANSWERS
, 24 / ANGLE
FLORIDA AND THE CAROLINAS: CONTRASTING JUDICIAL LANDSCAPES THAT OFFER THE COMPLICATED AND THE PREDICTABLE—BUT NOT IN THE SAME PLACE by John Hearn, Rogers Townsend
Many defaulting mortgagors eventually face the harsh reality of foreclosure. Instituting a judicial foreclosure lawsuit within the prescribed statute of limitations (SOL) following a default is generally a simple process. If a lawsuit is dismissed and refiled, however, practitioners must be aware of developing law depending on the state (or district within a state) where the default occurs. The SOL clock starts ticking when a cause of action accrues.1 For mortgagees, the SOL commonly begins to run once a mortgagor defaults and the mortgagee has accelerated the payments. Mortgagees have a statutorily defined time to file a foreclosure action once a cause of action has accrued. A procedural question follows: if the initial foreclosure action—properly filed within the statutory limits—is dismissed, does the SOL reset for the filing of subsequent foreclosure actions? The risk that a claim is timebarred due to the expiration of the SOL severely limits the legal remedies for a mortgagee. While North and South Carolina have very favorable and liberal statutes of limitation with regards to foreclosure actions, the issue in Florida has become a hot topic of “great public importance.”2 FLORIDA’S JUDICIAL LANDSCAPE Florida’s court system differs from the court systems of the Carolinas. The Florida court system is divided into an Appellate Court system and a Trial Court system. The Florida Supreme Court is the highest appellate court in Florida. Five District Courts of Appeal are located across the state. The Trial Court system is subdivided into twenty circuit courts and sixty-seven county courts. The circuit courts have general trial jurisdiction over matters not assigned to the county courts and may hear appeals from the county courts. The county courts are more akin to small claims courts.3 In 1 Fla. Stat. § 95.031 (2003); N.C. Gen. Stat. § 1-15(a) (1979); S.C. Code § 15-3-20 (1976). 2 U.S. Bank Nat. Ass’n v. Bartram, 140 So. 3d 1007, 1014 (Fla. Dist. Ct. App. 2014), review granted, No. SC14¬–1265, 2014 WL 4662078 (Fla. Sept. 11, 2014). 3 Florida Courts, Florida Courts (last visited May 15, 2015), http://www.flcourts.org/ florida-courts/.
Florida, an attorney must be aware of the differing opinions from the various district Courts of Appeal to fully understand and manage a foreclosure action within each district. UNCERTAINTY IN THE DISTRICTS Although it is well-settled that the SOL for filing mortgage foreclosures in Florida is five years,4 uncertainty exists following the voluntary or involuntary dismissal of initial foreclosure actions. Specifically, the question is: must a mortgagee file a subsequent foreclosure action within the original five-year SOL window that started with acceleration of the due payment? Alternatively, does the dismissal of the initial foreclosure action invalidate the acceleration, restore the payment installment system, and create a new cause of action and SOL period upon subsequent defaults? Florida’s district courts of appeal are split on this question, and the answer to this question may vary by district. Prior to 2014, Florida courts followed the rationale from Singleton v. Greymar Associates, which held that res judicata did not bar subsequent foreclosure actions regardless of whether a mortgagee had previously accelerated payments on the note in the initial action.5 There, the mortgagee’s initial foreclosure action was dismissed with prejudice. The mortgagee filed a second, separate foreclosure action following the mortgagor’s new default. 6 The Florida Supreme Court reasoned that construing prior unsuccessful foreclosure actions as a potential bar to a subsequent foreclosure actions made little sense. Such a construction would insulate mortgagors from further suits and would provide them no incentive to make future payments on the note.7 Recently in U.S. Bank National Ass’n v. Bartram, Florida’s Fifth District Court of Appeal held that “a default occurring after a failed foreclosure attempt creates a new cause of action for SOL purposes, even when acceleration had been triggered and the first
4 Fla. Stat. § 95.11(2)(C) (2010). 5 Singleton, 882 So. 2d 1004, 1008 (Fla. 2004). 6 Id. at 1005. 7 Id. at 1007–08.
case was dismissed on its merits.”8 Expanding on the holding in Singleton and Bartram, the Fourth District Court of Appeal in Evergrene Partners, Inc. v. Citibank, N.A., rejected the SOL as a defense to a subsequent foreclosure action when the prior foreclosure action was not adjudicated on its merits—such as cases that are voluntarily dismissed and dismissed without prejudice—because the SOL reset.9 This liberal construction of the SOL following a dismissal of a foreclosure action and accelerated payments is not uniform, however. The Third District Court of Appeal issued a ruling in Deutsche Bank Trust Co. Americas v. Beauvais that created the current uncertainty surrounding subsequent foreclosure actions.10 In contrast to Evergrene Partners, Beauvais holds that a mortgagee’s prior acceleration of payment on the debt will remain in effect—and thus not reset the SOL time period—only when there is not an adjudication on the merits.11 In other words, foreclosure actions that are dismissed without prejudice do not decelerate the loan. Instead, the entire balance of the debt still exists and is immediately due. With no new payments being due, no new defaults can arise. Thus, no new causes of action can accrue to start a new SOL period, which necessarily means that the original SOL continues to run.12 The Beauvais logic has most recently been applied in Snow v. Wells Fargo, N.A.13 There the Third District Court of Appeal determined that Wells Fargo’s second foreclosure action, following a voluntary dismissal of its initial action, narrowly fell within the five year SOL window. While this case focused more on the date in which the acceleration period began, the court clearly relied on the rationale from Beauvais in determining that the SOL 8 140 So. 3d at 1014 review granted, Nos. SC14¬–1265, SC14–1266, SC14–1305, 2014 WL 4662078 (Fla. Sept. 11, 2014). 9 Evergrene, 143 So. 3d 954, 956 (Fla. Dist. Ct. App. 2014). 10 Beauvais, No. 3D14–575, 2014 WL 7156961 (Fla. Dist. Ct. App. Dec. 17, 2014). 11 Beauvais, at *10, *11. 12 Id. at *9. 13 Snow, 156 So. 3d 538, 542 (Fla. 3rd Dist. Ct. App. 2015).
period did not reset when Wells Fargo voluntarily dismissed its initial action. The court required Wells Fargo to demonstrate that the second, subsequent foreclosure action fell within the five year statute of limitation period. Under the contrary logic of Evergrene Partners, Wells Fargo would have likely been allowed a fresh SOL clock. The Florida Supreme Court is expected to hear the issue in late 2015.14 For now in Florida, the questions remain: Will the dismissal of a foreclosure action decelerate the payment accelerations and create a new statute of limitations period upon a new default? Or will the mortgagee instead be forced to start a new foreclosure action within the still-running five year time period? Does the acceleration of the payments decelerate following a dismissal of a prior foreclosure action thus creating a new cause of action and SOL period following a subsequent default, or not? Florida’s highest court will decide soon enough. THE CAROLINAS While controversy exists in Florida, North and South Carolina have well-established and liberal SOL frameworks for mortgage foreclosures. In South Carolina, once a cause of action accrues, “an action upon bond or other contract in writing secured by a mortgage of real property” may be filed within twenty years.15 Stated differently, assuming that all statutory prerequisites are met, a mortgagee has twenty years in which it may file an action to foreclose. Additionally, if the note and mortgage contains an acceleration clause, then the SOL should not begin to run until the mortgagee exercises its right to accelerate the loan.16 In fact, in South Carolina, the laws pertaining to the SOL for a mortgage foreclosure are so well-established that the most recent, relevant case to discuss the SOL was decided in 1984.17 In 14 See Bartram, 140 So. 3d at 1014, review granted, No. SC14¬–1265, 2014 WL 4662078 (Fla. Sept. 11, 2014); Florida Supreme Court Docket, Florida Supreme Court (last visit-
ed May 15, 2015), 15 S.C. Code §§ 15-3-20, -520(1) (1976). 16 27 S.C. Jur. Mortgages § 106 17 Suttles v. Wood, 312 S.E.2d 574 (S.C.
that case, executrices of an estate sought to foreclose two mortgages eighteen years after the notes were created. The court declared rejected an SOL defense because the action was brought within the twenty year window.18 Despite having more recent case law on the subject, North Carolina’s SOL for judicial foreclosure actions is also well-established and relatively liberal. North Carolina has a ten year SOL for commencing foreclosure actions. While the law states a ten year statute of limitations, the time in which the SOL may begin to run may be longer than ten years from the date of the mortgage. North Carolina General Statutes § 1-47(c) states: the foreclosure of a mortgage, or deed in trust for creditors with a power of sale, of real property, where the mortgagor or grantor has been in possession of the property, within ten years after the forfeiture of the mortgage, or after the power of sale became absolute, or within ten years after the last payment on the same. Recently, the North Carolina Court of Appeals had an opportunity to interpret this law in the case In re Foreclosure of Brown.19 There, the North Carolina Court of Appeals determined the point at which the SOL commenced. In that case, Merton Brown held two promissory notes given by her stepson, Grover Brown. Each note was secured by a separate deed of trust, each of which contained a power of sale. The deeds of trust were executed in 1980 for a thirty year term. In 1995, Grover Brown stopped making payments on the notes after Merton stated that she forgave the debts, but Merton did not cancel the deeds in trust in the county registry. Merton died in 2012, and the executor of her estate sought to foreclose on the outstanding deeds, which Grover contested as being barred by the SOL. The trial court held that the foreclosure was not time-barred and the holder of the notes could proceed
Ct. App. 1984). 18 Id. at 576. 19 In re Foreclosure of Brown, No. COA14-937, 2015 WL 1788727 (N.C. Ct. App. Apr. 21, 2015).
with the foreclosure of the property. The Court of Appeals affirmed the trial court’s decision and reiterated that a foreclosure is barred only if (1) ten years has lapsed after the forfeiture of a mortgage, after the power of sale becomes absolute, or after the last payment; and (2) the mortgagor has remained in possession for the duration of the ten-year period.20 Specifically, the court held that the foreclosure SOL did not start to run solely upon the date of note default—here, in 1995. Instead, the statutory period began upon the maturation of the loan, “unless the note holder or mortgagee has exercised his or her right of acceleration.”21 Since the notes had not been accelerated upon default in 1995, the court held that the 2012 foreclosure act was within the ten year statutory period that started running upon the 2010 maturation date of the notes. The Court of Appeal’s holding in Brown illustrates the longevity of North Carolina’s foreclosure SOL in application, and illustrates how some mortgagees may benefit due to the amount of time that can elapse before the SOL bars a foreclosure action. While the SOL for foreclosure actions may be a topic of controversy and debate in the state of Florida, in North and South Carolina it is hardly an issue. While it may be difficult to predict whether a foreclosure action will be time-barred by the SOL in Florida, the legislatures and judiciary for both North and South Carolina have established very favorable timetables in which a mortgagee may file a foreclosure action, and these laws have been consistently applied. The liberal nature and long shelf life for foreclosure actions in the Carolinas should provide comfort to investors and loan servicers operating in the Palmetto and Tar Heel states. John Hearn, Esq., is a partner with Rogers Townsend & Thomas, an ALFN member in North and South Carolina. Hearn can be reached at john.hearn@ rtt-law.com
Id. at *2. Id. at *3.
DESPITE HAVING MORE RECENT CASE LAW ON THE SUBJECT, NORTH CAROLINA’S SOL FOR JUDICIAL FORECLOSURE ACTIONS IS ALSO WELL-ESTABLISHED AND RELATIVELY LIBERAL. NORTH CAROLINA HAS A TEN YEAR SOL FOR COMMENCING FORECLOSURE ACTIONS. WHILE THE LAW STATES A TEN YEAR STATUTE OF LIMITATIONS, THE TIME IN WHICH THE SOL MAY BEGIN TO RUN MAY BE LONGER THAN TEN YEARS FROM THE DATE OF THE MORTGAGE.
28 / ANGLE
NEW TEC H, OLD BILL BAKER DONELSON OFFERS AN ANALYSIS OF RECENT FCC RULINGS ON THE ISSUE OF VICARIOUS LIABILITY IN DEBT COLLECTION UNDER THE TCPA
by Angela Fiorintino, Baker Donelson
The Telephone Consumer Protection Act ("TCPA" or the "Act") provides for statutory damages of up to $1,500 per violation for "willful" behavior. Unlike other statutes aimed at similar conduct, such as the Fair Debt Collection Practices Act, there is no maximum amount of damages that can be imposed under TCPA. The Federal Communications Commission ("FCC" or the "Commission") is empowered to issue rules and regulations implementing the TCPA. Enacted in 1991, the TCPA was initially aimed at curbing telemarketing calls to residential land lines. As technology and business practices have changed over the years, Congress has struggled to keep up. Many of the provisions currently found in the TCPA, were added at different times over the years as technology and social mores have changed. Perhaps as a result, the statute contains very inconsistent language. For example, in the context of telephone sales calls, the "initiation" of a telephone call may expose one to liability. 47 U.S.C. §227(a)(4) (emphasis supplied). But the provision that covers debt collection calls to cell phones prohibits "mak[ing] any call" provided certain other circumstances are present 47 U.S.C. §227(b)(1)(A)(iii) (emphasis supplied). By contrast, one may not "use" a facsimile machine to send unsolicited faxes. 47 U.S.C. §227(b)(1)(C) (emphasis supplied). Further, anyone whose number is on the "do not call" registry and receives more than one offending call made "by or on behalf of the same entity" has a right of action against the offender. 47 U.S.C. §227(c)(5)(emphasis supplied). As the FCC and the courts struggle to determine why Congress used certain language, they often come up with distinctions that seem almost meaningless. For instance, some courts have found that because Congress used the phrase "by or on behalf of" in the context of the do-not-call registry, but prohibit "making" a call in the context of cell phones, they must have intended to impose vicarious liability (against the "principal") for do-
not-call violations but only to impose "direct" liability against the person actually making the call (the "agent") in the context of cell phone violations. See e.g. Mais v. Gulf Coast Collection Bureau, Inc., 944 F.Supp.2d 1226, 1242 (2013) (overturned on other grounds by Mais v. Gulf Coast Collection Bureau, Inc., (11th Cir. 2014)). On the other hand, the FCC has issued a ruling treating "use" of a facsimile altogether differently. With respect to use of a facsimile machine, the FCC has clarified that "the entity or entities on whose behalf facsimiles are transmitted are ultimately liable for compliance with the rule banning unsolicited facsimile advertisements, and that fax broadcasters are not liable for compliance with this rule." In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 10 F.C.C. Rcd. 12391 (1995).1 In other words, the principal is liable whether or not he physically sends the fax but the person actually sending the fax is not. See also, Palm Beach Golf Ctr.-Boca, Inc. v. John G. Sarris, D.D.S., P.A., 781 F.3d 1245, 1254 (11th Cir. 2015)(finding person on whose behalf a fax was sent "directly" liable under the TCPA.) In sum, the TCPA imposes liability upon the principal for "using" a facsimile. In other parts of the statute, the TCPA imposes liability for "initiating" a solicitation call. Surely, "using" a facsimile and "initiating" a call should impose liability on similar persons, right? Wrong. In fact, according the FCC, with respect to liability for "initiating" a sales call either to a residential land line or a cell phone, the person actually "initiating" (i.e. dialing) the call is "directly liable" under the TCPA. In the Matter of the Joint Petition Filed by Dish Network, LLC, the U.S.., & the States of California, Illinois. N. Carolina, & Ohio for Declaratory Ruling Concerning the TCPA Rules, 28 F.C.C. Rcd. 6574, 6582 (2013) (the "FCC Ruling"). This is exactly the opposite of the imposition of liability for "use" of a facsimile.
1 Provided an FCC ruling “is based on a permissible construction of the statute” the ruling is entitled to deference by the courts. Chevron U.S.A. v. NRDC, 467 U.S. 837, 842–843 (1984).
On the other hand, the person on whose behalf the call was made, may or may not be liable depending upon whether the relationship between the person physically dialing the phone and the person on whose behalf the call was made meet a confusing set of standards described by the FCC in its Ruling. Id. at 6586. The issues contained in the FCC Ruling came before the Commission based upon two lawsuits against Dish Network, LLC ("Dish Network") for alleged violations of 229(b)(1)(B) (among other things). See Charvat v. EchoStar Satellite, LLC, 676 F. Supp. 2d 668, 670 (S.D. Ohio 2009) vacated, 535 Fed. Appx. 513 (6th Cir. 2013) and U.S. v. Dish Network, L.L.C., 667 F. Supp. 2d 952, 954 (C.D. Ill. 2009). In each case, the plaintiffs claimed the Dish Network used illegal telephone solicitation techniques to sell its products. In both cases, Dish Network engaged the services of third party companies to physically make the telephone calls. The FCC defined the issues it was analyzing as follows: 1) Under the TCPA, does a call placed
by an entity that markets the seller’s goods or services qualify as a call made on behalf of, and initiated by, the seller, even if the seller does not make the telephone call (i.e., physically place the call)? 2) What should determine whether a telemarketing call is made 'on behalf of' a seller, thus triggering liability for the seller under the TCPA? Should federal common law agency principles apply? What, if any, other principles could be used to define 'on behalf of' liability for a seller under the TCPA? FCC Ruling at 6578. First, the FCC noted that the TCPA makes it illegal to "initiate" a call in certain circumstances. Noting that "although sellers generally do not 'initiate' calls made by third-party telemarketers … a seller may be held vicariously liable under federal common law agency principles for a TCPA violation by a third-party telemarketer."2 Id. at 6582. Moreover, " … a seller may be liable for violations by its representatives 2 It seems odd that the FCC chose to base its decision on federal law, rather than deferring to the states, since agency is generally a concept defined by the states.
under a broad range of agency principles, including not only formal agency, but also principles of apparent authority and ratification." FCC Ruling at 6584 (emphasis supplied). The FCC defined apparent authority as "hold[ing] a principal accountable for the results of third-party beliefs about an actor's authority to act as an agent when the belief is reasonable and is traceable to a manifestation of the principal." Id. at 6587 (emphasis supplied). In other words, the principal may be liable for acts of the agent where the third party's belief is traceable to some action or representation by the principal. See also Shamblin v. Obama for Am., 2015 WL 1754628, at *6 (M.D. Fla. 2015) (citing FCC Ruling); Smith v. State Farm Mut. Auto. Ins. Co., 30 F. Supp. 3d 765, 777 (N.D. Ill. 2014) (collecting cases); see also Bridgeview Health Care Ctr., Ltd., 2013 WL 4495221, at *3; see also Restatement (Third) of Agency § 3.03 cmt. b; Thomas v. Taco Bell Corp., 2014 WL 2959160, at *2 (9th Cir. July 2, 2014). According to the FCC, "apparent authority may be supported by evidence that the [principal]" (1) allows the outside sales entity access to information and systems that normally would be
THE FCC'S ATTEMPTS TO CLARIFY THE TCPA HAVE, IN EFFECT, LEFT THE PROVISION MORE CONFUSING AT LEAST WITH RESPECT TO DEBT COLLECTION.
within the seller's exclusive control; (2) the ability by the outside sales entity to enter consumer information into the seller's sales or customer systems; (3) the telemarketer used the seller's trade name, trademark and service mark; or (4) the seller approved, wrote or reviewed the outside entity's telemarketing scripts. Id. at 6587 (emphasis supplied). According to the FCC, these are examples of apparent authority. But normally, the theory of apparent authority only applies to actions or things said by the principal directly to the third party. See e.g. Smith, 30 F. Supp. 3d at 777 (collecting cases). Instead, with the possible exception of number three, the FCC's examples sound more like direct agency liability. See id. At least one court appears to have sorted this out for the FCC, appropriately applying the examples provided by the FCC to the conduct before it under a theory of actual authority and later, discussing additional conduct by the alleged principal directly to the third party in analyzing apparent authority. See id. at 776-77. So what is a creditor who engages the services of a debt collector supposed to make of all of this? Do agency
principles apply to debt collection activities, too, or just sales calls? The answer is a resounding: "Maybe!" The FCC Ruling seems to conflict on this point.3
bears the responsibility for any violation of the Commission's rules. Calls placed by a third-party collector on behalf of that creditor are treated as if the creditor itself placed the call."
Initially, the in the FCC Ruling, the FCC says, "While section 227(b) does not contain a provision that specifically mandates or prohibits vicarious liability, we clarify that the prohibitions contained in section 227(b) incorporate the federal common law of agency and that such vicarious liability principles reasonably advance the goals of the TCPA."). FCC Ruling at 6587. This sentence (and others like it) seems to imply that the FCC is making a general pronouncement under Section 227(b).
Id. at 6589. In other words, in the context of debt collection, the FCC seems to be saying "skip the whole agency analysis and find the creditor directly liable, even if it didn’t make the call." But the FCC provides no justification for this distinction. Even more curious, the first sentence in the paragraph seems to indicate that agency analysis should apply to debt collection under Section 227(b). Indeed the few courts which have ruled on debt collection calls made by purported agents since the FCC's ruling have applied agency principals. See e.g. Smith v. State Farm Mut. Auto. Ins. Co., 30 F. Supp. 3d 765, 769 (N.D. Ill. 2014).
But then, the FCC goes on to say: Construing the TCPA prohibitions contained in Section 227(b) to incorporate agency principles is also consistent with our administrative precedent. … At the same time, we [have] stressed that the "creditor on whose behalf an autodialed or prerecorded message call is made to a wireless number
3 Recall that in connection with debt collection calls, the TCPA prohibits “making” a call that meets certain other criteria. 47 U.S.C. §227(b)(1)(A)(iii).
In sum, the FCC's attempts to clarify the TCPA have, in effect, left the provision more confusing at least with respect to debt collection. Angela Fiorintino, Esq., is an attorney with Baker Donelson, an ALFN member in TN & DC. She can be reached at firstname.lastname@example.org
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business NEW REVENUE WON’T COME GIFT WRAPPED AFFINITY CONSULTING OFFERS GUIDANCE ON BUILDING SUCCESS FROM INTENTIONAL GROWTH
by Alison Lukan, Affinity Consulting | email@example.com FOCUS. It’s a theme we hear over and over again. Focus on one industry; focus on one geographic area; focus on select strategic relationships. But the reality is that as the default industry evolves we find ourselves asking new questions that seem to be the antithesis of focus – do we bring in a new department? Do we diversify? How do we find people to help us succeed at things that we’ve never done before? The reality is that the answer to how to do any of these things successfully remains: Focus. It’s very easy to jump after something shiny – perhaps a partner brings a new practice area to the table, or a colleague approaches your firm about expanding into a new geographic area. The key is to approach every new opportunity not as a lifeline, but as an intentional activity that you evaluate and take on only after you know it’s the direction in which you want to go. First and foremost, do not dismiss an opportunity that may come across your desk, rather, approach ideas and brainstorms with a structured process to ensure that your time and money is invested in an outcome that is ultimately successful for your firm. Whether it be a new practice area, or a new team of attorneys, intentional evaluation and implementation of a new strategy or offering will apply
the philosophy of focus to things you may never have focused on before. EVALUATE. Say you are investigating adding collections to your practice. Take the time to research what this practice looks like from a process and people perspective. If you have a practice-area expert who is part of the impetus to jump on this new opportunity, you are lucky to have some insight already at your disposal, but if you do not, take the time to find trusted advisors in the field you are investigating. Take the time to uncover the answers to key questions (1) what is the lifecycle for this offering (2) what is the target market – geographically and clientele – for this offering (3) what technology may be necessary to support this offering (4) what knowledge to do I need to have on my team to competently provide this offering to clients (5) what are industry standard metrics including what is the standard timeframe for service delivery and what margin(s) can I expect per client or case. GAP ANALYSIS. Once you have the answers to what a successful final state looks like in your new world, now it’s time to compare that to your reality. Take the time to outline what your firm looks like today: (1) What team members have time to give (2) what can my technology do right now (3) can I gain access to the clients
who need this service (4) do I have the expertise in place to competently provide this service to clients. The reality is that some gaps may be easy to bridge – perhaps your current case management software already has a module to support collections which simply needs to be activated. Other gaps may be harder to cross – you do not have any attorneys with subject matter expertise on collections. But just because a gap exists, it doesn’t mean the effort shouldn’t be invested to close it. We suggest using a weighted evaluation scale. Give each point of evaluation (e.g. technology and personnel) a score on a scale of 1-5 based on its importance to the offering’s success. Then grade the size of the gap on a scale of 1-5 – 1 being easiest to close, 5 being most difficult. The lower your total score, the more quickly you can, and possibly should, ramp up your new offering (see chart, right). Putting pieces in place. Once you know where your gaps exist, take the time to focus on defining how to close each one. I cannot stress how important the time spent defining your end state will be to your success. We recommend beginning with process. Articulate step-by-step how the service looks at your firm. This is important because once you know how you need to do something, you will know
what you need people to do, and then you will be able to construct role definitions for every member of your team involved. This is particularly important should you need to hire resources from outside your firm. Take the time to define what pieces you need as far as process, people, technology. This will dictate a plan for training, hiring and software implementations that is sound. Invest in your new offering. After taking the time and effort to define your new space so diligently, it would be imprudent to just stop paying attention to it. Track the progress of your new team monthly at the least, weekly at best. Identify some key metrics that will tell you – proactively – how your people, process, and technology are performing and whether they up to the standards you expect. Also take the time to provide care and feeding for your new team. Share with them your vision for this offering, as well as metrics as they are produced. Use the role descriptions you identified with them regularly and employ them as a standard for reward and evaluation. The comfort of having a baseline set of expectations will enable your team members to focus their mental energy on providing a good service to your clients instead of worrying about “What should I do?” “How am I doing at my job?” or “How is the firm doing?” Sample Gap Evaluation Criteria Importance Gap Technology 2 5 In-house Knowledge 1 2 Established Process 3 1 Clients Location 3 1 TOTAL 9 9 GRAND TOTAL 18 of possible 50
CREATE A SOUND CULTURE. The reality is that no matter how much time and money you invest in providing a successful environment for your employees and clients, that progress is going to make your team members attractive to outside sources. People will come and go from your firm. The way to ensure long-lasting success is to create an enduring culture. Build your culture on established processes and roles (as outlined above). Show your team that the firm cares about doing things the right way for both clients and employees. Hold true to your processes. This allows the firm identity to persevere through all personnel changes. In summary, the marketplace is constantly evolving. In order to survive, we each need to be watching for the new practice area or client base that we can serve. Only through an intentional approach to such growth and change can we ensure that the new areas we explore will become long-lasting profit and productivity centers versus failed attempts to sustain our practices.
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commercial MISSING THE OBVIOUS IN TERM SHEETS CAN BE COSTLY ERIC DEAN DISCUSSES OFTEN-MISSED DUE DILIGENCE AND LIABILITY CONCERNS IN NON-RESIDENTIAL TERM SHEETS
by Eric Dean, The Wolf Firm firstname.lastname@example.org
The Term Sheet is often used in a real estate transaction as a preliminary document that is incidental but not integral to the ultimate transaction because it is usually defined as “non-binding”, “confidential”, “preliminary” and “expiring”. However, such a view is for the reasons set forth below, not prudent as often the Term Sheet is integral to the transaction and one of the key contractual documents as the transaction moves towards closing.
SHOULD THE TERM SHEET BE LIMITED AND BRIEF OR COMPLETE? Often the potential parties will prepare a Term Sheet or Letter of Intent (“Term Sheet”) to flush out how close they actually are to reaching an understanding as to a transaction and where the areas of dispute are. While the Term Sheet is typically a shorter document than a Purchase and Sale Agreement (“PSA”), it is essential that the Term Sheet be accurate and complete as to defining the potential deal points both because the Term Sheet will usually be looked upon as defining the terms and conditions to be included in the PSA. Further, despite the fact that the Term Sheet is a preliminary document, it still can be argued to be a source of liability.
SOURCES OF POTENTIAL LIABILITY EVOLVE AROUND A FRAUD OR CONCEALMENT CLAIM The property owner may argue that the potential buyer negotiated and executed the Term Sheet knowing that the potential buyer could not perform to freeze the property and discourage other possible deals. The potential buyer may argue the reverse, that the Seller engaged in negotiations proposing terms that the Seller actually never intended to agree to or could not perform to cause the potential buyer to pass up on other potential purchases. Critical Terms in a Term Sheet should include at least bullet points including the following:
1. A Description of the Property under Discussion and specifically whether personal property, easement, right of way and licenses impacting the property under consideration. 2. The proposed purchase price and how it is to be paid. If financing is involving the description and amount of the financing and the timeline as to the financing. Reference should also be made as to the amount of the deposit and on what terms it will be non-refundable, and whether it will be released to the seller or held in escrow. 3. The nature and extent of the due diligence and due diligence period. 4. An AS IS provision if applicable. 5. A Confidentiality Clause that survives the termination of the Term Sheet. 6. A provision that there are no representations made and no liability associated with the Term Sheet and that there is no reliance. 7. A statement that both parties were represented by brokers and/or counsel. 8. A time period in which commence of the drafting of the PSA must start and when the PSA must be executed. 9. Reference to any special conditions. 10. An integration clause which if properly drafted incorporates all prior discussions and negotiations.
HOW DOES THE PSA DIFFER FROM THE TERM SHEET? The PSA and Term Sheet focus on essentially the same areas, except the PSA once signed will be a binding document. However, the language is far more detailed and complete. There are various PSA forms available such as the CAR form. However, these forms may prove to be incom-
DESPITE THE FACT THAT THE TERM SHEET IS A PRELIMINARY DOCUMENT, IT STILL CAN BE ARGUED TO BE A SOURCE OF LIABILITY. plete, too generic or not accurately reflect the terms and conditions of the transaction in all respects. If a form is used, the form can in some instances be modified by an addendum that deletes or changes provisions.
WHAT ARE THE TYPICAL AREAS OF LITIGATION? The common areas giving rise to disputes as to a PSA Include the following and correspondingly, these are the areas that need to be crafted very carefully: 1. DEPOSITS When a deposit becomes non-refundable often leads to disputes between a buyer and a seller of property. This typically arises around the buyer’s termination of the transaction and demanding the return of its deposit and the seller arguing either that the buyer breached or is otherwise not entitled to the return of its deposit under the express contract terms. It is essential that the contract termination provisions be very detailed and that general provisions prohibiting binding modifications not documented in writing and that a time is of the essence provision be included in the PSA.
2. INACCURATE OR INCOMPLETE DISCLOSURES An “AS IS” Provision or Waiver will generally not be a protection against a lawsuit where there has been a material misrepresentation or concealment by the Seller or Seller’s agent nor will the Buyer’s negligence in failing to discover the defect. Thus, the failure to disclose a material fact can constitute actionable fraud to the same degree as making a material misrepresentation. For example, in one suit the author represented a buyer of an apartment complex, the seller new and failed to disclose that the adjoining contiguous property was an operating house of prostitution with seedy men often frequenting the business operation at all hours of the day and night. A lawsuit was filed that resulted in a six figure settlement in favor of the author’s clients. In another recent suit the author represented a seller that had failed to disclose window and ceiling leaks in various units as well as leaks in a central water heating system. Even though the buyer exercised its right to inspect the property by a professional inspector, the seller was still forced to settle rather than risk a trial and significant litigation expense. It should be noted that an AS IS provision or even the buyer’s negligence,
may not protect against a misrepresentation or concealment claim. It is therefore extremely important that all possible conditions or potential governmental actions that are under consideration and may affect the property be disclosed by the Seller. For example, in another case, the property was on a hill side. The seller knew the property had risks of a landside based on unstable soils conditions. The seller did not disclose these conditions. The buyer could have but did not investigate soils conditions. After the sale closed the property slid and became essentially valueless. Despite an “AS IS” provision in the PSA and the buyer’s arguable negligence, the buyer recovered a seven figure fraud judgment at trial. 3. LIMITATIONS ON RECOVERY Many times both the buyer and seller will want to limit their potential liability if they are found to have breached. These limitations may or may not apply if issues of fraud or concealment exist. Limitations may be as to a dollar amount or a category of expense (such as due diligence costs of the seller).
ARE THERE ANY AREAS OF DUE DILIGENCE THAT ARE OFTEN OVERLOOKED? There are a few areas of due diligence that the buyer may consider as part of its due diligence: 1.THE PROBLEM TENANT Rents may be current and at market and problems may still exist as to tenants threatening rent strikes, demanding unreasonable repairs and improvements or filing grievances with governmental agencies, the Better Business Bureau etc. Often this does not become apparent until after closing. 2. DEMOGRAPHIC CHANGES IN THE COMMUNITY Long term demographics can have a drastic effect on property values and rents. 3. THE ECONOMIC TRENDS Planned employment, retail, construction, traffic, parking and a host of other future concerns can also have a dramatic impact on rents and market value. 4. FLEXIBILITY IN TIME Often a buyer or seller is trapped as the closing date nears by such things as a delay in financing, a cloud on title, a permit or license issue or a delay in repairs being completed. Often these can be resolved by a Post-Closing Agreement where the closing occurs and title is transferred with rights as to the open item reserved. However, just as often, these time issues lead to intense negotiations of adjustments in the deposit provisions, increased deposits or adjustments in the price in order to keep the transaction from being terminated. Provisions can be built into the agreement that allow for extensions in either a general form or as to specific possible areas of delay. 5. GOVERNMENT AGENCIES The views and attitudes of the Planning Commission and other Agencies responsibilities may dramatically affect the viability of a proposed project and its cost and time to complete.
For example, certain projects may be desired by the locale government and result in the availability of permit, fee or tax deferments, waivers or rebates. Other situations may be extremely negative and create obstacles and costs. These factors may include such things as whether the community wants this type of project (ask Walmart), building standards, the view of the community towards outsiders, the time and cost to obtain permits, building and environmental standards, traffic abatement requirements, parking requirements, noise abatement requirements etc. Simply using an out of locale architect or contractor versus a local consultant may, in the wrong locale, create significant and costly impediments to a projectâ€™s viability. These concerns must be explored by the Buyer contemplating a project in a new locale. 6. POTENTIAL SOURCES OF FINANCING In some types of areas or related to certain types of projects, governmental financing may be made available on very favorable terms. The other extreme may also exist where financing is either extremely limited or very expensive. The importance of the Term Sheet in the real estate purchase and sale project cannot be overstated. As a matter of practicality, it not only sets the tone of the transaction going forward but typically is looked upon as the source of the terms of the Purchase and Sale Agreement. It also will be one of the documents looked upon as defining the intent and expectations of the parties if a dispute arises. In a dispute, the Term Sheet is also often looked upon as evidence of fraud by the Seller and whether there was justifiable reliance by the Buyer. Therefore, viewing a Term Sheet as an immaterial document because it is generally not binding is unwise. It is also prudent for some level of due diligence to commence during the time the Term Sheet is being negotiated and documented and before the Purchase and Sale Agreement is executed.
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