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the brief 2014

IN THIS ISSUE Changes are Once Again on the Horizon for the Michigan Foreclosure Process BY SUMMER PARKER Making Chapter 13 More Uniform BY KENNETH VANNORWICK Supreme Court of Illinois to Finally Weigh in on Ability to Vacate Judgments of Foreclosure on Post-Judicial Sale BY DAVID PUSTILNIK

CONTACT US MI : (248) 853-4400 IL : (312) 263-0003 VISIT US

potestivo & Associates, p.C.

THE PRESIDENT’S LETTER 2013: A YEAR IN REVIEW gan foreclosure law and an indepth explanation of manuvering Chapter 13 bankruptcy in both Michigan and Illinois. You will also find two informative articles from attorneys in our Illinois office regarding the application of the Illinois Collection Agency to debt buyers and the Supreme Court of Illinois’ decision on the ability to vacate judgments of foreclosure post-judicial sale.

Welcome to nual client

our annewsletter!

In this edition of The Brief, we would like to take a moment to reflect upon the past year and discuss some key industry changes and notable occurrences that took place in 2013. We would also like to share some of our firm’s recent endeavors, and provide you with our own perspective of the 2013 community service projects that we have had the pleasure of supporting. In this edition, you will find two articles from experienced attorneys at our Michigan office, including a discussion of the notable changes to Michi-

During this past year, we have witnessed a variety of changes and updates in the mortgage servicing industry. In the face of a changing foreclosure landscape, our firm remains strongly committed to providing excellent service and maintaining only the highest standard of quality. Our goal is always 100% satisfaction. We understand and appreciate the importance of having a knowledgeable and adept legal team, and we value this opportunity to serve you. As always, we welcome your questions and encourage you to reach out to our office if you have any comments or concerns.


We also encourage you to visit our new website to learn more about our firm and the many ways we can tailor our services to provide support and assistance to your company. We hope you experienced a truly outstanding 2013, and we hope that your company continues to thrive and prosper as we commence an exciting New Year.


Brian A. Potestivo, Esquire President & Founder Potestivo & Associates, P.C. Michigan • Illinois (248) 853-4400, ext. 1104




The Illinois Collection Agency Act (“ICAA”) requires debt buyers and non-exempt debt collectors to register as a collection agency prior to proceeding with the collection of a debt in Illinois. When not exempt, proceeding with collection activities without a license is a misdemeanor under the ICAA and also a violation of the Fair Debt Collection Practices Act (“FDCPA”). Therefore, when foreclosing entities are considered debt collectors, they must be licensed in accordance with the ICAA, unless they are exempt from the ICAA pursuant to one of its exceptions.

ers, engages in debt collection.” 225 ILCS 425/2. The ICAA also defines a “debt buyer” as “a person or entity that is engaged in the business of purchasing delinquent or charged-off consumer loans or consumer credit accounts or other delinquent consumer debt for collection purposes, whether it collects the debt itself or hires a third-party for collection or an attorney-at-law for litigation in order to collect such debt.” 225 ILCS 425/2. Certain activities related to foreclosure may be classified as debt collection in Illinois.

The ICAA defines a “debt collector,” “collection agency,” or “agency” as “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or oth-

The ICAA does have an exception for institutions that are considered “Banks” and “Loan and Finance Companies,” but they are vague exceptions. 225 ILCS 425/2.03. A “Loan and Finance Company” is 2

not defined by the ICAA, and it has yet to be defined by Illinois courts. However, any company that does not originate loans, offer financing to consumers, or is not an affiliate/subsidiary of a bank, may be deemed to be subject to the ICAA. Therefore, such a company should register as a collection agency in an effort to avoid potential FDCPA and ICAA violations by attempting to collect on a debt they would otherwise be unable to collect if they were an unlicensed collection agency. Proceeding without a license when one may have been required would also be a Class A misdemeanor under the ICAA. In addition, proceeding without a license, if you are later determined by a court as being required to be licensed, would deem any judgment obtained void. See LVNV Funding LLC v. Trice, 2011 IL App (1st) 092773. This is a relatively new law, but it is now being enforced more frequently, especially against debt buyers now that they are explicitly named in the ICAA. For more information, please contact David Pustilnik at (312) 263-0003 ext. 2312 /, or Keith Werwas at (312) 263-0003 ext. 2105 /


In July 2009, the Michigan default servicing industry saw significant changes when the Michigan Legislature enacted House Bills 4453, 4454, and 4455 to amend the foreclosure by advertisement statute in response to the economic crisis at that time. The intention was to help homeowners prevent foreclosure, by providing eligible mortgagors with the right to request a meeting with their servicer to work toward a possible loan modification. The law was originally intended to sunset after one year, but multiple amendments to the statute have extended the time frame and loan modification meetings have continued to be part of the Michigan Foreclosure process. This, along with the post sale process, will soon change due to recently enacted legislation.

On July 3, 2013, Senate Bills 380 and 383, along with House Bills 4765 and 4766 (“the Bills�) were signed into law by Michigan Governor Rick Snyder. These Bills will remove the loan modification meeting requirement for most loans, eliminate the need to complete calculations to determine if a mortgagor is eligible for a loan modification based on Michigan statute, establish when a loan modification meeting will be required prior to proceeding with foreclosure, and give the purchaser at sheriff’s sale the right to inspect properties during the redemption period and in certain situations to begin summary proceedings for possession of the property. Most changes will not become effective until January 10, 2014. The first notable change as a result of the enactment of the Bills is that all mortgagors living in properties that are claimed as a principal residence for tax purposes will no longer have a statutory right to request a loan modification meeting. This will remove the requirement that the foreclosing party send a pre-foreclosure notice. It will also significantly cut down on delays in the foreclosure process, as there 3

will no longer be a 30-day hold period in order to provide mortgagors with time to respond to the pre-foreclosure notice, and there will no longer be an automatic 90-day hold when mortgagors request a loan modification meeting. In addition, there will no longer be a requirement that calculations be completed in order to show if a mortgagor is eligible for a loan modification. Current legislation states that if a mortgagor is eligible for a loan modification based on the recommendations set forth in Michigan statute, but the mortgagor is not actually offered a loan modification by their servicer, the foreclosure must proceed judicially rather than by advertisement. Judicial foreclosures tend to be more costly and have a much longer timeline than foreclosures by advertisement. However, since calculations will no longer be required, the number of foreclosures that are able to proceed by advertisement will increase. The loan modification meeting requirement will no longer be applicable to proceedings in which the first foreclosure notice is published after January 9, 2014, and will be repealed effective June 30,

2014. However, the Bills have set forth a new requirement applicable to loss mitigation procedures that occur prior to foreclosure. The new requirement will not affect as many loans; it is only applicable in circumstances where the mortgaged property is claimed as a principal residence for tax purposes, the first foreclosure notice is published after January 9, 2014, and the servicer of the mortgage is a defendant that entered into a consent judgment in United States of America, et al. v. Bank of America Corp., et al., civil action no. 120361 in the United States district court for the District of Columbia. In such circumstances, lenders will be required to designate a contact and authorize the contact to facilitate negotiations and attend meetings with the mortgagor. They will also be required to send a notice that includes the name, address, dedicated telephone number, and dedicated email address of the designated contact, along with a statement indicating that within 30 days the mortgagor may request a meeting with the designated contact in order to attempt to work out a loan modification to avoid foreclosure. The notice must either be included within or along with the written notice that will be required under 12 C.F.R. § 1024.39 effective January 10, 2014 in accordance with the Consumer Finance Protection Bureau regulations. Similar to the situations involving the current loan modification meetings, attorney firms are able

to act as the designated contact by communicating with mortgagors, assisting with gathering financial documentation, and attending the mandatory meeting. However, due to the guidelines set forth in 12 C.F.R. § 1024.39, the notice must be provided to the mortgagor by the 45th day of the mortgagor’s delinquency. Since these loans cannot be referred to foreclosure prior to the 120th day of delinquency— in the case that a lender or servicer wishes to use an attorney firm as the designated contact—it is important to note that these files must be referred to the attorney’s office strictly on a mediation/loan modification meeting only basis. If the mortgagor requests a meeting and cooperates by scheduling a meeting time and place, foreclosure proceedings cannot commence unless the meeting has been held. The final change that will occur due to the enactment of the Bills will allow the purchaser—at sheriff’s sale—to inspect both the interior and exterior of the property, as well as ancillary structures, from time to time throughout the redemption period. In the case that an inspection is unreasonably refused, or if there is damage caused to the property or likely to be caused to the property, the purchaser has the right to immediately begin summary proceedings for possession of the property. Although the new law provides some guidance to the meaning of the word “damage,” there is currently no direction as to what it 4

means to “unreasonably refuse” an inspection. The Legislature is aware of the possibility for open interpretation, and it is likely that there will be future amendments to provide further clarification. Due to the recently enacted legislation, it will now be less complicated to proceed with foreclosure by advertisement. In addition, many lenders and servicers will experience shorter time lines and fewer delays. There may also be less potential for the undetected damage of property during the redemption period, as well as recourse if damage is discovered or inspection is unreasonably refused. With so many significant changes on the horizon, there is certainly a need for strong legal representation. As always, our office is willing and ready to assist you with any questions or concerns that you may have, and we will continue to monitor for any changes or amendments to the law. For more information, please contact Summer Parker, Supervising Attorney, at (248) 853-4400 ext. 1198 /


The First District Court of Appeals in Illinois ruled in 2010 that a Motion to Vacate Judgment pursuant to 735 ILCS 5/2-1301(e) is improperly filed if it is filed after a judicial sale occurs and the Plaintiff has already moved to confirm the sale. In MERS, Inc. v. Barnes, 406 Ill. App. 3d 1 (1st Dist 2010), the Defendant brought a Motion to Vacate Judgment of Foreclosure and Sale pursuant to 735 ILCS 5/2-1401. The Court determined that a 2-1401 motion to vacate judgment of foreclosure and sale is improper for several reasons. Specifically, the Court pointed to the fact that the purpose of Section 2-1401 is to provide relief from a final order and judgments after 30 days from the entry thereof. Id. at 4.

Since a Judgment of Foreclosure and Sale is a non-final order, section 2-1401 is inapplicable. Id. As a result, the Court found that Section 735 ILCS 5/2-1301(e) as the sole remaining mechanism that can potentially be utilized to vacate a judgment of foreclosure and sale, as § 2-1301(e) can be utilized to set aside any default before the entry of a final order. Id. However, the Court determined that relief pursuant to Section 2-1301(e) was also unavailable to the defendant. Id. The Court cited the Illinois Mortgage Foreclosure Law as the Law that governs the mode of procedure for mortgage foreclosures in Illinois, and further indicated that “any inconsistent statutory provisions shall not be applicable.” 735 ILCS 5/15–1107(a); Id. In Section 15–1508(b) of the Illinois Mortgage Foreclosure Law it indicates that, after the foreclosure judgment and judicial sale, the circuit court shall confirm the sale unless the court finds that a required notice was not given, the terms of the sale were unconscionable, the sale was conducted fraudulently, or that justice was otherwise not 5

done. Id.; 735 ILCS 5/15–1508(b). Due to the fact that section 15– 1508(b) limits the court’s discretion to refuse confirmation of the sale to those four specified grounds, it is more restrictive and, thus, inconsistent with section 2–1301(e). Id. at 5. The Court held: “If section 15–1508(b) of the Foreclosure Law did not prevail over section 2–1301(e) of the Code, then the latter would eviscerate the former because parties could thwart section 15–1508(b) by filing petitions to vacate non-final judgments even after foreclosure sales have been held. Such a practice would undermine the sale process because bidders would have no confidence that sales would be confirmed. Therefore, defendant could not utilize section 2–1301(e) of the Code to circumvent section 15–1508(b) of the Foreclosure Law after MERS filed its motion to approve the sale.” Id. Pursuant to the First District in Barnes, a 2-1301(e) or 2-1401 Motion to Vacate Judgment of Foreclosure and Sale that are brought

post-judicial sale are each irreconcilable with Section 15-1508(b) of the Illinois Mortgage Foreclosure Law, and thus, improper. The landmark holding in Barnes has been heavily relied upon by plaintiffs’ attorneys over the past several years. This ruling essentially prevents defendants from filing motions to vacate judgment later in the foreclosure process, which was the trend prior to the First District’s ruling. Conversely, in November 2012, the Second District Court of Appeals in Wells Fargo Bank, N.A. v. McCluskey refused to follow the First District’s holding in MERS, Inc. v. Barnes, and explicitly disagreed with the Barnes ruling, stating: “[I]n the rare case in which the defendant presents a compelling excuse for his or her lack of diligence as well as a meritorious defense after the judicial sale has occurred, we do not believe that the Foreclosure Law prohibits the trial court from granting the defendant section 2-1301(e) relief. This is especially true in light of the trial court’s ultimate concern to ensure that the right decision is entered. As we disagree with the Barnes court’s analysis, we continue to adhere to our decision in Roberts that the trial court may consider a defendant’s Section 2-1301(e) motion even after the judicial sale has occurred. Wells Fargo Bank, N.A. v. McCluskey, 2012 IL App (2d) 110961 at 13-14.”

The McCluskey Court went as far as to counter explicit language used by the Barnes Court, explaining that they disagree with the Barnes Court’s reasoning that a 2-1301(e) motion following a judicial sale would threaten to “eviscerate” section 15-1508 of the Illinois Mortgage Foreclosure Law. Id. As a result, the Barnes and McCluskey rulings, and in turn, the First District and Second District, appeared to be directly at odds with each other. Over the past year, these two decisions were on a collision course to be confronted by the Supreme Court of Illinois this past fall. On November 21, 2013, the Supreme Court finally issued its ruling on the issue. The Supreme Court sided with the First District in Barnes, and determined that the Second District in McCluskey misinterpreted both Barnes and several other cases it relied upon in making its ruling. The Supreme Court held once and for all that a 2-1301(e) motion to vacate default judgment filed after a plaintiff has filed its motion to confirm sale is in fact improperly filed and cannot be utilized to vacate a default judgment. As a result, it is now the law in Illinois that once a plaintiff files its Motion to Confirm Sale, a court cannot vacate a default judgment and may only look to section 15-1508(b) in determining whether the sale should be confirmed or denied. This decision will permanently change the landscape of the defense bar, in 6

the sense that defense attorneys will now be required to act with greater diligence in order to ensure that any motion to vacate default judgment is filed prior to the plaintiff’s motion to confirm its sale. It appears that by reversing the Second District’s ruling in McCluskey, the Supreme Court has helped plaintiffs and their attorneys avoid the headache of enabling defense attorneys to consistently delay the already drawn out foreclosure process in Illinois even further. For more information, please contact David Pustilnik, Supervising Attorney, at (312) 263-0003 ext. 2104 /

AWARDS & ACCOMPLISHMENTS This year, our firm was proud to be recognized for three major awards. In addition to being named one of the 101 Best and Brightest Companies to Work for in the Metro Detroit area, Potestivo & Associates, P.C. was also recognized as a Best and Brightest Company within the nationwide category. In addition, the Detroit Free Press named our firm as a Top Workplace!



When a debtor files a Chapter 13 bankruptcy, the law is the same whether he files in Detroit or Phoenix. What is not the same is how the case will proceed from filing to discharge. The reason for the variance in proceedings is the result of differences in the local rules of each district, the decisions of individual bankruptcy judges, and the local model plan. The Chapter 13 plan controls the administration of the case from the plan payment to how creditors are paid to when they are paid. The differences in various plans around the country can result in profoundly different Chapter 13 cases. An example of how two cases can be different can be found by comparing model plans from Michigan and Illinois. Most debtors do not know exactly what they owe to their creditors. The

plan usually gives an estimate of how much is owed pre-petition and what the monthly payment is. The model plan in the Eastern District of Michigan seems to take this issue into account, as it states the Proof of Claim filed by a creditor will control over the amounts listed in the plan. The model plan in the Northern District of Illinois does the exact opposite. It states the plan controls over any Proof of Claim filed by a creditor.

areas of federal law, including bankruptcy. An advisory committee will examine various proposed rule or procedure changes. If the committee finds one it wishes to pursue, they can request permission from the Standing Committee to publish a draft of the contemplated amendment.

These discrepancies in the administration of the Chapter 13 cases, which can lead to confusion and vastly differing results from district to district, has led to a proposal to create a national model plan. The idea is to make Chapter 13 cases more uniform throughout the country. As with any change in rules or procedure, the process is a long one, but it is necessary to level the playing field for all debtors and creditors.

Once published, the change can be commented on by attorneys, judges, and the general public. The advisory committee reviews all comments and then can change or discard the proposed changes. The Standing Committee then reviews the proposal and all comments and can recommend its approval to the Supreme Court. If the Supreme Court approves of the proposed changes, it officially promulgates the revised rules by May 1, to take effect no earlier than December 1 of the same year. Congress can still enact legislation to reject, modify, or defer the pending rules.

The Rule Making Process Any changes to rules and procedure, such as a national model plan, must go through the rule making process established by the courts. The Judicial Conference is the body entrusted with this important process. It is comprised of a series of advisory rules committees covering the various

The Proposal for the National Model Plan The Bankruptcy Advisory Committee has taken up the proposal for a new national model plan. They have also identified changes to some Federal Rules of Bankruptcy Procedure that are necessary to have a national model plan function properly. The rules that would be reworked include Rule


3002, 3012, 3015, 4003, and 7001. Debtors file Chapter 13 cases primarily to deal with secured claims. Currently, the deadline for the filing of a proof of claim is 90 days after the first date set for the §341 meeting of creditors. This date is quite often after the confirmation hearing date, which is required to be held, in most cases, between 20 and 45 days after the §341 meeting of creditors. This can cause significant delays, as the plan’s feasibility may not be determined until all claims are filed. The committee is proposing reducing the deadline to file a proof of claim to 60 days from the date the case is filed. This rule change would also require a proof of claim to be filed in order to be allowed. This rule change would put a lot of pressure on creditors to insure that a proof of claim is filed quickly. Determination of the amount of a secured claim, such as a car or rental property, must be by motion only, according to Fed.R.Bankr.P. 3012. The committee is proposing to change the rule to allow it by motion, objection to claim, or through the plan. This change would give added flexibility to debtors and recognize that some differences in local practice exist. The committee is also proposing to a change to Fed.R.Bankr.P. 4003 to force debtors to serve a plan, proposing a lien avoidance action, as they would an adversary proceeding. This is to insure a creditor has proper notice of the action. The committee also is proposing

to change Fed.R.Bankr.P. 7001 to make it clear that an adversary proceeding is not required to strip a wholly unsecured second mortgage. This would resolve the discrepancies between the various districts around the country. By far, the most extensive rule change proposed is to Fed.R.Bankr.P. 3015, which governs the filing and objections to a Chapter 13 Plan. The committee spells out a Chapter 13 plan must conform to the national form. While some changes or additions to the model plan are possible they will not be effective unless they are properly notated in the appropriate section of the model plan. This is quite similar to the model plan currently in use in the Eastern District of Michigan, which provides a mechanism for changing the provisions of the plan. The committee also is looking to amend the rule to require an objection to confirmation of the plan be filed no later than 7 days prior to the confirmation hearing date. The plan would also control over any proof of claim, which recognizes that a confirmed plan is binding on the debtor and all creditors. This would also resolve the differences in the various districts, like the Northern District of Illinois and the Eastern District of Michigan. How Soon for All of this Change? This extensive re-writing of several federal rules and the drafting of a national model plan takes quite a long time. The Bankruptcy Advi9

sory Committee has been diligently working on all of these various changes and additions for some time. The committee published the model plan and proposed rule changes in August 2013. All comments are due by February 15, 2014. Once the comment period has expired, they will then either adopt the proposed changes as published or re-work them. The earliest these changes could be adopted would be December 1, 2014, with full implementation of a national model plan by 2015. These changes represent a large shift in the practice of bankruptcy law from more of a regional process to a more uniform process across the country. This will, in the end, benefit both creditors and debtors, as differences between districts will start to matter less. While some of the shortened deadlines will be difficult for creditors to adapt to, the uniformity of the plan and the processes will be a boon to creditors and make it far easier to service loans that have entered bankruptcy.

For more information, please contact Kenneth VanNorwick, Supervising Attorney, at (248) 853-4400 ext. 1109 /


POTESTIVO & ASSOCIATES, P.C. GIVES BACK Potestivo & Associates, P.C. recognizes the need and the importance of serving the community in which it belongs. We proudly support a variety of local, statewide, and national charities in addition to our participation and sponsorship of events throughout the year. This year, our Rochester Hills, Michigan office sponsored our second American Red Cross blood drive, where our team effort helped save 51 lives! Throughout 2013, Potestivo & Associates, P.C. has supported the following organizations: • • • • • • • • • • • • • • • • • • • • • • • • • • •

American Cancer Society All God’s Children Alternatives for Girls Team Bright Pink Canter for a Cure CARE House of Oakland County Children’s Hospital of Los Angeles Children’s Hospital of Michigan Foundation The Clark Park Coalition Cornerstone Schools Partner Group Crittenton Medical Center Foundation Crossroads for Youth Girl Scouts of the United States of America Grand Valley State University Holy Family Regional School Illinois Mortgage Bankers Association The Johns Hopkins Children’s Center Junior Achievement Make a Wish Foundation Michigan Mortgage Lenders Association - Southeast Chapter Michigan Mortgage Lenders Association - West Chapter Michigan State University Baseball The New Day Foundation Notre Dame Preparatory School & Marist Academy Thomas M. Cooley Law School Heroes & Hope Charity WLAM Foundation Scholarship Fund


CONNECT WITH US DETROIT, MI 811 SOUTH BLVD. SUITE 100 ROCHESTER HILLS, MI 48307 T: (248) 853-4400 F: (248) 853-0404


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The Brief 2014