HOT TOPIC LEGAL UPDATES

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HOT TOPICLEGAL UPDATES
Presented by the AFNs Legal Services Committee
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SPEAKERS
William M. LeRoy - Moderator CEO American Legal
Financial Network AFN
Cynthia A. Nierer, Esq. - Panelist Partner Rosicki
, Rosicki Associates, P.C.
Carolyn A. Taylor, Esq. - Panelist Partner Hughes,
Watters Askanase, L.L.P.
Matthew C. Abad, Esq. - Panelist Partner Burke,
Costanza Cuppy L.L.P.
Michelle Garcia Gilbert, Esq. -
Panelist Attorney Kass, Shuler, Solomon, Spector,
Foyle Singer, P.A.
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In re Crawford2008 WL 2278113 (Bkrtcy. SDNY)

• FACTS
• Debtor filed for chapter 13 bankruptcy listing
  Servicer on bankruptcy petition on 11/26/07, one
  day prior to a scheduled foreclosure sale.
• Non filing co-debtor faxed copy of bankruptcy
  filing notification to Referee and personally
  appeared at foreclosure sale with bankruptcy
  notice. Referee proceeded with sale with caveat
  that bankruptcy filing may cause sale to be null
  and void. Servicer, through its sub-agent, placed
  only bid at foreclosure sale.
• Debtor filed letter with Bankruptcy Court on
  12/11/07 requesting the Chapter 13 Trustee
  withdraw the bankruptcy petition as her house was
  sold at a foreclosure auction.
• Bankruptcy Court, on its own motion, filed Order
  to Show Cause directing secured creditor and the
  Referee to appear and show cause why sanctions
  should not be issued for willful violation of
  automatic stay.

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In re Crawford2008 WL 2278113 (Bkrtcy. SDNY)

• DECISION
• Court issued separate order declaring foreclosure
  sale invalid and void ab initio.
• Mortgage Holder, sub-agent who bid at sale, and
  the Referee held jointly liable for actual
  damages of 66.88.
• Struck from Servicers Proof of Claim 8,553.34
  for foreclosure fees and costs and 4 separate
  charges totaling 1,025.00 for bankruptcy fees
  and costs without prejudice to Servicers right
  to file an amended Proof of Claim with proper
  documentation and evidence of date and purpose
  for each charge.
• Assessed punitive damages against Mortgage Holder
  in the amount of 60,000.00.
• Assessed punitive damages against Sub-Agent, in
  an amount to be determined at a further hearing.
• Barred Mortgage Holder, Servicer, and any
  subsequent servicer from collecting fees,
  expenses or other charges associated with the
  foreclosure sale or the Order to Show Cause from
  debtor or adding to amounts due under the note
  and mortgage.

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In re Crawford2008 WL 2278113 (Bkrtcy. SDNY)

• ANALYSIS
• Mortgage Holder, through its sub-agent, was
  liable for the sub-agents actions through
  principles of agency.
• Court determined that mortgage holder had complex
  system of agents, sub-agents, and servicing
  agents (a Ruby Goldberg apparatus) which was
  relevant in determining amount of sanctions to
  deter future similar conduct 10,000 per layer
  from principal, servicing agent and various
  agents and subagents.
• Court was troubled that it issued an Order to
  Show Cause directing Mortgage Holder to appear,
  but it sent its servicing agent to respond in its
  place. Punitive damages necessary to get the
  attention of the principal creditor.
• Eve of Foreclosure defense of creditor is
  insufficient to excuse stay violation creditor
  could easily have run bankruptcy search prior to
  sale.
• Although Court found that Referee violated stay,
  Referee did not act with malice or bad faith,
  Court did not award punitive damages against
  Referee.
• Subagent who was retained by a national company
  was not credible and had no notes or memory as to
  the events that took place at sale willfully
  violated stay.

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NEW YORK RESIDENTIAL FORECLOSURE PROGRAM

• Background
• New Yorks Chief Judge recently announced a trial
  run beginning this summer in Queens County, New
  York. The program is expected to spread to the
  rest of the State this fall.
• the program is in response to the increasing
  number of foreclosure actions being commenced in
  the State. Queens County alone saw a 70 jump in
  foreclosure actions in 2007 (1,243 from 731 in
  2006).

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NEW YORK RESIDENTIAL FORECLOSURE PROGRAM

• The main components of the program are to
• notify parties as soon as practicable of
  community resources
• to hold early conferences before a hearing
  officer to develop a settlement or case
  management plan and
• to hire specialized court personnel to assist
  borrowers in foreclosure who likely are unable to
  afford an attorney to represent them.
• The program will require two additional notices
  to be sent to the borrower early in the
  foreclosure process. One is to come from the
  named plaintiff in the action, and the other from
  the Court. The notices are to advise the
  borrowers of the conference program and of
  available community resources.  The program is
  also designed to allow conferences to be
  scheduled with only those borrowers who have
  sought counseling on their own or from the Court
  provided resources.  

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NEW YORK RESIDENTIAL FORECLOSURE PROGRAM

• How this will affect the foreclosure process
• The additional notice will result in an extra
  cost in the foreclosure action.
• Additional delays in the foreclosure process,
  particularly in those cases where the mortgagor
  has no intention of trying to settle or work out
  an agreement with the lender.
• The scheduled conferences will further delay the
  process as the conferences will be held according
  to the Courts availability. As the Courts are
  already overburdened with the volume of
  foreclosures throughout the State, the
  conferences will have to be scheduled in an
  already full Court calendar. 
• Attending the conferences will also result in an
  additional expense within the foreclosure action.
  
• While this program may enable resolution of some
  foreclosures, the impact it will have on most
  foreclosures will be to create extra steps to an
  already lengthy process.

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Bill Affecting Foreclosure Actions Passes both
Houses in New York

• A proposed bill recently passed both Houses of
  the New York legislature. The bill has not yet
  been signed into law by the Governor.
• The bill provides that it will take effect
  immediately upon signing by the governor.
• One provision of the bill, Section 2, which
  requires 90 days notice before commencing a
  foreclosure of certain loans, will not become
  effective until September 1, 2008.

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Bill Affecting Foreclosure Actions Passes both
Houses in New York

• Highlights of Proposed Bill 8143-A
• Section 1304 of the Real Property Actions and
  Proceedings Law (RPAPL) being added. This will
  require lenders and mortgage servicers to send a
  notice to borrowers with a high-cost home loan,
  or sub-prime home loan or non-traditional
  loan originated between January 1, 2003 and
  September 1, 2008 at least 90 days prior to
  commencement of the foreclosure (pre-referral).
  The notice will provide names and telephone
  numbers of housing counseling agencies approved
  by HUD or designated by Division of Housing and
  Community Renewal.
• Section 1303 of the RPAPL to be amended. This
  statute went into effect last year and requires
  plaintiffs attorneys in foreclosure to serve an
  additional notice to the borrower with the
  Summons and Complaint. The language of that
  notice will be changed by this bill.

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Bill Affecting Foreclosure Actions Passes both
Houses in New York

• Section 3408 of the CPLR is added which requires
  that the Court in a residential foreclosure of a
  sub-prime or non-traditional loan originated
  between January 1, 2003 and September 1, 2008,
  schedule a settlement conference within 60 days
  of filing affidavits of service of the Summons
  and Complaint. The purpose of the conference is
  to determine whether the parties can reach a
  mutually agreeable resolution to help the
  defendant avoid losing his or her home and
  evaluating the potential for a resolution in
  which payment schedules or amounts may be
  modified or other work out options agreed to
  The plaintiff or representative with authority to
  settle must appear at the conference. Plaintiff
  may be able to appear by tele-conference.
• Section 3408 also requires that the court notify
  plaintiffs in pending foreclosure actions
  commenced prior to September 1, 2008 to identify
  whether the loan is a subprime home loan or
  high-cost loan and if so, the court will notify
  the defendant that a settlement conference may be
  requested.

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Bill Affecting Foreclosure Actions Passes both
Houses in New York

• The Banking Law will be amended as to the
  regulation and definition of high-cost loans.
  The new rules pertaining to high cost loans will
  prohibit negative amortization, prohibit
  prepayment penalties, prohibit abusive yield
  spread premiums, require that taxes and
  insurance be escrowed and prohibit teaser rates
  (initial interest rates with duration of less
  than six months).
• The Banking Law will also be amended so as to
  define and regulate sub-prime home loans.
  These loans are defined as a first mortgage where
  the APR exceeds by 1 ¾ points or a subordinate
  lien exceeds by 3 ¾ points the average
  commitment rate for loans in the northeast
  region with comparable duration as published by
  Freddie Mac. The new rules prohibit negative
  amortization, an increased interest rate after
  default, loan flipping, prepayment penalties,
  abusive yield spread premiums, and requires that
  the lender reasonably have a good faith belief
  that the borrower is able to repay the loan.
  Various disclosures will also have to be made to
  the borrower at the time of origination.

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Bill Affecting Foreclosure Actions Passes both
Houses in New York

• There are also new regulations of mortgage
  brokers and lenders that will affect loan
  origination. For example, a lender and mortgage
  broker are prohibited from attempting to
  improperly influence the appraisers findings.
  The mortgage broker must diligently work to
  present the borrower with a range of loan
  products The banking board is also authorized
  to promulgate regulations which establish grounds
  to impose a fine or penalty on mortgage loan
  servicers and to require that they file annual
  reports regarding mortgage foreclosures and
  delinquencies. Violations of these new
  requirements could constitute a defense to the
  foreclosure action or result in counterclaims for
  damages
• The bill also adds the new crime of residential
  mortgage fraud. This crime is committed where
  false information is contained in loan
  application.

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Litigation Best Practices

• Attorneys Title Ins. Fund v. Landa-Posada, 2008
  WL 2435927 (Fla 3d DCA 2008)
• Facts Title insurer brought fraud action
  against attorney members preparing fraudulent
  docs used to induce lenders subpoenaed records
  from non-party attorney, Landa-Posada, who took
  5th, sought legal fees.

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Litigation Best Practices, cont.

• Holding Florida awards attorneys fees based
  upon contract or statute, not in equity as
  argued by attorney if anything, equities favor
  Fund, victim of fraud.
• Best practice Maintain due diligence review at
  origination and throughout loan history to assess
  exposure, possible recovery.

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Bankruptcy Best Practices

• In re Sharpe, 2008 WL 2246932 (Bkrtcy. N.D. Ala.)
• Facts Borrowers filed 3 successive bks, Lender
  filed 3 lift stay motions, last which led to
  sale Borrowers filed adversary for breach of
  contract, wrongful foreclosure, conversion,
  trespass, violation of automatic stay, estoppel,
  fraud, unjust enrichment, breach of fiduciary
  duty.

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Bankruptcy Best Practices, cont. In Re Sharpe

• Facts, cont. Borrowers claimed payments
  current, required notice not given.
• Holding Payments in default when stay lifted,
  but no actual or constructive notice of
  acceleration given, therefore lender liable for
  breach of contract damages, perhaps for wrongful
  foreclosure and breach of fiduciary duty after
  damages evidence is received.

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Bankruptcy Best Practices, cont.In Re Sharpe

• Best practices
• Know what loan documents require (i.e., Sharpe
  docs Lender shall give notice to Borrower
  prior to acceleration following Borrowers breach
  of any covenant or agreement in this Security
  Instrument no notice given)

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Bankruptcy Best Practices, cont.- In Re Sharpe

• Observations
• Somewhat hypertechnical ruling does filing of
  motion to lift stay provide notice of default
  under contract?
• Should federal judge defer to state court when
  deciding preforeclosure conditions?

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Servicing Best Practices Getting the best from
local counsel.

• Involve local counsel in loss mitigation
  antidotal data suggests more borrowers respond to
  attorneys than to servicers.
• Ask local counsel to provide timely state
  updates maintain state by state file for staff
  use.
• Work with local counsel to tweak bidding process
  (online sales- proposed in FL, flyers at sales,
  delayed sales payments, monitor and influence
  state legislative changes.)

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ConclusionQuestion Answer Period

• If you have any further questions that were not
  addressed in this presentation, or want to
  contact one of our speakers, please email Matt
  Bartel, COO of AFN, at mbartel_at_e-afn.org.
• Thank you for your participation in this webinar.
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