72
President’s Message ...................................... 4 FEATURED ARTICLES Learning the Hard Way .............................. 6 • Pressure Cooker Lessons.......................... 8 Awarding of Attorney Fees ...................... 10 • Demolition of Property ............................. 12 California’s One Action Rule .................... 14 Tax Sale Redemption in TN ..................... 16 The Doctrine of Snoozeth-Looseth .......... 18 LEGISLATIVE UPDATES The Certainties of Life.............................. 20 Washington State Senate Bill .................. 21 EDUCATION NEWS La Jolla Will Host 2007 Conference ........ 24 MEMBERSHIP NEWS Gary Wisham Elected UTA President ...... 26 Interview with Gary Wisham .................... 27 • Committees Seeking Volunteers .............. 29 Interview with Nick Salamone ................. 30 Inside This Issue Continued on page 1 Summer 2008 The dark and stormy California foreclosure River is overflowing O n January 1, 2008, California entered its worst foreclosure crisis since the downturn of the early 1990s. In the first quarter of 2008, default notices rose to the high- est level in fifteen years. Over 100,000 California homes are in foreclosure, and almost one- third of existing home sales are foreclosure sales. Foreclosures in Riverside and San Bernardino coun- ties are up 161 and 156 percent, respectively, compared to just one year ago. e rise in foreclosures will create new foreclosure-related civil litigation, in- cluding individual actions against trust- ees and beneficiaries alleging wrongful foreclosure and class actions against in- stitutional trustees and lenders alleging violations of California’s Unfair Compe- tition Law (“UCL”). California’s statutory provisions regu- lating the conduct of non-judicial fore- closure sales are strict. Courts have imposed liability for minor deviations from the statutory requirements. As the foreclosure crisis worsens in the upcoming months, trustees and benefi- ciaries should review and update their internal procedures for requesting, noticing, and conducting non-judicial foreclosure sales. Taking steps now – before the liti- gation flood gates open – can re- duce the ultimate cost of defending against the inevi- table increase in foreclosure-relat- ed litigation. Described below are some common is- sues that arise in foreclosures and rec- ommendations for procedures trust- ees and beneficiaries should consider incorporating into their foreclosure- related business operations. For both trustees and beneficiaries, these simple and affordable steps should help reduce litigation exposure. Avoiding Costly Mistakes in the Midst of California’s Current Foreclosure Crisis: Practical Advice for Trustees and Beneficiaries in Nonjudicial Foreclosures By Antony D. Nash, Esq., and John J. McNutt, Esq., Luce, Forward, Hamilton & Scripps LLP PRESIDENT’S MESSAGE ............................................. 4 FEATURED ARTICLES A Legislative Matrix .................................................... 6 The “F” Word .............................................................. 8 The IRS Finally Responds........................................ 10 Harsh Facts Make Good Law................................... 12 Can Trustee Recover Attorney’s Fees? ..................... 14 Nonjudicial Foreclosure in New York........................ 16 Rescission Under TILA ............................................. 18 Loss Mitigation.......................................................... 20 Beneficiary and Trustee: Litigation Parties ............... 22 STATE NEWS California: Endgame for Mortgage Bills.................... 24 Washington: New Duties for Trustees ...................... 26 Utah Legislative Changes ........................................ 28 Massachusetts 90-Day Right to Reinstate ............... 30 Colorado Updates..................................................... 32 Michigan: Pending Legislation.................................. 34 Proposed Changes in Illinois .................................... 36 Oregon: Implementing New Procedures .................. 38 New State Laws Affecting Foreclosure..................... 40 CASE LAW UPDATES Four Foreclosure Cases Worth Review ................... 44 UTA AND INDUSTRY NEWS UTA Considers Challenge to Local Ordinance ......... 46 Federal Foreclosure Bills.......................................... 47 UTA Membership Brochure ...................................... 47 EDUCATION NEWS Annual Conference Info............................................ 48 Texas “Foreclosure 101”........................................... 49 Certification DVD Available....................................... 50 MEMBERSHIP NEWS Members on the Move.............................................. 52 Interview with June Christy....................................... 52 Inside This Issue Continued on page 54 For both trustees and beneficiaries, these simple and affordable steps should help reduce litigation exposure.

Avoiding Costly Mistakes in the Midst of California’s ... · Avoiding Costly Mistakes in the Midst ... • Loss Mitigation ... Order your DVD today and let everyone in your company

Embed Size (px)

Citation preview

President’s Message ...................................... 4

FEATURED ARTICLES

• Learning the Hard Way .............................. 6

• Pressure Cooker Lessons .......................... 8

• Awarding of Attorney Fees ...................... 10

• Demolition of Property ............................. 12

• California’s One Action Rule .................... 14

• Tax Sale Redemption in TN ..................... 16

• The Doctrine of Snoozeth-Looseth .......... 18

LEGISLATIVE UPDATES

• The Certainties of Life .............................. 20

• Washington State Senate Bill .................. 21

EDUCATION NEWS

• La Jolla Will Host 2007 Conference ........ 24

MEMBERSHIP NEWS

• Gary Wisham Elected UTA President ...... 26

• Interview with Gary Wisham .................... 27

• Committees Seeking Volunteers .............. 29

• Interview with Nick Salamone ................. 30

Inside This IssueContinued on page 1

Summer 2008

The dark and stormy

California foreclosure

River is overflowing

On January 1, 2008, California

entered its worst foreclosure

crisis since the downturn of

the early 1990s. In the first quarter of

2008, default notices rose to the high-

est level in fifteen years. Over 100,000

California homes

are in foreclosure,

and almost one-

third of existing

home sales are

foreclosure sales.

Foreclosures in

Riverside and San

Bernardino coun-

ties are up 161

and 156 percent,

respectively, compared to just one year

ago.

Th e rise in foreclosures will create new

foreclosure-related civil litigation, in-

cluding individual actions against trust-

ees and benefi ciaries alleging wrongful

foreclosure and class actions against in-

stitutional trustees and lenders alleging

violations of California’s Unfair Compe-

tition Law (“UCL”).

California’s statutory provisions regu-

lating the conduct of non-judicial fore-

closure sales are strict. Courts have

imposed liability for minor deviations

from the statutory requirements. As

the foreclosure crisis worsens in the

upcoming months, trustees and benefi -

ciaries should review and update their

internal procedures for requesting,

noticing, and conducting non-judicial

foreclosure sales.

Taking steps now

– before the liti-

gation fl ood gates

open – can re-

duce the ultimate

cost of defending

against the inevi-

table increase in

foreclosure-relat-

ed litigation.

Described below are some common is-

sues that arise in foreclosures and rec-

ommendations for procedures trust-

ees and benefi ciaries should consider

incorporating into their foreclosure-

related business operations. For both

trustees and benefi ciaries, these simple

and aff ordable steps should help reduce

litigation exposure.

Avoiding Costly Mistakes in the Midst of California’s Current Foreclosure Crisis: Practical Advice for Trustees and Beneficiaries in Nonjudicial ForeclosuresBy Antony D. Nash, Esq., and John J. McNutt, Esq.,

Luce, Forward, Hamilton & Scripps LLP

PRESIDENT’S MESSAGE ............................................. 4FEATURED ARTICLES• A Legislative Matrix .................................................... 6• The “F” Word .............................................................. 8• The IRS Finally Responds........................................ 10 • Harsh Facts Make Good Law ................................... 12• Can Trustee Recover Attorney’s Fees? ..................... 14• Nonjudicial Foreclosure in New York ........................ 16• Rescission Under TILA ............................................. 18• Loss Mitigation.......................................................... 20• Beneficiary and Trustee: Litigation Parties ............... 22STATE NEWS• California: Endgame for Mortgage Bills .................... 24• Washington: New Duties for Trustees ...................... 26• Utah Legislative Changes ........................................ 28• Massachusetts 90-Day Right to Reinstate ............... 30• Colorado Updates..................................................... 32• Michigan: Pending Legislation .................................. 34• Proposed Changes in Illinois .................................... 36• Oregon: Implementing New Procedures .................. 38• New State Laws Affecting Foreclosure..................... 40CASE LAW UPDATES• Four Foreclosure Cases Worth Review ................... 44UTA AND INDUSTRY NEWS• UTA Considers Challenge to Local Ordinance ......... 46• Federal Foreclosure Bills .......................................... 47• UTA Membership Brochure ...................................... 47EDUCATION NEWS• Annual Conference Info ............................................ 48• Texas “Foreclosure 101” ........................................... 49• Certification DVD Available....................................... 50MEMBERSHIP NEWS• Members on the Move.............................................. 52• Interview with June Christy....................................... 52

Inside This Issue

Continued on page 54

For both trustees and beneficiaries, these simple and

affordable steps should help reduce litigation exposure.

2

Production

Editor: Richard Meyers

UTA Executive Director

[email protected]

Consultant: Martin T. McGuinn, Esq.

Kirby & McGuinn

[email protected]

United Trustees Association

2030 Main Street, Suite 1300

Irvine, CA 92614

(949) 260-9020 • www.unitedtrustees.com

Disclaimer

This journal is presented by the United Trustees Association

(“UTA”). UTA encourages the open discussion of current events

and issues relating to the non-judicial foreclosure process. UTA

does not endorse the views and opinions expressed by any author,

contributor and/or advertiser. UTA does, however, recognize the

First Amendment right of every author or contributor to express

his or her views.

The views of any person expressed herein do not necessarily repre-

sent those of the UTA, its directors, officers or members, nor are

they to be construed, in whole or in part, as legal advice. For legal

advice, please consult an attorney.

Copyright, 2008, UTA. All rights reserved. No part of the UTA

Quarterly may be reprinted without permission. For permission,

write to UTA, 2030 Main Street, Suite 1300, Irvine, CA 92614.

The UTA Quarterly is distributed four times a year by the United

Trustees Association. This journal is published to provide its read-

ers with useful material concerning new and thought-provoking

developments, practices and trends in the trustee-related indus-

tries.

To ensure that you receive a copy of the UTA Quarterly, become a

UTA member. To obtain membership information, write to UTA,

2030 Main Street, Suite 1300, Irvine, CA 92614. Or visit www.unit-

edtrustees.com

We encourage UTA members, as well as our other readers, to con-

tribute articles. Any ideas, comments and suggestions that you have

for the UTA Quarterly would be appreciated. Please forward your

remarks to the editor.

Advertising Information

The following companies have

advertised in this issue of UTA Quarterly.

Thank you for your support!

Adleson, Hess & KellyCalifornia Mortgage Bankers Association

Daily JournalFirst American Title

FIS Default SolutionsForeclosure Solution

Interface, Inc.Law Office of Rex C. Anderson

Legal LeagueMark Chernoff Insurance Broker

NDExNorth American Title

Orange Coast TitlePriority Posting and PublishingReliable Posting & Publishing

RSVPServiceLink

Stewart Title of CaliforniaTrustee’s Assistance Corp.

United Trustees Association

Potential advertisers include title companies, posting and publish-

ing services, legal newspapers, computer services and attorneys.

Anyone servicing the foreclosure industry is a possible advertiser.

The cooperation and support of the UTA membership is necessary

to make the UTA Quarterly and the Annual Education Conference

successful. Please ask your representative to place an ad.

For advertising information,

Contact Richard Meyers(949) 260-9020

[email protected]

Mission Statement

To foster, improve and promote integrity of services in the

default mortgage servicing industry through a level of excel-

lence, education, local outreach and legislative advocacy.

3

United Trustees Association Summer 2008

4

Spring 2008 United Trustees Association

New Products and Programs Featured This Year

UTA has introduced several new

products and programs this

year. 153 of our industry’s staff

have now taken our new California

Foreclosure 101 course. On August 15th,

our Texas Foreclosure 101 course will

debut in Houston, taught by two excellent

instructors, Mary Speidel, Esq., of Codilis

& Stawiarski and Jim DeLoach, Esq., of

Butler & Hosch. I would like to publicly

acknowledge Mary Speidel for the work

she has done in coordinating the materi-

als for this terrific course.

Additionally, UTA has made a DVD of the

Basic California Foreclosure Certification

Course (CA-1) available to members.

The DVD course instructor is the very

popular Randy Newman of National

Foreclosure Service. Order your DVD

today and let everyone in your company

who processes foreclosures in California

view it, along with the course materials. If

you or anyone on your team subsequently

desires to take the certification exam to

become a Trustee Sale Officer, our office

will coordinate that with you.

This year, along with the 2008 Member

Directory, our members received a beau-

tiful new four-page UTA Membership

Brochure. Members are encouraged to

order complimentary copies of the bro-

chure in order to encourage prospective

members to join UTA. The brochure will

also be used by our staff when we are

promoting the Association.

We have also greatly expanded the state

nonjudicial foreclosure legislative sum-

maries on our website (and in the UTA

Quarterly), with updates now from twen-

ty-eight states. This would not be possible

without the contributions from so many

of our members who take the time to let

their industry colleagues know what per-

tinent legislation and new laws are taking

hold in their states. Thank you.

In Sacramento, UTA has worked to make

sure that the trustee role in the foreclosure

process was more accurately reflected

in comprehensive foreclosure legislation

that is likely to reach the Governor’s desk,

and that duties do not fall to trustees that

more properly belong to others.

We have also successfully worked

to ensure that new IRS regulations in

California on notice of nonjudicial sale

be clarified. Finally, we are addressing

municipal ordinances that place unfair

and burdensome tasks on trustees with

respect to maintenance requirements.

We have an ambitious project on the

horizon – the development of several

different ‘Guide(s) to Foreclosure Law’

providing members with up-to-date stat-

utory language in various states as well as

other essential references.

You many have noticed that for the first

time, we have advertised in industry pub-

lications and have started the process of

providing articles to industry publications

from UTA affiliated authors. UTA is the

only association whose primary focus is

nonjudicial default-servicing issues – and

everyone in any related service or com-

pany needs to know what we do and what

services we provide.

Our annual fall conference and trade

show arrives November 16-18th (with

certification classes on the 15th). This

year we are returning to the site of the

conference two years ago - the Red Rock

Resort, Casino and Spa. The education

sessions will again be top-notch and we

anticipate having more booths than ever

before. Please visit the UTA website to

view the conference program and to reg-

ister, as well as to watch a new video fea-

turing pictures from recent conferences.

Finally, we do expect the hotel rooms to

sell out, so please make your reservations

early. Rooms for UTA attendees at the

five-star resort are an unbelievable $149

per night.

As you can see, UTA has been as busy as

its members!

Gary Wisham is the President of Allied Trustee Services and serves as the President of UTA. He can be reached at [email protected].

Gary Wisham2008 UTA President

5

PresidentGary WishamEducation Committee Co-Chair Allied Trustee Services 3721 Douglas Blvd., Suite 345 Roseville , CA 95661 [email protected]

Vice PresidentDeborah BrignacCalifornia Reconveyance Company9200 Oakdale Avenue N110612Chatsworth, CA 91311- [email protected]

Chief Financial OfficerMarsha Townsend, Finance Committee ChairForeclosureLink, Inc.5006 Sunrise Blvd., Suite 200Fair Oaks, CA [email protected]

SecretaryElizabeth KnightPLM Lender Services, Inc.46 N. Second StreetSuite ACampbell, CA 95008408/[email protected]

Vickie L. AdamsEducation Committee Co-Chair27876 MazagonMission Viejo, CA [email protected]

Phillip M. Adleson, Corporate Counsel Adleson, Hess & Kelly577 Salmar Avenue, 2nd Floor Campbell, CA 95008 [email protected]

Deborah BrignacCalifornia Reconveyance Company9200 Oakdale Avenue N110612Chatsworth, CA 91311- [email protected]

Michael R. Brooks, Esq.Jolley Urga Wirth Woodbury & Standish3800 Howard Hughes ParkwaySuite 1600Las Vegas, NV 89169702/[email protected]

Jim DeLoachButler and Hosch13800 Montfort DriveSuite 300Dallas, TX 75240972/[email protected]

Jeremy R. HarmonFirst American Title - NDTS3 First American WaySanta Ana, CA [email protected]

Rande JohnsenTrustee Corps2112 Business Center Drive2nd Floor, Suite 201Irvine, CA [email protected]

Martin T. McGuinn, Esq.Legal Resources Committee Chair Kirby & McGuinn, APC 600 B Street, Suite 1950 San Diego, CA [email protected]

Jane MyrickSecurity Title Agency3636 North Central AvenueSuite 140Phoenix, AZ 85012602/[email protected]

Margaret A. Padilla, CTA-PAC ChairCal-Western Reconveyance CorporationPO Box 22004 525 East Main Street El Cajon, CA 92022-9004 [email protected]

Susan PettemMembership Committee Chair Fidelity National Default Solutions15661 Red Hill Avenue, Suite 201 Tustin, CA [email protected]

Julie D. Randall Union Bank of California P.O. Box 85416 San Diego, CA 92186 [email protected]

Chris RebhuhnRegional Trustee Services 616 First Avenue, Suite 500 Seattle, Washington 98104 [email protected]

Ronald D. Roup, Esq.Legislative Committee ChairRoup & Associates, A Law Corporation 23101 Lake Center Drive, #310Lake Forest, CA 92630 [email protected]

Richard Meyers, Executive Director ex officio United Trustees Association 2030 Main Street13th Floor Irvine, CA [email protected]

UTA 2008 OFFICERS AND DIRECTORS

Spring 2007 United Trustees Association

Featured Article

6

Summer 2008 United Trustees Association

Iusually like to start with a theme quote from a famous per-

son. For this article, I really liked Winston Churchill’s reply

to Bessie Braddock’s remark “Winston, you’re drunk!” in

1946 to which he replied: “And you, madam, are ugly. But in

the morning I shall be sober” 1

With the perfect storm atmosphere of the sky-rocketing num-

ber of foreclosures in California, interest rate change adjust-

ments, tight money, falling values,

surplus REOs, and an election year,

the California legislature has seized

upon the opportunity to correct it.

I mean, they are legislators who are

paid to introduce bills, and if you

can’t introduce or co-author a bill

to correct the foreclosure and REO

problems caused by the California

real estate market, then you’re just

not doing your job. And, you are

not going to let the federal govern-

ment, the Federal Reserve, the financial markets, or any actu-

ally qualified institution steal your fodder. It’s your time. It’s

your lime light.

I had heard that Xavier House, our attorney from my “A

Legislative Smudge” UTA Quarterly article in 2006, was now a

congressman. He apparently had made so much money repre-

senting homeowners trying to figure out how to exercise their

post-foreclosure right of redemption after passage of S.B. 137,

that he ran for office. And, with that name, how could he lose?

I caught up with Senator Xavier House for an interview and

he confirmed that the California legislature wanted us to live in

a perfectly harmonic world and that they would do everything

in their regulatory power to legislate these problems away. I

asked him about some of the bullet points of these proposed

regulations, including:

SB. 1137, which has passed the California Senate and will likely

pass the Assembly and become law this Fall with at least the

following regulations:

Bullet Point: Meet and Confer requirements for loan

modifications or work-outs prior to initiat-

ing a foreclosure.

Q. “So, you’re shifting the responsibility of the borrower to

contact the lender if they’re having problems, to the lender

contacting the borrower?”, I asked.

A. “Sure, if the owner won’t

do it for themselves, we’ll make the

lender do it for them,” he replied.

I sensed no balking, sweating, or

nervousness. It made perfect sense

to him.

Q. “But, the owner would have

to be in default. What about the

owners who are trying to keep

out of default or who now have negative equity in their

homes?”

A. “We’ll leave that phase to the federal government to revise

the Bankruptcy Code. You have to let the Feds have their

day, too” stated Senator House. “Someday, I could be one

of them, you know, and I’ll need some fertile fields to plow.”

(I swear he said “futile fields” the first time, but I didn’t

have it on tape.)

Q. “Is it true there was a requirement for Kumbaya to be play-

ing in the background of the meet and confer?”

A. “No, I proposed it as a nice touch, but others thought it was

going too far.” I somehow found comfort in this recogni-

tion of limits.

A Legislative MatrixBy Ronald D. Roup, Esq., Roup & Associates

Continued on page 58

“…if you can’t introduce or co-author a bill to correct the foreclosure

and REO problems caused by the California real estate market, then

you’re not doing you’re job.

7

Spring 2007 United Trustees Association

Featured Article

8

Summer 2008 United Trustees Association

The “F” Word, Part IBy Elizabeth Knight, PLM Lender Services

What is it about the “F” word that is so bad? Why is

it so tainted? Well, probably because when kids

are growing up their parents and teachers tell them

never to say the “F” word. Well, here we are all grown up and

I can tell you, the “F” word is still a bad word. The “F” word we

hear everyday is (I am looking over my shoulder to see who is

listening) “foreclosure.”

Now, I must admit, I am very used to that word. It is, after all,

one part to my livelihood. It doesn’t scare me, it doesn’t usually

make me feel bad and I actually use the “F” word around my

children. For many brokers, foreclosure has not been a part of

their everyday life. Many actually say that they have never had

one in their portfolio – whether that means they have never had

to start a foreclosure or whether

they never have had a foreclosure

proceed all the way through sale

is always the question. For those

who have not had experience with

foreclosure, that must mean they

have been in the business less than

13 years or so (prior to the last 18

months), the golden years, the thriving years where bad loans

were saved simply because the value of property continued to

increase.

And now, here we are in 2008 and the market has changed.

Many foreclosures are not only actually being started, but are

going all the way through to trustee sale and are reverting to the

benefi ciaries. It is important to prepare in two diff erent ways

for this market, changes as to the servicing of existing loans and

changes in the way brokers underwrite new loans.

First, on the servicing side – what servicing companies start

encountering in this market are receiving VOM’s (Verifi cation

of Mortgage), sending VOM’s and then having the company call

and ask for changes to be made to the VOM. Th is may have

happened somewhat before. It is now happening a lot more.

Some things are very cut and dry on VOM’s. Other times, there

can be some honest creative comments written which can pos-

sibly get the loan out of the broker’s portfolio, get full payoff s

in the investors’ pockets and get the payoff s received earlier.

It is important, however, to be sure that the information that is

given is correct and your credibility cannot be challenged later.

Fraud is not an alternative, although I must say many broker

and agents we have been encountering requesting these VOM’s

do not have such qualms. Th e funny part about that is most of

them are not “private investor” placement brokers or agents.

Th ey are attempting to place these borrowers into sub-prime

products (yes, they do still exist).

Remember that creativity and honesty are all in the presenta-

tion. If the servicing fi rm receives a

VOM on an account which is ques-

tionable, someone of authority who

can be creative, yet honest should

complete the VOM. Remember,

that some loans just have “F” writ-

ten all over them and there is noth-

ing the servicing entity can do or

say to make it look any better. Just

know that if there is not enough equity, that loan is not going

to be re-written.

Secondly, once the loan falls delinquent, it is important to take

action. Th e servicer cannot wait until it is four or fi ve or even

three months delinquent. As soon as the loan is two months

delinquent, it is important to review this fi le to see what the

recovery potential is. Remember that the market has changed

and the values in most areas are going down. For every month

that the account is delinquent, this can be money which may

refl ect a loss to the lender. Remember as well, it is not just the

interest on their loan, but the interest on the underlying liens as

well as taxes which may not be paid as well as declining value.

The analysis of what type of action should be commenced,

including forbearances or commencing a foreclosure and what

type of a foreclosure can be calculated on a form. Knowing

It is important to prepare in two different ways for this market…

9

United Trustees Association Summer 2008

Featured Article

the approximate value of the property at the time of the delin-

quency and what the potential value may be in four months is

key. Some loans would always be started while others may not.

A first Deed of Trust on an owner occupied residence is one of

the “always” and a third Deed of Trust on a property which has

seriously declined in value and was written at 75% LTV may

need much analysis.

Elizabeth M. Knight is President of PLM

Lender Services, Inc., an independent trustee

service which specializes in foreclosures, pri-

vate investor loan servicing, loan documenta-

tion, bulk assignments, reconveyances and

REO disposal. Elizabeth has been in the fore-

closure and loan servicing field since 1981. She has been in the

real estate field (with emphasis on escrow prior to 1981) since

1977. She currently holds the position of Director on the board

of the California Mortgage Association as well as Director on

the board the United Trustees Association. Elizabeth is a gradu-

ate of St. Mary’s College with her Bachelor’s degree in Business

Management. She is a court qualified expert in the field of fore-

closure and is a licensed California Real Estate Broker. She can

be contacted at [email protected].

Spring 2007 United Trustees Association

Featured Article

10

Summer 2008 United Trustees Association

In August of 2007, the IRS issued new regulations regulating

how and where trustees were to give notices of sale to the IRS

where an IRS lien was filed 30 days before the nonjudicial

foreclosure sale. (72 F.R. No. 139, pp. 39737-39740; Regulation

§ 301.7425-3T; See, IRC § 7425(b).) Prior regulations required

that notices of sale (“NOS”) be sent

to the “district director (marked for

the attention of the Chief, Special

Procedures Staff”) in the district

“in which the sale is to be con-

ducted”. (Reg. § 301.7425-3(a)(1).)

These positions were eliminated

by the Restructuring and Reform

Act of 1998 (Public Law 105-206;

herein “RRA”). The new regulation

was intended to address uncertain-

ty regarding where notices should be sent in California created

by the RRA.

In an attempt to remedy internal IRS issues, California IRS

offices issued a bulletin entitled: “Mailing Addresses for Internal

Revenue Service Foreclosure/Redemption and the Technical

Services (Advisory) Group Addresses” (“Local Bulletin”). The

Local Bulletin was widely distributed to trustees as guidance

regarding where trustees should mail notices of trustee’s sale to

the IRS. Unfortunately, there was no legal authority for such a

“Local Bulletin” and it directly conflicted with the August 2007

official regulation and related IRS publications. For a more

complete explanation of the problem and for copies of the

regulations, publications, UTA’s counsel’s letters to the IRS and

IRS’s response, see our prior articles on the UTA Website.

In an attempt to clarify the issue, on November 5, 2007, as cor-

porate counsel for the United Trustees Association (“UTA”), we

sent a letter to the IRS pointing out the confl icts between the

Local Bulletin and already existing IRS regulations and publica-

tions. Having received various verbal responses from diff erent

people at the IRS, we sent a follow-

up letter on May 14, 2008. Finally,

on June 17, 2008, as counsel for

UTA, we received a response from

Ric Reynolds, Advisor, Department

of the Treasury, Internal Revenue

Service.

According to Mr. Reynolds June 17,

2008 letter, the IRS current position

is as follows:

• The “Local Bulletin” has been withdrawn. Trustees cannot

rely on the Local Bulletin for instructions regarding where

to mail notices.

• Trustees are to comply with the notice of sale require-

ments set forth in Regulation § 301.7425.3T, and with the

instructions set forth in Publication 786.

• Trustees and others wishing to comply with the notice

requirements of § 301.7425-3T must use the addresses set

forth in Publication 4335.

• The IRS will start enforcing the policy set forth in Mr.

Reynolds’ June 17, 2008 letter on July 1, 2008.

The IRS Finally Responds to UTA’s Request for Clarification on the Handling of Notices of Sale in Nonjudicial Foreclosures (New Rule Effective July , )By Phillip M. Adleson, Esq., Corporate Counsel for the United Trustees Association,

Adleson, Hess & Kelly

Do not follow the old Local Bulletin as your notices of sale after July 1, 2008, may result in a notice of inadequacy and your

notice may not terminate the IRS lien.

11

United Trustees Association Summer 2008

Featured Article

The New Regulation and Related

Publications: A Review

The IRS has now adopted the UTA’s position (consistent with

the new IRS regulations) regarding how and where notices of

sale are to be sent to the IRS in nonjudicial foreclosure sales

where the IRS has a tax lien of record 30 days prior to the trust-

ee’s sale. Effective August 20, 2007, new final regulations were

issued by the IRS regarding where to send notice of a nonjudi-

cial sale. (72 F.R. No. 139, pp. 39737-39740; See, IRC § 7425(b).)

Prior regulations required that notices of sale (“NOS”) be sent

to the “district director (marked for the attention of the Chief,

Special Procedures Staff”) in the district “in which the sale is

to be conducted”. (Reg. § 301.7425-3(a)(1).) These IRS posi-

tions at the IRS were eliminated, creating uncertainty regarding

where notices should be sent.

Regulation § 301.7425-3T provides in pertinent part:

“[A] notice . . . of a nonjudicial sale shall be given, in

writing by registered or certifi ed mail or by personal

service, not less than 25 days prior to the date of sale

(determined under the provisions of § 301.7425-2(b)),

to the Internal Revenue Service (IRS) offi cial, offi ce

and address specifi ed in IRS Publication 786, “In-

structions for Preparing a Notice of Nonjudicial Sale

of Property and Application for Consent to Sale,” or

its successor publication. Th e relevant IRS publica-

tions may be downloaded from the IRS Internet site

at http://www.irs.gov. Under this section, a notice of

sale is not eff ective if it is given to an offi ce other than

the offi ce listed in the relevant publication. . . .”

Publication No. 786 (Instructions for Preparing a Notice of

Nonjudicial Sale of Property states:

“Where to Submit Your Notice or Application.

IRS, Attn: Technical Services Advisory Group Man-

ager

Address your . . . notice to the IRS offi ce in which the

lien was fi led [not where the sale is to be conduct-

ed]. Use Publication 4235, Technical Services Adviso-

ry Group Addresses, to determine where to mail your

request.)”

Regulation § 301.7425-3T refers counsel and trustees to

Publication 786. As quoted above, Publication 786 (Rev. 1-

2006) references that notices should be sent to the IRS Office

in which the lien was filed as referenced in Publication 4235.

In IRS Publication 4235 (Rev. 3-2008), under “California”,

it is required that notices of sale for much of the Northern

California Counties be mailed to the Oakland IRS office.

Regulation § 301.7425-3T states: “Under this section, a notice

of sale is not effective if it is given to an office other than the

office listed in the relevant publication. . . .” Therefore, the

Regulation and official publications may require a mailing to

Oakland for properties in certain Northern California areas.

(Pub. 4235 Rev. 1-2006).

Conclusion

Do not follow the old Local Bulletin as your notices of sale after

July 1, 2008, may result in a notice of inadequacy (Letter 1840)

and your notice may not terminate the IRS lien. Notices of sale

should comply with Reg. § 301.7425-3T and publications 786

and 4235.

1 Th e following articles are on the UTA website (http://www.unitedtrust-ees.com) and contain links to all of the IRS regulations, the IRS Local Bul-letin, letters from UTA’s counsel to the IRS and the June 17, 2008, letter from the IRS: “Th e IRS Finally Responds to UTA’s Request for Clarifi ca-tion on the Handling of Notices of Sale in Nonjudicial Foreclosures. (New Rule Eff ective July 1, 2008)” and “Cause I’m the Taxman: New Regulations, Publications and Local Bulletins Create Confusion on Trustees Giving the IRS Notice of Nonjudicial Sale”.)

2 Th e IRS letter, dated June 17, 2008 can be found on the UTA website.

Phillip M. Adleson is a senior shareholder in the

law firm Adleson, Hess &Kelly. Mr. Adleson has

represented lenders, trustees, mortgage brokers,

investors and title companies in amicus curiae

briefs and in action in the trial courts. He can be

reached via email at [email protected].

Spring 2007 United Trustees Association

Featured Article

12

Summer 2008 United Trustees Association

In a case of first impression, the court in Amalgamated

Bank v. Superior Court (Corinthian Homes) 149 Cal.

App.4th 1003 (2007) ruled that on a motion to expunge

a lis pendens after judgment against the claimant and while an

appeal is pending, the trial court must grant the motion unless

it finds it more likely than not that the appellate court will

reverse the judgment.

The case arose under a harsh fact situation: PTF was the

beneficiary of a note secured by a deed of trust on property

owned by Winncrest. PTF filed a judicial foreclosure action

against Winncrest. The trial court entered judgment allowing

a sale of the property with a right of redemption, with the debt

adjudicated as slightly more than $17,000,000.00. As judgment

creditor, PTF requested that the

Sacramento County Sheriff sell the

property to the highest bidder and

a sale date was set. The eventual

successful bidder, Palmbaum, had

$10,000,000.00 in available funds

to bid at the sale, and PTF intended

to place an opening bid of approxi-

mately $6,500,000.00. The bidder

for PTF got stuck in traffic that

morning in his commute from San Francisco and arrived min-

utes after the sheriff ’s gavel fell. Because there was no one else

at the sale, Palmbaum bid only $2,000.000 for the property

and the sheriff ’s deed of sale was delivered to Palmbaum. PTF

filed an action to set aside the sale and recorded a lis pendens.

Palmbaum, the successful bidder, made a motion for summary

judgment which was granted. Thereafter, Palmbaum made a

motion to expunge the lis pendens which was also granted. PTF

then filed a petition for writ of mandate. The Amalgamated

case was decided on the petition for writ of mandate.

In order to reach its’ conclusion, the Amalgamated court traced

the history of lis pendens law in California. Before 1992, a lis

pendens was very easy to record and very difficult to remove.

Under former California Code of Civil Procedure Section

409.1, as long as a lis pendens was filed for a proper purpose

and in good faith , the trial court could not remove it until the

litigation was finally terminated against the party filing the lis

pendens, Malcolm v. Superior (1981) 29 Cal.3d 518, 523-524.

The pre-1992 law was ripe for abuse. A lis pendens could be

recorded against property and used as a bludgeon to force the

property owner to settle a case since the property could not be

sold or financed without the lis pendens being removed, and

the lis pendens could not be removed until the lawsuit was

finally adjudicated.

The lis pendens law was substantially revised in 1992. The

old good faith and proper pur-

pose standard of section 409.1 was

removed in favor of section 405.32,

which says In proceedings under

this chapter, the court shall order

that the notice be expunged if the

court finds that the claimant has

not established by a preponder-

ance of the evidence the probable

validity of the real property claim.

Section 405.3 defines probable validity as more likely than

not that the real property claimant will prevail against the

defendant in the action.

The Amalgamated Court had to decide the following novel

issue: By what standard should an appellate court decide

whether to issue a write of mandate relieving the losing real

property claimant from the effect of an expungement order

while his or her appeal is pending? The legislature in the 1992

amendment only addressed the standard of proof when faced

with an expungement motion before trial. The Amalgamated

court found that it had to deny the motion unless the claimant

established the probable validity of the real property claim .

There is no shift of the burden of loss from the actual identity theft victim to a third party duped by the thief.

Harsh Facts Make Good LawBy Kirk Rimmer, Esq., Law Offi ces of Kirk S. Rimmer

13

United Trustees Association Summer 2008

Featured Article

The Amalgamated court ruled as follows: By enacting a signifi-

cant overhaul of lis pendens law, the Legislature has signaled its

intent that, unless a real property claim is likely to succeed in

court, a lis pendens should not remain in place while the litiga-

tion wends its way to final disposition. Applying the ‘probable

validity’ standard in the Court of Appeal as well as the trial

court best serves that goal. We therefore conclude that, in

deciding a writ petition under section 405.39 after judgment

and pending appeal, an appellate court must assess whether the

underlying real property claim has probable validity as that

term is used in section 405.3, i.e., whether it is more likely than

not the real property claim will prevail at the end of the appel-

late process... Where an unsuccessful real property claimant

appeals a judgment of the trial court and petitions for interim

mandamus review, we will conduct prima facie review of the

probable success of the underlying appeal.

As a side note, the Amalgamated court also reiterated the rule

that a sheriff ’s sale of real property pursuant to Code of Civil

Procedure Section 701.680 is absolute and may not be set aside

for any reason

Kirk Rimmer, a longtime UTA member, is an

attorney in Sacramento emphasizing real prop-

erty and foreclosure litigation. He is currently

general counsel to several foreclosure trustee com-

panies. He can be reached via telephone at (916)

930-9661 or vial email at [email protected].

Spring 2007 United Trustees Association

Featured Article

14

Summer 2008 United Trustees Association

It is a well-known fact that in times of economic downturn,

like today, there is a dramatic increase in the number of

residential foreclosures. Only the number of lawsuits that

sprout alongside these foreclosures rivals this surge. For bet-

ter or for worse, trustees often find themselves caught in the

middle of these disputes.

Foreclosure trustees are usually named for three reasons. First,

because there are claims for injunctive or declaratory relief, and

the trustee is considered a necessary party. Second, because the

Plaintiff is motivated by the deep

pocket factor (but has no genuine

basis for stating a claim against

the trustee): the more corporate

defendants, the greater the chance

of receiving a favorable settlement.

Third, because there are specific

allegations of wrongdoing or omis-

sions against the trustee.

Under the first two scenarios, the best course of action is the

option afforded by Civil Code Section 2924l. This section

enables the trustee to file a declaration of nonmonetary status,

indicating that it has no interest in the outcome of the case, and

believes that it was named in the action solely because of its role

as trustee and not because of any wrongful acts or omissions. 1

By doing so, the trustee can avoid all litigation expenses from

the onset of the lawsuit. While there is no statutory equivalent

to Civil Code Section 2924l in federal courts, most bankruptcy

and district court judges are receptive to stipulations that allow

the trustee to remain in the sidelines in exchange for an agree-

ment to be bound by nonmonetary judgments.

By contrast, the third situation is more problematic. If a trustee

is required to appear and defend itself, the question becomes,

whether a trustee can recover its attorneys fees against the

plaintiff if it ultimately prevails in the action. The answer to

that question rests in the application of a set for rules pertain-

ing to the enforcement of attorney fee provisions in contracts.

Generally speaking, several California opinions have held in

dicta that foreclosure trustees can recover their attorneys’ fees

if they prevail in an action for wrongful foreclosure.2 These

opinions tend to place foreclosure

trustees in the same category as

beneficiaries for purposes of recov-

ering attorneys’ fees. However,

whether a trustee will prevail on a

motion for fees is far from being

clear cut: a trustee’s chance of pre-

vailing will depend on a variety

of factors, including 1) whether the action is one based on

contract 2) whether at least one of the parties could be held

liable for attorneys fees under the fee provision 3) whether the

attorneys fee provision of the deed of trust is sufficiently broad

to encompass the claims raised in the action, and 4) whether

the trustee is deemed to be the prevailing party.

Under California law, attorneys fees must be permitted either

by contract, or by statute. Although there is no California stat-

ute that provides for the recovery of attorney fees in a wrongful

foreclosure setting, Civil Code Section 1717 provides that the

prevailing party in an action on a contract, is entitled to their

attorneys’ fees. Therefore, the threshold question is whether

the action is one on the contract. Fortunately, since wrongful

foreclosure actions typically relate to the parties’ duties and

Can a Trustee Recover Attorney’s Fees and Costs Incurred in Defending Against a Wrongful Foreclosure Claim?By T. Robert Finlay, Esq., Wright, Finlay & Zak, LLP and Sonia A. Plesset, Esq., Wright,

Finlay & Zak, LLP

The answer [to the headline question] is – it depends.

15

United Trustees Association Summer 2008

Featured Article

obligations under the Deed of Trust, they are often “based on

contract”, and fulfill that aspect of Civil Code Section 1717.

The next factor to consider is whether there is an attorney fee

provision in the Deed of Trust and its breadth. It is important

to note that whether or not to grant a fee motion rests within

the court’s discretion. Because of this, some judges look for

ways to spare borrowers who have already gone through the

hardship of losing their home, from the added burden of an

attorney fee judgment. These judges will look for a way “out”

by focusing on the attorneys’ fee provision, and in doing so

declare that the attorneys’ fee provision is not broad enough to

encompass the type of claims presented.

Another wildcard that contributes to mixed results under

Civil Code Section 1717 is the question of who may invoke the

attorneys’ fee provision. While trustors and beneficiaries are

parties to note and deed of trust, and may readily be subjected

to their terms, the same cannot be said of trustees. Trustees

are never signatories, and more often than not, are not even

the trustees originally named in the loan documents. This begs

the question of whether trustees are even parties to the con-

tract. Some courts have held that they are3, while others have

held otherwise.4 However, other cases have suggested that the

question is not whether the party is a signatory, or even a party

to the contract, but whether the opposing party would recover

its attorneys fees if it were the prevailing party.5 For instance,

at least one court has held that the nonassuming grantees of

the borrower could recover fees under the deed of trust.6 The

court’s reasoning related back to the reciprocity provision of

CC 1717. The court reasoned that if the nonassuming grantee

wanted to reinstate or payoff the obligation in order to redeem

the property, he would have to pay the beneficiary’s advances

under the deed of trust, including attorneys fees. In other

words, the grantees were negatively impacted by the attorneys’

fee/corporate advance provision of the deed of trust. The court

further reasoned that if they could be negatively impacted by

that provision, reciprocity under 1717 entitled them to its ben-

efits as well.7

Based on the foregoing, one can argue that irrespective of

whether the trustee is a party to the contract, its rights and

duties are governed by its terms. The trustee’s duties do not

exist in a vacuum: the trustee’s conduct is dictated at least

in part, by the provisions of the deed of trust. Accordingly, it

appears that the better question is not whether the trustee is a

party to the contract, but whether the action seeks to enforce

various provisions of the deed of trust. More often than not,

the answer is yes.

Another key element considered by the courts in reviewing a

motion for attorneys’ fees, is whether the moving party can

be declared the “prevailing party.” If plaintiff voluntarily dis-

misses the action before a final adjudication, the general rule

is that attorneys fees are not recoverable.8 In most instances,

the trustee is the prevailing party if it wins the action through

a demurrer for which no amendment is permitted, through a

motion for summary judgment, or at trial. In these cases, not

declaring the winning party the “prevailing party” constitutes

abuse of discretion. 9 However, in cases that are not as clear

cuts, courts use their equitable power to make the ultimate

decision. In those instances, one of the factors utilized by

courts is the extent to which the party seeking to be declared

the prevailing party has met its litigation objectives.10

In sum, whether or not a trustee will prevail on a motion for

attorneys’ fees will depend on the parties, the scope of the

provision, and the circumstances of the case. However, before

embarking on a fee motion, there are some practical consid-

erations that include cost effectiveness and collectability. One

must consider the Plaintiff ’s solvency and the time and cost

that will have to be expended in collecting on the judgment. On

the other hand, if the Plaintiff is likely to file an appeal, a size-

able attorney fee awards can present a good bargaining chip to

prevent the filing of the appeal or to obtain an early dismissal.

Because of the uniqueness of each situation, it is advisable for

trustees to discuss with their attorney the likelihood that they

will recover their attorneys’ fees, prior to diving deep into liti-

gation with the borrower.

1 CC 2924l(a). It has been suggested that if a court fi nds that a trustee ap-peared or defended an action unnecessarily, it may be grounds for the court to deny the trustee the right to recovery attorneys’ fees. See, Bern-hard, Mortgage and Deed of Trust Practice, Section 8:83, citing Field v. Acres (1937) 9 Cal. 2d. 110.

Continued on page 60

Spring 2007 United Trustees Association

Featured Article

16

Summer 2008 United Trustees Association

Nonjudicial foreclosure does indeed exist in New York

– although it is not surprising that the fact is not

so widely known. The immediate reason is that the

procedure has no application to residential properties, which

obviously diminishes it utility. But when it is available it has

meaning. The procedure began in 1998 and has been extended

a number of times, the latest until July 1, 2009.

First, a historical footnote: non-judicial foreclosure was a part

of New York statutory law dating back before the great depres-

sion. For a number of reasons, though – due process concerns

and the reluctance of title companies to insure the titles chief

among them – the power was almost never used.

Meanwhile, New York attorneys well recognized that non-

judicial or power of sale meth-

ods employed in almost half the

states in the nation was far more

efficient than the judicial version

in the Empire State where actions

consuming years are not unheard

of. The genesis of what became

the new Article 14 of the Real

Property Actions and Proceedings

Law was the effort of a New York State Bar Association task

force intending to shortcut the time-consuming judicial fore-

closure process generally in New York State. Although large

commercial foreclosures in particular tended perhaps to suffer

unduly from protracted delays, there was no intention to con-

fine the prospective streamlined statute to commercial cases

and exclude residential properties. When the bar association

draft went through the legislative process, however, residential

properties were excluded as subjects for non-judicial foreclo-

sure. Although the statute is not labeled as applying essentially

to non-residential properties, such is its actuality. The statute

carefully considered the infirmities of the old and intended to

address them so that an efficacious, practical result could be

achieved. Although its non-judicial approach clearly provides a

faster method of foreclosure – to the extent the statute applies

at all – it still has a number of judicial aspects. For example,

among others, court authority must be sought when the

United States holds a junior interest to be extinguished, when

a receiver is desired, and to pursue either surplus monies or a

deficiency judgment.

The procedures of Article 14 for power of sale foreclosure are

available for a mortgage upon real property in the state so long

as the mortgage contains a power of sale provision, which is

defined as a provision that upon a mortgage default or a default

upon a note, bond or other obligation secured thereby, the

mortgagee has the right to sell the mortgaged property. Having

met those preliminaries, the mortgage is entitled to be fore-

closed in the matter prescribed for a nonjudicial proceeding for

foreclosure by power of sale pursuant to Article 14.

Four prerequisites, however, must

be fulfilled. These are technical but

would typically be taken care of

(such as the need to record the

mortgage) so need not be reviewed

here. Awareness that this needs to

be considered should suffice

Exception to Power of Sale Foreclosure

Exceptions to the availability of power of sale foreclosure

essentially confine it to residential buildings of more than five

units outside of New York City, although the foreclosure would

have to leave leases intact, and commercial premises anywhere

in the state. The procedure is not available for a mortgage on

real property improved solely by:

• A residential building of less than six dwelling units; and

• A residential condominium unit in a residential building

owned in condominium form of ownership; and

• A residential building owned by a qualified cooperative

apartment corporation; and

Nonjudicial Foreclosure in New York – What’s the Story?By Bruce J. Bergman, Esq, Berkman, Henoch, Peterson & Peddy, P.C.

Nonjudicial foreclosure does indeed exist in New York – although it is not surprising

that the fact is not so widely known.

17

United Trustees Association Summer 2008

Featured Article

• A building in which the number of units occupied by resi-

dential tenants equals or is greater than sixty-five percent

of the total number of units in the building located in a city

with a population of one million or more, which means

New York City.

Power of sale foreclosure is likewise unavailable for a mortgage

on property containing residential apartment units where the

foreclosure would seek or would result in foreclosure, termina-

tion, modification or impairment of a tenants’ interest in any

lease for a residential unit in the mortgaged property or of the

tenant’s possessory rights pursuant thereto.

Impediments – When the Borrower Can Opt Out

Even for the narrow category of instances where power of

sale foreclosure remains available, there is an ability on the

borrower’s part to either opt out or challenge imposition of the

procedures. These opt-outs apply separately to mortgages in

existence prior to the effective date of the statute and those in

existence subsequent to the effective date of the statute.

Mortgages Predating

If the mortgage to be foreclosed – or the extension, amend-

ment, modification or consolidation thereof – was executed

prior to the effective date of the statute, then the borrower may

require that further foreclosure proceedings be conducted judi-

cially. The borrower accomplishes this by written notice to the

mortgagee delivered by registered or certified mail, or by such

other method as may be specified in the mortgage, with certain

time requirements and with minimal content essentials.

Mortgages Subsequent to

If the mortgage to be foreclosed non-judicially was executed

after 1998, then the borrower can apply for an order directing

that further proceedings be conducted judicially and for a tem-

porary restraining order staying further proceedings pending

hearing of the application. The borrower must then support

the application with facts of one or more of the following alle-

gations:

• That the mortgage does not contain a power of sale clause

or some other provision permitting foreclosure in a non-

judicial manner; and/or

• That the mortgage obligation is invalid or not otherwise

due; and/or

• That the mortgagor is not in default under the mortgage

or otherwise has a meritorious defense to the foreclosure;

and/or

• That the mortgagee has not complied with the terms and

conditions of Article 14; and/or

• That under the facts and circumstances presented, undue

hardship to the mortgagor would result from allowing the

foreclosure to proceed non-judicially.

Should the application be granted, the foreclosure must then

proceed judicially unless the court subsequently orders other-

wise. Should the application be denied, then the sale pursuant

to Article 14 may proceed non-judicially.

Problems for Mortgagees with Opt-Out Provision

One of the problems with judicial foreclosure in New York that

prompted exploration of revivifying non-judicial foreclosure

was the time necessary to complete a mortgage foreclosure

action. Although much of the time consumed in a judicial

foreclosure involves achieving the various plateaus, congested

court calendars (particularly downstate) are a major compo-

nent of burdensome durations. The provisos of the power of

sale procedure greatly reduce the time, primarily be eliminat-

ing the need to invoke court involvement. (In some instances,

engagement of the court becomes necessary.)

Opting out of the post-July, 1998 mortgage may not be auto-

matic, but the legislature was generous in excavating an escape

route – or at least, a time killer. Aside from the need for a

power of sale provision in the mortgage, the next four grounds

to argue against the abbreviated course open the door to con-

tention and mischief.

Continued on page 62

Spring 2007 United Trustees Association

Featured Article

18

Summer 2008 United Trustees Association

Because of the current economic climate and the

mortgage industry meltdown which are preventing

Borrowers from refinancing their Mortgage Loans,

Borrowers are turning to litigation attorneys to file lawsuits

for monetary damages against Mortgage Brokers, Mortgage

Lenders and Mortgage Servicers alleging federal and state

statutory and regulatory violations ranging from unfair and

deceptive trade practices to fraud.

We are also seeing a substantial

increase in the number of litigation

matters filed or claims brought

against Mortgage Lenders and

Mortgage Servicers alleging vio-

lations of the federal Truth-in-

Lending Act (15 USC Section 1601

et seq.) (“TILA”). These lawsuits

allege violations ranging from inac-

curate Finance Charge calculations to failure to provide two

accurately-completed copies of the Notices of Right to Cancel

that the originating Mortgage Lender is required to provide to

each Borrower and any other person who has an interest in the

Secured Property.1

The penalties for violations of TILA can be severe. If the litiga-

tion is brought within one year after the closing date and the

Borrower can demonstrate that there are errors in the calcula-

tion of the Finance Charge, APR, Payment Schedule, Total of

Payments or the Amount Financed (collectively, the “Material

Disclosures”)2 in the TILA Federal Box Disclosure Statement

that exceed the applicable tolerances,3 the Borrower would be

entitled to statutory damages of $2,000.00, actual damages and

attorneys’ fees and costs.4

If the litigation is brought more than one year after the

Mortgage Loan closing but there are violations in the Material

Disclosures that exceed the applicable tolerance and the

Mortgage Loan is secured by a mortgage or deed of trust on

owner-occupied residential property, actual damages and

statutory damages would be barred by the one-year statute of

limitations.5 i Nonetheless, the Borrower would have a claim

against the Mortgage Lender and Mortgage Servicer for rescis-

sion under Section 125 of TILA (15 USC Section 1635). 6

In addition to violations of the

Material Disclosures in the TILA

Federal Box Disclosure Statement

beyond the applicable tolerances,

there is another basis on which

a Borrower would be entitled to

rescind their owner-occupied

refinance Mortgage Loan under

Section 125 of TILA. That basis

would arise in the event that the

closing or settlement agent fails to give each Borrower and any

other person who has an interest in the Secured Property two

accurately-completed Notices of Right to Cancel.7

The failure of the Mortgage Lender to advise the closing or

settlement agent of the requirement that the settlement agent

must provide two accurately-completed copies of the Notice of

Right to Cancel to each Borrower and persons with an interest,

or the failure of the settlement agent to provide the accurately-

completed copies of the Notice to each Borrower and person

with an interest, are the primary reasons for rescission claims

under TILA.

Please note that the right of rescission under Section 125 of

TILA extends for a period of three years after the date of clos-

ing as opposed to the one year for statutory and actual dam-

ages.8

It is necessary for Escrow and Title companies to train their employees

and notaries to provide accurate TILA disclosures to Borrowers in order to avoid lawsuits for indemnity.

Rescission Under TILA: What This Means for Trustees, Escrow Officers, Title Companies and ServicersBy T. Robert Finlay, Esq., Wright, Finlay & Zak, LLP and Julie L. Greenfi eld, Esq.,

Wright, Finlay & Zak, LLP

19

United Trustees Association Summer 2008

Featured Article

What Happens in a Rescission?

A validly tendered rescission can be an extraordinary wind-

fall for the Borrower. In order to exercise the right of rescis-

sion, the Borrower must tender back to the Mortgage Lender

or Mortgage Servicer the original principal balance of the

Mortgage Loan minus all fees and prepaid interest paid at the

closing, plus any interest and fees paid to the Mortgage Lender

or Mortgage Servicer during the term of the Mortgage Loan

(the “Rescission Amount.”).

For example, if Borrower has a $500,000 Mortgage Loan, has

paid $15,000 in fees and costs at the closing and has paid

$25,000 in interest each year for two years, the Borrower

would be required to give back to the Mortgage Lender or

Mortgage Servicer in a TILA rescission the sum of $435,000.00,

which is the Rescission Amount. By paying back only the

Rescission Amount, the Borrower has just received a windfall

of $65,000.00.

How Is a Rescission under TILA Tendered?

In order to exercise the right of rescission, the Borrower must

tender or request a rescission via written correspondence sent

by the Borrower to the original Mortgage Lender and/or cur-

rent Mortgage Loan Servicer stating that they want to rescind

the Mortgage Loan under TILA. The correspondence should

provide the Borrower’s name, address and loan number. The

Borrower is not required to tell the Mortgage Lender or

Mortgage Servicer the reasons why they are rescinding, but

most will if asked.

What Should the Mortgage Lender or Mortgage

Servicer Do When Rescission is Tendered to Them?

When a Mortgage Lender or Mortgage Servicer receives a

Notice of Right to Cancel or a written communication from

the Borrower stating that the Borrower is exercising his or

her right to rescind the Mortgage Loan under TILA and the

Borrower’s tender of rescission is a valid one, the TILA statute

and Regulation Z literally provide that the Mortgage Lender

is required to release or reconvey its security interest in the

Secured Property within 20 days of receipt of the tender.9

This language has been in the federal statute since 1969 and has

never been amended by Congress. However, because literally

following the statute could enable an underhanded Borrower to

fleece a Mortgage Lender of the entire amount of the Mortgage

Loan by filing a Chapter 7 Bankruptcy petition to wipe out

all unsecured claims after the Mortgage Lender releases the

security interest, the majority of federal Courts have followed

an equitable theory to govern TILA Rescissions: the Mortgage

Lender or Mortgage Servicer is not required to release or

reconvey the security interest in the Secured Property unless

and until the Borrower first tenders the Rescission Amount.10

However, if the Mortgage Lender or Mortgage Servicer does not

respond to the Borrower’s tender of rescission within 20 days

of receipt, the Mortgage Lender or Mortgage Servicer could be

liable to the Borrower for statutory damages of $2,000.00 for

failing to honor the tender of rescission. Upon receipt of a ten-

der of rescission, the Mortgage Lender or Mortgage Servicer

should record the date on which the tender was received and

should promptly forward the tender to its in-house or outside

counsel to handle going forward.

What If the Tender of Rescission is Sent to

the Trustee, Escrow or Title Company?

There may be occasions in which the Borrower may send a

tender of rescission to a Trustee on their Deed of Trust, the

title company or the Escrow Company or Settlement Agent in

connection with the Mortgage Loan transaction because they

do not know where to send it.

The only entities liable to a Borrower for a rescission under

TILA Section 125 are the Mortgage Lender and assignee of the

original Mortgage Lender. The Borrower cannot sue a Trustee,

Escrow Company or Settlement Agent, or title company for

damages and rescission under TILA. However, it is incumbent

upon the Trustee, Escrow Company or Settlement Agent, and

title company which receives a written tender of rescission

from the Borrower to promptly forward it to the Mortgage

Servicer. Although a tender of rescission sent to someone

other than the Mortgage Lender or Mortgage Servicer may not

be a valid tender, nonetheless, the tender should be directed

promptly to the Mortgage Lender or Mortgage Servicer so that

Continued on page 63

Spring 2007 United Trustees Association

Featured Article

20

Summer 2008 United Trustees Association

…if a loan modification is considered by a lender, a careful analysis of

the applicable state law should be made so as not to lose priority.”

Loss Mitigation and Protecting Lien SuperiorityBy Samuel S. High, Esq., Wilson & Associates

Loss Mitigation serves as a useful tool for lenders and

servicers, which can allow certain borrowers to avoid

foreclosure, affording both parties with the opportunity

of long term success. Often, loss mitigation takes the form of

loan modification. Loan modification agreements are an effec-

tive way of coming to terms acceptable to both parties involved

in the transaction; however, these agreements can come with

certain risks.

Loan modification can take many different forms, including

those which add additional loan provisions, adjust the interest

rate, extend the date of maturity, or increase the loan amount.

One must be cautious of potential problems that may occur

due to the existence of subordinate liens. In concert with the

elements of a loan modification

agreement, subordinate liens may

create priority issues that should

be examined and resolved prior to

entering into any new agreement.

Of course, prior to any modifi-

cation, one should obtain a title

search. If there are any liens on

the property, then the law of each

applicable state should be thor-

oughly examined. Different states have different standards of

when a lien may lose its priority. Some states look to whether

the agreement results in what could be deemed “new money”,

as in that which would substantially alter the character of the

original loan. Some states focus on whether subordinate lien

holders are prejudiced and their security interest is negatively

affected. Some changes that benefit the borrower, such as a

reduction in interest rate, do not impair the subordinate lien

holder and therefore would not be an issue. However, some

courts have taken a much broader position as what changes,

absent consent of subordinate lien holders, cause priority to

be lost.

In 1942, the Arkansas Supreme Court discussed the question of

whether a mortgage loses its priority if the mortgagee allows a

renewal mortgage. The Court in Tell v. Harnden, 204 Ark. 103,

161 S.W. 2d 1 (1942), found that priority is not affected when

the debt is the same and the collateral is not released from the

lien. Tell discussed a theory akin to equitable subrogation, as it

relates to the restoration of priority, noting factors such as good

faith and the absence of culpable negligence.

In a later Arkansas case, Peoples Bank of Imboden v. Burgess,

57 Ark.App. 68, 942 S.W.2d 264 (1997), the Arkansas Court

of Appeals held that a bank lost priority, despite its intent not

to do so, after it entered into an “extension agreement” which

reduced the interest rate and quarterly payments of an original

note and mortgage. In that case,

the amount of the loan equaled

the unpaid balances of three previ-

ous loans, and the bank provided

receipts reflecting payment of the

indebtedness on two of the loans. In

affirming the lower court’s decision

that the bank had released its first

lien, the Court of Appeals empha-

sized several factors, including the

fact that new funds were used to

pay off other loans, the interest rate was modified, and there

were different parties to the transaction. In its decision, the

Court pointed out without further explanation that the bank

could have taken steps to protect its status.

Cases such as First Fidelity Bank, N.A., N.J. v. Bock, 279

N.J.Super. 172, 652 A.2d 262 (1994) illustrate the affect of state

statutes on these scenarios. In First Fidelity Bank, the Superior

Court of New Jersey looked to a statute under which a mort-

gage that has undergone modification relates back to the origi-

nal mortgage for priority purposes. See N.J.S.A. 46:9-8.2. The

Court held that the issuance of subsequent promissory notes

21

United Trustees Association Summer 2008

Featured Article

coupled with the satisfaction of the original note, constituted

loan modification. Id. The Court noted that no “new money”

was advanced, and that while the subsequent notes extended

maturity dates and amended loan terms, the mortgagee and

mortgagor never intended to release the mortgage, nor was it

released on record. Id.

The Restatement Third of the Law of Property, Mortgages, §

7.3(b) provides that if a senior mortgage (or the underlying obli-

gation) is modified, the mortgage as modified retains priority

as against junior interests in the real estate, except to the extent

that the modification is materially prejudicial to the holders of

such interests and is not within the scope of a reservation of

right to modify. Looking at this general rule, as well as in the

examples cited above, it is clear that if a loan modification is

considered by a lender, a careful analysis of the applicable state

law should be made so as not to lose priority.

In sum, lenders and servicers should explore all available

options with their local counsel in order to avoid unintended

consequences associated with the loss mitigation process.

Sammy High is an attorney in the Litigation

Department of Wilson & Associates. He received

his education from the University of Central

Arkansas (BS 1998) and the William H. Bowen

School of Law (JD 2001). He was admitted to the

Bar of the State of Arkansas in 2001, and he is

licensed to practice before the 8th Circuit. His primary areas of

practice are foreclosure law and mortgage banking litigation. He

can be contacted via [email protected].

Spring 2007 United Trustees Association

Featured Article

22

Summer 2008 United Trustees Association

In Washington Mutual Bank v. Blechman, 157 Cal.

App.4th 662 (Cal.App.2d Dist. 2007), property owned

by Robert A. Blechman (“Blechman”) was sold at a

trustee’s sale by Washington

Mutual Bank (“WAMU”) and its

trustee, California Reconveyance

Company (“CRC”) to Gladmac, Inc.

(“Gladmac”). Blechman filed suit

against all other parties seeking to

set aside the trustee’s sale. Facing

demurrers from WAMU and CRC,

Blechman dismissed WAMU and CRC. Blechman proceeded

against Gladmac and obtained a default judgment, which

declared that the trustee’s sale was null and void and that

Gladmac had the right to recover its purchase price from the

sellers.

WAMU and CRC then filed a separate lawsuit to establish that

the trustee’s sale was valid and that neither had any liability to

anyone for the completed trustee sale. Gladmac cross com-

plained alleging that it had good, clear, marketable title to the

property.

The action proceeded to trial with the court finding that

WAMU and CRC were indispensable parties to the prior

action and that the default judgment entered in the original

action was not only ineffective against them, but subject to

collateral attack. In addition, the court confirmed that the sale

to Gladmac was valid.

Blechman appealed. On appeal the court ruled that “[i]t takes

little analysis or discussion to conclude that WAMU and

CRC were indispensable parties to the prior action.” Id at 668.

Blechman did not dispute this finding but rather focused on

an argument that such a ruling does not affect Gladmac as

Gladmac cannot overturn the judgment previously entered

against them that ruled that the sale was invalid. The court of

appeal summarized this position as “ludicrous” as a trustee’s

sale cannot be valid as to one party

and invalid as to another party.

As Blechman failed to join all the

necessary parties in the previous

litigation, the judgment obtained

therein was essentially illusory and

had no effect on the remaining

parties.

Matthew Podmenik, Esq., is an ssociate at McCarthy & Holthus,

LLP and primarily represents loan servicing entities, lenders,

and trustees in lender-borrower litigation. He can be contacted

via email at [email protected].

…a trustee’s sale cannot be valid as to one party and invalid as to another party.

The Beneficiary and Trustee of a Deed of Trust Were Necessary Parties to Litigation Seeking to Invalidate a Trustee SaleBy Matthew Podmenik, Esq., McCarthy & Holthus, LLP

Want the Latest

Industry News?

Visit

www.unitedtrustees.com

and click on “Industry NewsClips!”

23

Spring 2007 United Trustees AssociationFall 2007 United Trustees AssociationSpring 2007 United Trustees Association

State News

Summer 2008 United Trustees Association

24

Like litigation, real estate deals, or nonjudicial foreclo-

sures for that matter, the world of legislation moves

from a series of deadlines to deadlines. For the California

legislature, the 2008 legislative year is entering the final three

months, and a host of bills affecting mortgages and foreclo-

sures are hanging in the balance. Policymakers are determined

to do something about subprime mortgages and the rise in

defaults and foreclosures, and we will soon have a view of the

endgame.

The most far-reaching bill in this

area, and probably the one most

likely to be enacted, is SB 1137

(Perata). Various real estate groups,

including UTA, worked for months

on the language of the bill, which

has as its centerpiece a requirement

that lenders make diligent attempts

to contact borrowers prior to

recording notices of default. UTA

worked to make sure that the trustee role in the foreclosure pro-

cess was more accurately reflected in the bill, and that duties do

not fall to trustees that more properly belong to others. With

all organized real estate opposition to the bill removed, SB 1137

passed the Senate on a narrow, largely party-line vote of 28-10,

with Democrats in support and Republicans opposed.

Moving over to the Assembly, SB 1137 received another party-

line vote in the Banking and Finance Committee, and will

move to the Assembly floor for a vote in the next few weeks.

At the same time, however, a series of mortgage bills are mov-

ing over to the Senate from the Assembly, where their fate

is uncertain. In other words, the various bills must not only

navigate the waters between Democrats and Republicans, but

also between the Senate and Assembly. Beyond that, Governor

Schwarzenegger will have the ultimate say in signing or vetoing

bills which reach his desk. So, even though the legislative year

is quite far along in California, the outcome in the mortgage

and default arena is highly uncertain.

At this point, what is known is this: SB 1137 proposes to

add a requirement to contact borrowers on owner-occupied

residential mortgages at least 30 days prior to NOD. Special

transition rules will apply to NODs already of record when

the bill becomes effective. The contact obligation will become

operative 60 days after the effective date of the bill. Additional

provisions of the bill require posting and mailing notices to

potential tenants, who will be provided with a uniform 60 days

after the trustees sale before evic-

tion. The bill also imposes a state

requirement on owners to maintain

properties after foreclosure, with

very significant penalties for non-

compliance.

While the Assembly will be acting

on SB 1137, the Senate will con-

sider a number of bills relating to

mortgage products and servicing. AB 1830 (Lieu), for example,

would create extensive new limitations on nontraditional,

subprime, and high-cost mortgages. The bill addresses issues

such as prepayment penalties, balloon payments, yield spread

premiums, ability to repay, and others. Another bill, AB 2359

(Jones), would eliminate holder in due course protections for

high-cost mortgages, and yet another, AB 2740 (Brownley),

would enact very extensive new Civil Code provisions on loan

servicing.

While the real estate community in general has “gone neu-

tral” on SB 1137, most groups remain strongly opposed to

the Assembly bills mentioned above. The contention is that

the availability of mortgage capital in California will be very

significantly disadvantaged if these bills become law. But the

leadership in the Assembly is just as strong in pushing for these

changes as Senator Perata is in advocating for SB 1137.

California: Endgame for Mortgage BillsBy Michael Belote, Esq., California Advocates

The most far-reaching bill … and probably the one most likely

to be enacted, is SB 1137.

United Trustees Association Fall 2007United Trustees Association Summer 2008

State News

25

Finally, making the whole situation a real Rubik’s Cube is the

overlay of potential changes at the federal level to Regulation

Z. If various bills are enacted in California, and Reg Z changes

become effective, lenders and servicers will have to figure out

which changes apply to whom.

With SB 1137 looming, UTA is poised to report promptly to

members when and if the bill becomes operative. Stay tuned!

Michael Belote has represented the United

Trustees Association for over twenty-five years

before the California legislature and state regu-

lators. Mike’s activities in the legislative process

have spanned a broad array of issues, including

financial services, real estate, health care, and

the judiciary and local government. He can be emailed at mbe-

[email protected].

HOA Foreclosure Bill Intro-duced Again in California

State Senate

California State Senator Denise Ducheny (D-San Diego)

has introduced legislation in the California State Senate,

SB 1511, that would:

• Provide super priority for HOA assessment over the fore-

closing lender for a period of 180 days prior to the sale

and would discourage lenders from loaning on common

interest developments and from participating in workout

agreement with homeowners. Lenders opposition is sure

to be strong on this bill as it could represent a huge loss of

income on properties subject to HOA dues.

• The requirement that beneficiary or trustee’s send the

HOA the name and mailing address of the successor may

be difficult or impossible with respect to third party pur-

chasers.

“This is yet another service the trustee has to perform with-

out compensation,” said Phil Adleson, Esq., UTA’s Corporate

Counsel. “In essence, this bill would make it difficult or impos-

sible for HOAs to collect HOA dues from homeowners who

enjoy the benefits of the HOA and then shift the burden of

preforeclosure HOA dues to the lender. This would exacerbate

the credit shortage and make it more difficult for consumers to

obtain purchase money or refinance loans secured by CIDs.”

UTA is working with the sponsor on acceptable language. The

bill has been referred to the Judiciary Committee.

Initial California Foreclosure Report Bill Will Not Be

Pursued: Similar Legislation May Be Introduced

Although Senator Ellen Corbett (D-San Leandro) has

decided not to pursue SB 1375, legislation that would

have provided for the use of some form of foreclosure

report instead of a TSG, it is possible that similar legislation

may be introduced again this session. SB 1375 would have per-

mitted reimbursement of costs of a title search product as an

alternative to a trustee’s sale guarantee.

SB 1375 would have provided: “as an alternative to the fee for

a trustee’s sale guarantee, [the trustee may charge] the costs of

a title and court records search” (New Product). The bill was

introduced by Senators Corbett, Midgen and Perata purport-

edly to “reduce the costs associated with the reinstatement of a

mortgage for California homeowners facing foreclosure.”

“A trustee would have been put into the position of taking risks

dictated as cost savings by the beneficiary instead of the assur-

ance of a TSG,” said Ron Roup, UTA’s Legislative Committee

Chair

Some of the concerns UTA noted, that were raised by the leg-

islation were:

Continued on page 64

Spring 2007 United Trustees AssociationFall 2007 United Trustees AssociationSpring 2007 United Trustees Association

State News

Summer 2008 United Trustees Association

26

Effective June 12, 2008, Washington Substitute Senate

Bill 5378 amended Washington’s Deed of Trust Act

(RCW 61.24.005 et seq.) as follows:

• SSB 5378, Section 1, amends RCW 61.24.010 to add two

new subsections:

o Subsection (3) legislatively reverses Cox v. Helenius,

a landmark Washington Supreme Court decision in

which the court ruled that a foreclosure trustee in

Washington owes limited fi duciary duties to the bor-

rower as well as the lender. Th e new subsection pro-

vides that a trustee “shall have no fi duciary duty or

fi duciary obligation to the grantor or other person

having an interest in the property subject to the deed

of trust.”

o Subsection (4) muddies the waters by imposing a new

duty upon the trustee. Th e trustee will be required to

“act impartially between the borrower, grantor and

benefi ciary.” Th ere is no guidance in the amendment

or in the legislative history concerning what conduct

or omission might be deemed to breach this duty.

Eff ect: Given the ambiguity, this amendment should

not materially change how trustees deal with or make

concessions to borrowers.

• SSB 5378, Section 2, amends RCW 61.24.030 as follows:

RCW 61.24.030(6) requires a trustee to “maintain” (instead

of merely to “have”) a “street address in this state where

personal service may be made” and, raising the ante for

out-of-state trustees, “the trustee must maintain a physical

presence and have telephone service at such address”;

Effect: This amendment will affect trustees without an

actual office in Washington.

• SSB 5378, Section 3, amends RCW 61.24.0040(2), pertain-

ing to the form of the Notice of Foreclosure, to add the

following language:

o Immediately following the itemized fi nancial informa-

tion, the following new paragraph is inserted:

To pay off the entire obligation secured by your Deed

of Trust as of the ______ day of _____, 20__, you must

pay a total of $______ in principal, $______ in interest,

plus other costs and advances estimated to date in the

amount of $______. From and after the date of this no-

tice you must submit a written request to the Trustee

to obtain the total amount to pay off the entire obli-

gation secured by your Deed of Trust as of the payoff

date.

o In the paragraph that begins “You may reinstate your

Deed of Trust”, the amendment inserts “or to pay off

the entire indebtedness” in the fourth sentence be-

tween “reinstate” and “may”. Also in that fourth sen-

tence, the amendment inserts “or the payoff amount”

between “reinstatement” and “so”.

o In the same paragraph, after the fi fth sentence (ending

in “OTHER DEFAULTS AS OUTLINED ABOVE”),

the amendment inserts the following new sentence:

“Th e Trustee will respond to any written request

for current payoff or reinstatement amounts within

ten days of receipt of your written request”.

Effect: These changes affect the form of Notice of

Foreclosure the trustee must send (with a new payoff

statement requirement in the notice), the time a trustee

has to “respond” to a reinstatement or payoff quote (ten

days) and the method by which a reinstatement or payoff

quote request is communicated (writing). Concerning the

ten days to “respond” to a reinstatement or payoff request,

it is not at all clear whether the response may simply be

“we’re working on it” or whether an actual quote must

New Duties for Trustees in new Washington LawBy David Fennell, Esq., Routh Crabtree Olsen, PS

United Trustees Association Fall 2007United Trustees Association Summer 2008

State News

27

be provided. As with most of these changes, too, the

consequences of non-compliance are not at all clear (i.e.

damages claim, suspension of interest accrual, rendering

foreclosure invalid?).

New, Expensive Postponement

Notice Requirements

• SSB 5378, Section 3, also amends RCW 61.24.040(6), relat-

ing to postponements, as follows:

o In the fi rst sentence of subsection RCW 61.24.040(6),

“has no obligation to, but” is inserted between “trust-

ee” and “may”.

o Creates a new subsection (a) creating additional notice

requirements for postponements as follows:

(a) a public proclamation at the time and place

fi xed for sale in the notice of sale and if the contin-

uance is beyond the date of sale, by giving notice

of the new time and place of the sale by both fi rst

class and either certifi ed or registered mail, re-

turn receipt requested, to the persons specifi ed in

RCW 61.24.040(1)(b)(1) and (ii) to be deposited in

the mail (i) not less than four days before the new

date fi xed for the sale if the sale is continued for up

to seven days; or (ii) not more than three days after

the date of the continuance by oral proclamation if

the sale is continued for more than seven days;

Eff ect: For trustees, this is the most burdensome aspect of SB

5378. For servicers, it is the most expensive. Coupled with the

abrogation of the fi duciary duty standard, excusing the trustee

from any obligation to postpone a sale is a helpful litigation de-

fense. Having to mail the notice of postponement to the bor-

rower, the grantor and all junior lienholders, however, is an ad-

ditional, burdensome step made all the more risky by requiring

the trustee to mail the postponement notice no later than the

Monday following the sale. Without timely mailing of the no-

tice, the postponement is arguably invalid and, therefore, the

foreclosure cannot be further sustained. Th e trustee will in-

cur signifi cant additional expense in making sure its vendor

fully complies with this new postponement notice require-

ment. Servicers should expect to see much higher postpone-

ment costs in Washington.

• SSB 5378, Subsection 4, amends RCW 61.24.045 to clean

up the suggested form of request for notice of trustee’s sale

by removing suggested dates in the 1900’s and inserting

suggested dates in the 2000’s.

Effect: This has no effect on trustees as trustees do not prepare

requests for notice. This is purely a statutory housecleaning

matter.

• SSB 5378, Subsection 5, amends RCW 61.24.130(1) to

insert “legal or equitable” in the first sentence between

“proper” and “ground”. It also amends RCW 61.24.130 by

adding a subsection (6), which provides that “(6) The issu-

ance of a restraining order or injunction shall not prohibit

the trustee from continuing the sale as provided in RCW

61.24.040(6).

Effect: These changes relate to the right to pursue issuance

of a restraining order to enjoin a trustee’s sale and the right

of a trustee to postpone a sale that has been enjoined. The

change to (1) likely will be of little import to trustees and

only marginally more important to borrowers and lenders.

The addition of (6) is rather silly because a trustee already

seemingly has the ability to postpone the trustee’s sale dur-

ing the pendency of a restraining order pursuant to RCW

61.24.130(5).

• SSB 5378, Subsection 6, amends RCW 61.24.135 by insert-

ing the following new sentence immediately after the first

sentence:

Th e trustee may decline to complete a sale or deliver the

trustee’s deed and refund the purchase price, if it appears

that the bidding has been collusive or defective, or that the

sale might have been void.

Eff ect: Th is change should be treated by the trustee as sug-

gesting, albeit ambiguously, that a trustee may refuse to issue a

trustee’s deed if there are possible problems with a sale. Unfor-

tunately, the legislature has not exactly defi ned what constitutes

Continued on page 68

Spring 2007 United Trustees AssociationFall 2007 United Trustees AssociationSpring 2007 United Trustees Association

State News

Summer 2008 United Trustees Association

28

Utah: Legislative Enactments in Impacting Real EstateBy Stuart T. Matheson, Esq., Matheson, Mortenson, Olsen & Jeppson, P.C.

There were a number of laws enacted during the 2008

General Session of the Utah Legislature which impact

real property, either directly or indirectly. The follow-

ing is a summary of some I thought relevant to our industry.

(HB = House Bill; SB = Senate Bill; all statutory references are

to the Utah Code Annotated, (1953), as amended, unless oth-

erwise noted.)

HB 48: Mobile Home Owners’ Rights. Amends §57-16-6

and enacts §57-16-18. Provides that in circumstances of

a change of land use or condemnation, nine (9) months

advance notice must be provided to tenants, during which

period the rents cannot be increased. The nine month

notice provision does not apply in cases of condemnation.

If a person who is not a resident of the park at the time of

the initial notice becomes a tenant, a landlord shall provide

notice to the prospective tenant of the proposed land use

change before the tenant occupies the space. Finally, no

municipality may enact any ordinances which govern the

closure of mobile home parks.

HB 56: Assumption of Indebtedness on Residential

Real Property. Amends §7-7-44 and repeals §57-15-

1, Legislative findings; §57-15-2, Provision for accelera-

tion or increased interest on assumption unenforceable

– Exception; §57-15-3, Substantial impairment of lender’s

prospect of prompt and full payment; §57-15-4, Charge

assessed by secured party for assumption – Limitation;

§57-15-5, Property subject to chapter; §57-15-6, Exempt

lenders; §57-15-7, Calling entire balance on impairment of

security; §57-15-8, Procedure for assumption -- Request to

lender -- Effect of failure to request -- Approval or refusal

by lender -- Information furnished by lender; §57-15-8.5,

Acceleration or maturing an indebtedness – Conditions

authorizing -- Exemption of loans sold to federal agen-

cies; §57-15-9, Liability for damages caused by viola-

tion; §57-15-10, Severability of provisions; and §57-15-11,

1.

2.

Limitation on enforcement of due-on-sale clauses.

HB 128: Utah Residential Mortgage Practices Act

Amendments. Amends §61-2c-102 and -103. This

bill modifies definitions; provides that a principal lend-

ing manager may act as a mortgage officer; requires the

Division of Real Estate to make rules providing a combined

licensing process related to a principal lending manager

maintaining a license as an entity if certain conditions are

met; and makes technical and conforming amendments.

HB 346: Division of Real Estate Related Amendments.

Amends §61-2-5.5; §61-2-13; §61-2-20; §61-2-21; §61-

2b-2; §61-2b-6; §61-2b-8; §61-2b-18; §61-2b-21; §61-2b-

22; §61-2b-24; §61-2b-25; §61-2b-26; §61-2b-27; §61-2b-

28; §61-2b-29; §61-2b-30.5; §61-2b-31; §61-2b-33; §61-

2c-202; §61-2c-206; §61-2c-403; §61-2c-502; and enacts

§61-2c-405. This bill addresses rulemaking by the Real

Estate Commission; addresses fines that may be imposed;

addresses firms; addresses disciplinary actions that may

be imposed under provisions related to real estate bro-

kers and agents, the Real Estate Appraiser Licensing and

Certification Act, and the Utah Residential Mortgage

Practices Act; provides for registration of trainees under

the Real Estate Appraiser Licensing and Certification Act;

addresses terminology for experts under the Real Estate

Appraiser Licensing and Certification Act; modifies crimi-

nal penalties under the Real Estate Appraiser Licensing

and Certification Act and the Utah Residential Mortgage

Practices Act; addresses the hours required of prelicens-

ing education for mortgage licensing including providing

for rulemaking; removes grandfathering language related

to principal lending manager; provides for deposit of cer-

tain fees into the Residential Mortgage Loan Education,

Research, and Recovery Fund; and makes technical and

conforming amendments.

3.

4.

United Trustees Association Fall 2007United Trustees Association Summer 2008

State News

29

HB 486: Wrongful Liens and Wrongful Judgment Liens.

Amends §38-9-1; §38-9-2; §38-9-4; and §38-9a-201. This

bill includes a notice of interest and other encumbrances

within the definition of “wrongful lien”; addresses the

impact of various wrongful lien provisions on a notice of

interest and other encumbrance; increases the statutory

amount that may be recovered by a person against whom

a wrongful lien is recorded. It increases the statutory dam-

ages for refusal to release a wrongful lien from $1,000.00

to $3,000.00 or actual damages and increases the statutory

damages for a false and groundless lien from $3,000.00 to

$10,000.00; and makes technical changes.

SB 27: Trustees Sale – Process for Excess Proceeds.

Amends §57-1-29. This bill lengthens the period of time

during which a person may contest another person’s claim

against the excess proceeds from a trustee’s sale of real

property from 20 days to 45 days; and makes technical

changes.

SB 92: Real Property Recording Amendments. Amends

§17-21-1; §17-21-12; §57-1-5; §57-1-5.1; §57-3-105; §57-

3-106; §72-5-309. This bill addresses policies and proce-

dures established by a county recorder; requires a county

recorder to endorse a document upon acceptance, instead

of upon receipt thereby modifying the prior first in time

rule, creating a first accepted priority; addresses a tenancy

by the entirety clarifying that such an estate is a joint ten-

ancy; requires an affidavit concerning a terminated inter-

est in real property due to death to be accompanied by a

government-issued document certifying the death; forbids

certain documents from being presented for recording

; allows the governor or governor’s designee to record a

notice of acknowledgment of an R.S. 2477 right-of-way,

with supporting documentation; and makes technical

changes. [NOTE: this bill was opposed by lawyers, the

title insurance industry and the financial industry. It

significantly impacts lenders, purchasers, title insur-

ance companies, and real property lawyers.]

SB 114: Notary Public Revision. Amends §46-1-7. This

bill allows an attorney to notarize a document when the

attorney is named in the document if the attorney is only

named as representing a signer or another person named

in the document; and makes technical changes.

5.

6.

7.

8.

SB 134: Mortgage Fraud Act. Amends §61-2-21; §61-2b-

33; §76-10-1602; and enacts §61-2c-405; §67-5-26; §76-

6-1201 to -1204. This bill establishes penalties for certain

conduct governed by the Real Estate Appraiser Licensing

and Certification Act and the Utah Residential Mortgage

Practices Act; requires the attorney general to hire a mort-

gage fraud prosecutor; enacts the Mortgage Fraud Act,

including: creating the crime of mortgage fraud; estab-

lishing penalties; and providing definitions; and includes

mortgage fraud as an illegal activity under the Pattern of

Illegal Activity Act.

Mr. Matheson is a co-founder and current presi-

dent of the law firm of Matheson, Mortensen,

Olsen & Jeppson, where he practices in the areas

of lender representation, creditors’ rights and real

property law. He earned his B.A. degree from the

University of Utah (History) and his J.D. degree

from Brigham Young University, J. Reuben Clark Law School,

charter class. Mr. Matheson has served as trustee and officer on

various non-profit boards, organizations, and committees,

including the New Lawyer Continuing Legal Education

Committee for the Utah State Bar, of which he has been a mem-

ber since 1976. He has published nationally, and is a frequent

presenter at CLE seminars related to real property, foreclosure,

creditors’ rights and bankruptcy. Representative clients include

several of the nation’s largest lenders as well as regional and

local financial institutions. He can be reached via email at

[email protected].

9.

Spring 2007 United Trustees AssociationFall 2007 United Trustees AssociationSpring 2007 United Trustees Association

State News

Summer 2008 United Trustees Association

30

Massachusetts: New -Day Right to Reinstate Notice Required for Massachusetts Residential Foreclosures Effecive May By Patricia Antonelli, Esq., and Charles A. Lovell, Esq., Patridge Snow & Hahn, LLP

The new Massachusetts Chapter 206 of the Acts of 2007

“An Act Protecting and Preserving Homeownership”

makes changes to a number current Massachusetts

laws which affect foreclosure practice and post-foreclosure

accounting, post-foreclosure evictions, loan origination, loan

modification, and mortgage lender/broker loan officer licens-

ing. The effective date for the foreclosure provisions is May 1,

2008, while the other provisions have varying effective dates. A

summary of the changes to Massachusetts foreclosure practice

follows.

90-day Right of Reinstatement to Cure Monetary Default

Before Acceleration

• Amends Massachusetts General Laws, Chapter 244, §35A

and applies to residential mortgage loans in default,

encumbering borrower-occupied, 1 to 4-family homes

accelerated after May 1, 2008;

• Borrower is entitled to a one-time, 90-day right to cure a

monetary default before the loan can be accelerated, and

borrower allowed such right one time in 5 years;

• The burden is on the mortgage holder or servicer to deter-

mine if borrower is occupying the home; do not rely upon

the occupancy status of the property when the loan origi-

nated;

• The DOB and the Massachusetts Attorney General’s Office

vow to strictly enforce the 90-day right to reinstate;

• An undecided issue remains regarding whether or not a

borrower is entitled to a 90-day right to reinstate when

the loan was a business-purpose loan, which included a

personal guaranty secured by a mortgage on a residential

property. According to Chapter 244, §35A, the borrower in

the example is entitled to a 90-day right to reinstate (even

though the loan was a business-purpose or commercial

loan);

• The 90-day notice must be mailed (“served”) by first class

mail to the last known address of borrower or mortgagor

and, during the 90-day cure period, mortgage holders and

servicers are prohibited from commencing foreclosure,

from charging or collecting any attorneys’ fees or other

costs of collection except late fees or per diem interest. A

DOB representative has stated that mortgage holders and

servicers can pay taxes, insurance, and other municipal

charges during the 90 days, although this is not clear in the

statute;

• An unresolved issue currently being considered by DOB is

whether the legal fees and costs incurred during the 90-day

period for entering into a loan modification agreement or

a deed-in-lieu of foreclosure, may be charged to the bor-

rower or mortgagor.

The 90-Day Letter Must Include:

• A description of the default and amount needed to cure;

the actual date by which the borrower or mortgagor must

cure (90 days after service of the notice) and consequences

if borrower or mortgagor fails to reinstate (acceleration);

• The name, address and local or toll free phone number for

a person to whom payment must be made and the name,

address and local or toll free phone number for the person

in the department to whom disputes about the arrearage

or default should be addressed. This requirement raises a

potential problem for the privacy and safety of the “per-

sons” who are named. The industry wants to substitute

“collection manager” or a like title for a “person’s” name

(the DOB and industry representatives are studying this

issue);

• The name of any current or former mortgage broker who

was involved in the loan and, after July 1, 2008, the name

United Trustees Association Fall 2007United Trustees Association Summer 2008

State News

31

of any loan originator who was involved in the loan;

• A statement that the mortgagor or borrower may be eli-

gible for assistance from MassHousing and the DOB, and

the toll free or local phone numbers of those agencies.

Mortgage holders and servicers may want to include HUD

counseling information and VA information.

Additional Requirements:

• An affidavit certifying compliance with Chapter 244,

§35A and a copy of the 90-day letter must be filed with

Land Court complaint. The affidavit must be signed by

an individual at the mortgage holder or servicer attesting

to the mailing of the 90-day letter. A representative of the

DOB suggests that the affidavit be signed by a mailroom

employee or other employee with personal knowledge of

the mailing of the 90-day letter;

• The Massachusetts Land Court has alerted foreclosure

attorneys that, in the event a foreclosure complaint is not

accompanied by the required affidavit and 90-day letter, it

will require a statement explaining why no 90-day letter

accompanies the complaint (e.g., the loan was a business

purpose loan; the property is more than 4 units; the bor-

rower does not live there; the borrower already received

one 90-day right to reinstate within a 5-year period and is

not entitled to another one). As of this writing, it is uncer-

tain as to whether the Land Court will refuse to accept for

filing complaints that do not include this information;

• Chapter 244, §35A requires that within 5 business days of

filing a foreclosure complaint in the Land Court (referred

to by the DOB in the attached FAQ’s as a “petition under

the Soldiers’ and Sailors’ Civil Relief Act), a copy of the 90-

day letter be filed with the DOB. The DOB has stated it

will not accept any papers in connection with this require-

ment by facsimile, by mail or in person. Instead, to comply

with the DOB filing requirement, the information must

be input electronically in an on-line database which the

DOB is currently developing. The DOB’s representative

stated that only foreclosures that are actually commenced

by filing in Land Court are to be input into the database;

the database is not set up for input on every 90-day letter

sent;

• The DOB hopes to have the database up and running

by May 1, 2008 (go to www.mass.gov/dob); however, of

concern to the industry is the DOB’s statement that the

password used to create the record (when the first filing is

input) will be the only password that will later be able to

access the record in the database to input the foreclosure

sale results (also required by the new law). Thus, it is cru-

cial that the party who made the initial input of informa-

tion into the DOB database either be the same party or that

the initial password utilized is readily available to the party

who must input additional information when the foreclo-

sure is complete;

• Mortgage holders and servicers may continue to expect

inquiries from the DOB requesting a 60-day stay of fore-

closure upon inquiry from a borrower, and

• The Governor, the DOB, the Attorney General, legislators,

and consumer advocates believe that mortgage holders

and servicers have an absolute obligation to reach out to

borrowers during the 90-day period to explore loan modi-

fications, forebearance agreements, loan restructuring,

refinancing and other avenues to avoid foreclosure and

loss of property.

Accounting for Disposition of Proceeds:

• Mass. Gen. Laws Chapter 183 §27 is amended to provide

that the mortgage holder or “representative of the mort-

gage holder” (could be a servicer or foreclosure attorney)

must, within 60 days of receipt of the proceeds from a

foreclosure, provide an itemized written accounting to the

mortgagor or borrower mailed to his last known address

setting forth an accounting of the sales proceeds. The

accounting must include sales price, legal fees, auctioneer

fees, publication fees, “other fees” and amount of surplus,

if any. This provision was effective November 29, 2007.

• In addition to providing an accounting to the mortgagor

or borrower, the mortgage holder or servicer is required

to notify the DOB, in writing, of the date of the foreclo-

sure sale and the purchase price at the foreclosure sale. As

stated earlier, the DOB will not accept any facsimiles, mail

or in person delivery of the written documentation that is

required by the new law. The sole means of compliance will

be for mortgage holders and servicers (or their represen-

tatives) to input the required information into the DOB’s

database – recall the concern that the first password that

created the record when the foreclosure was commenced

Continued on page 66

Spring 2007 United Trustees AssociationFall 2007 United Trustees AssociationSpring 2007 United Trustees Association

State News

Summer 2008 United Trustees Association

32

The 2007-2008 session of the Colorado legislature was

pretty tame as it related to real estate matters. Although

the escalating number of foreclosures is certainly on the

minds of all it is believed that the major reform in 2007 is being

given time to swing into full force and therefore, the bills for-

warded addressing these were few. We have taken a survey of

what we believe to be the highlights of the session’s legislation

and provided a brief overview below.

HB - Track Residential Well Ownership

After January 1, 2009, when a buyer of residential real estate

enters into a purchase transferring a well, the buyer shall com-

plete a change in ownership form for the well which will then

be recorded in the Public Records under the Division of Water

Resources. A person then acting as a settlement agent in such a

transaction shall be obligated to within sixty days after closing,

submit this form to the Division with as much information as

is available, and the Division shall be responsible for obtaining

additional well registration information directly from the buyer

as necessary.

HB - Joint Tenancy in Real Property

This amendment to the statute clarifies the treatment of

property held in joint tenancy, acknowledging the doctrine of

the four unities of Time, Title, Interest and Possession. This

amendment also acknowledges that Joint Tenancy, without

further agreement and disclosure at the time of conveyance,

conveys an equal property interest among the joint tenants.

HB- Foreclosure of Lien on Time Share Estate

This bill creates more efficient method for a Plaintiff to act

on foreclosure of multiple time shares where those time share

units are similarly situated. A Plaintiff may commence a single

judicial foreclosure action against multiple obligors with

separate time share estates and the junior lienors thereto, if

the judicial foreclosure action involves a single common inter-

est community; the declaration giving rise to the right of the

association to collect assessments creates default and remedy

obligations that are substantially the same for each obligor;

the action is limited to a claim for judicial foreclosure; and

there is not an allegation with respect to any obligor, that the

association’s lien is prior to any security interest. Following the

issuance of any order, the individual time share estates will be

subject to individual foreclosure sales and the plaintiff bringing

such actions will be deemed to have waived any claims against

a defendant for a deficiency remaining after the foreclosure

of the lien for assessment and for attorney fees related to the

foreclosure action.

HB- Notice Foreclosure Temporary Timeout

This bill affects all foreclosures filed after August 1st 2008. The

first portion of this bill requires lenders or servicers, where

the default is a failure to make payments, to at least thirty

days before filing a foreclosure and at least thirty days after

default, to mail a notice addressed to the debtor at the address

shown on its records, containing the telephone number of the

Colorado Foreclosure Hotline and the direct telephone number

of the holder’s loss mitigation or home retention department.

The second portion of this bill creates a state fund through June

of 2010 to support local housing authorities, public nonprofit

corporations, or private nonprofit corporations for the sole

purpose of providing outreach and notice of foreclosure pre-

vention assistance to persons in danger of foreclosure and to

communities with high foreclosure rates.

Robert J. Hopp is the Managing Partner of Robert

J. Hopp & Associates, based in Denver, Colorado.

Throughout his practice, he has served businesses

and individuals in both real estate transactional

and litigation matters focusing on real estate,

entity structure, formation, mergers and acquisi-

tions. He can be reached via email at r.hopp@hopplawfirm.

com.

Colorado Legislative UpdateBy Robert J. Hopp, Esq., Robert J. Hopp & Associates

33

Spring 2007 United Trustees AssociationFall 2007 United Trustees AssociationSpring 2007 United Trustees Association

State News

Summer 2008 United Trustees Association

34

Michigan: Pending Legislation and Bankruptcy Rule Changes

It has been a relatively slow year in Michigan with regard to

legislation that affects lenders and mortgagees. However,

there have been some amendments to the recording stat-

utes that have become law. Specifically, the acts require that

any instrument sent for recording with the register of deeds

have the first five digits of a mortgagor’s social security number

removed. This would include mortgages, assignments, deeds

and affidavits. (See: 2007 PA 53, amending MCL 565.491 et

seq.; 2007 PA 54, amending MCL 565.451; 2007PA 55, amend-

ing MCL 565.581; and 2007 PA 56, amending MCL 565.201 et

seq).

However, there is pending legislation before the Michigan leg-

islature that lenders should be keeping an eye on. HB 5340, in-

troduced October 2007, would eff ectively put a moratorium on

foreclosures in Michigan. Specifi cally, the bill would prohibit

a mortgagee from accelerating the debt if less than 18 months

have passed since the fi rst default. Since the debt could not be

accelerated during the fi rst 18 months, the default could only

include actual installments that had not been paid.

Th is bill is still in the legislature and there has been little move-

ment on it at this time.

Amendments to the Eastern District of Michigan’s Local

Bankruptcy Rules took eff ect on May 5, 2008. Mortgage lend-

ers may wish to note the following changes.

2015-5 Creditors have 30 days from the date of the Trustee’s

fi nal report to object to the report. Most mortgage claims

continue beyond the life of the plan however, this is an impor-

tant deadline to note if a defi ciency claim has not been paid.

3001-2 Payment adjustments must be fi led with the court and

must be served on the trustee and debtor’s counsel 45 days pri-

or to a payment change. Debtor then has 21 days to object to

such change. Th is rule primarily pertains to changes in mort-

gage payments due to interest rate and escrow adjustments.

3003-1 Proof of claims are due within 90 days of the fi rst 341

hearing.

9013-5 A statement of corporate ownership must be fi led in

any contested matter where a corporation is a party. Th is is a

statement which must be fi led when a motion is fi led on behalf

of a corporation. A motion for relief is considered a “contested

matter”. Th e statement identifi es any corporation that directly

or indirectly owns 10% or more of any class of the corporation’s

equity interests.

9014-1 A moving party must seek concurrence of opposing

counsel before a motion is fi led and the motion shall affi rma-

tively state that such concurrence was requested on a specifi ed

date. Furthermore, if a response is fi led, a motion may only

be withdrawn upon stipulation of the moving and responding

parties.

Information provided by Rose

Marie Brook, Esq. and Jonathan

Engman, Esq., Fabrizio & Brook.

They can be contacted at

[email protected] and

[email protected],

respectively.

35

Spring 2007 United Trustees AssociationFall 2007 United Trustees AssociationSpring 2007 United Trustees Association

State News

Summer 2008 United Trustees Association

36

Proposed Legislative Changes in IllinoisBy Jill D. Rein, Esq., Pierce & Associates

The current economic and political climates have brought

about a slew of proposed additions/changes in legisla-

tion in Illinois affecting the mortgage servicing indus-

try. Following are summaries of a few of the proposed changes

that will have an effect on the servicing industry if ultimately

passed. These proposed bills, with the exception of the City

of Chicago Vacant Building Ordinance, can be viewed in their

entirety by going to www.ilga.gov.

HB – Amends the Illinois

Mortgage Foreclosure Statute

Current Status – On 5/23/08 the House extended the Final

Action Deadline to May 31, 2008. We anticipate that this bill

will pass as is.

Summary of Changes:

Requires that a Homeowner Notice be attached to each

summons. The Notice must be in English and Spanish and

the exact form of the notice is set forth in the amended

statute. The Notice advises defendants of their rights in

relation to the following areas:

Possession

Ownership

Reinstatement

Redemption

Surplus

Workout Options

Payoff Amount

Get Advice

Lawyer

Proceed With Caution

2. Requires the mortgagee provide a payoff demand state-

ment within 10 business days of receipt of a written

request by the mortgagor. The payoff must include figures

good through 30 days or until the date of the judicial sale,

whichever is shorter, and must include estimated charges.

1.

a.

b.

c.

d.

e.

f.

g.

h.

i.

j.

Failure to deliver the required payoff statement within 10

business days may subject the mortgagee to actual dam-

ages or $500 if no actual damages are sustained.

3. Allows the court to award reasonable attorney’s fees and

costs to a defendant who prevails in a motion, an affirma-

tive defense or a counterclaim in the foreclosure action.

SB – Homeowner Protection Act

Current Status – On May 21, 2008 the House Consumer

Protection Committee had debate on this and ultimately the

sponsor withdrew the bill (because the votes were not there);

however on May 23, 2008 the House extended the final Action

Deadline to May 31, 2008. We do not anticipate this bill will

pass.

Summary: This is a new bill that creates the Homeowner

Protection Act. The bill addresses new notice and reporting

requirements:

Notice Requirements

1. A servicer send a notice advising the borrower that he or

she may with to seek approved credit counseling after a

loan becomes 30 days delinquent.

2. The notice gives the borrower a 30 day grace period to

seed counseling during which time the servicer can take

no legal action

3. If during the 30 day grace period an approved counseling

agency contacts the servicer and advises the borrower is

seeking counseling shall not institute legal action within 30

days of that notice.

4. The borrower or counselor is then to offer a debt manage-

ment plan to the servicer. If the plan is accepted, and com-

plied with, no legal action can be taken. If the plan is not

accepted or not complied with legal action can be taken at

that time.

United Trustees Association Fall 2007United Trustees Association Summer 2008

State News

37

Reporting Requirements

1. Requires the servicer to submit to the Secretary of Financial

and Professional Regulation on the 20th business day of

every other month information about loans they are ser-

vicing for the proceeding two months that includes:

Number of loans being serviced

Numbers of loans being serviced that are in default

Information on loss mitigation activities including:

i. Number of loan refinanced into more affordable

of fixed loans

ii. Number of loans for which borrower had sought

housing or credit counseling

iii. Number of workouts entered into by the servicer

iv. Proactive steps taken by the servicer to identify

borrowers at a heightened risk of default

d. Number of foreclosure actions commenced

e. Any other information the Secretary may deem neces-

sary, including geographic information

2. This section would be repealed on December 31, 2010

SB – Amends the Illinois Code of

Civil Procedure to Grant Tenants

involved in Foreclosure Proceedings

Additional Possessory Rights

Current Status – On 5/23/08 the House extended the Final

Action Deadline to May 31, 2008.

Summary: Where a tenant is timely on their rent, or timely

written notice of to whom and where a tenant should pay their

rent has not been provided to the tenant or where the tenant

has made a good faith effort to make rental payment the fol-

lowing must happen:

Any order of possession must allow the tenant to retain

possession for 120 days following notice of a supplemen-

tal petition for possession or through the duration of the

lease, whichever is shorter – or –

No forcible detainer action may be filed until 90 days after

a notice of intent to file the action has been served on the

tenant.

a.

b.

c.

1.

2.

City of Chicago Vacant Building Ordinance

Current Status: Changes in Ordinance still being debated

– This is a City of Chicago Ordinance not an Ordinance that

will effect other cities in the state of Illinois

Summary: The changes would involve:

Increase in registration fees for vacant buildings from an

annual fee of $100 to a fee of $250 for the first 6 months

of vacancy with a stepped up increase of $250 for each six

month period thereafter

Mandatory interior and exterior inspections

An increase in the original fine of a minimum of $200 to a

maximum of $1000 a day to a minimum of $500 a day

A definition of both interior and exterior maintenance

standards

Interior – no junk, debris, sound floors, roofs, walls,

stairs, no leaking pipes, deadbolts on exits doors, pest

free

Exterior – all exits must have lighting from dusk to

dawn

5. Plywood allowed to cover open doors/windows only

allowed for 6 month, then steel panels or theft prevention

system required.

Jill D. Rein is a shareholder and a Managing

Attorney of the Foreclosure Department at Pierce

and Associates, PC. Jill concentrates her practice

in all areas of foreclosure, default servicing and

related litigation. She is a graduate of IIT-Chicago

Kent College of Law and was admitted to the

State of Illinois and Federal bars in 1990. Jill is a member of the

Chicago Bar Association, the Illinois Mortgage Bankers

Association, the MBA, USFN and AFN. Jill conducts numerous

in-house training seminars for clients and is a regular panelist

at client attorney summits on topics related to Foreclosure,

Property Preservation, Evictions and Building Violations. She

can be emailed at [email protected].

1.

2.

3.

4.

a.

b.

Spring 2007 United Trustees AssociationFall 2007 United Trustees AssociationSpring 2007 United Trustees Association

State News

Summer 2008 United Trustees Association

38

HB 3630 which added new procedural and practi-

cal requirements for trustees handling nonjudicial

foreclosures in Oregon was signed into law by the

Governor on March 11th. The Spring Issue of UTA Quarterly

contained an article written by David Fennell, Esq., Routh

Crabtree, Olsen that provided details on the bill, which

became effective June 9th. Notices must be used from and

after that date. The contact information, provided to UTA from

David Fennell, is printed below:

OAR --

Contents of Foreclosure Notices

The sender of a notice form required by 2008 Or Laws, ch. 19, §

20 must enter in the form and format adopted by this rule:

The statewide telephone contact number for handling

consumer queries as 800-SAFENET (800-723-3638)

The telephone number of the Oregon State Bar’s Lawyer

Referral Service as 503-684-3763;

The Oregon State Bar’s Lawyer Referral Service toll-free

number as 800-452-7636;

The website address of the Oregon State Bar as http://

www.osbar.org;

The website address for the organization providing more

information and a directory of legal aid programs as

http://www.oregonlawhelp.org.

Stat. Auth.: 2008 Or Laws, ch. 19, § 20

Stat. Implemented: 2008 Or Laws, ch. 19, § 20

Hist.: New.

OAR --

Contents of Foreclosure Notices

The sender of a notice form required by 2008 Or Laws, ch. 19, §

20 must enter in the form and format adopted by this rule:

1.

2.

3.

4.

5.

The statewide telephone contact number for handling

consumer queries as 800-SAFENET (800-723-3638)

The telephone number of the Oregon State Bar’s Lawyer

Referral Service as 503-684-3763;

The Oregon State Bar’s Lawyer Referral Service toll-free

number as 800-452-7636;

The website address of the Oregon State Bar as http://

www.osbar.org;

The website address for the organization providing more

information and a directory of legal aid programs as

http://www.oregonlawhelp.org.

Stat. Auth.: 2008 Or Laws, ch. 19, § 20

Stat. Implemented: 2008 Or Laws, ch. 19, § 20

Hist.: New.

OAR --

Contents of Foreclosure Notices

The sender of a notice form required by 2008 Or Laws, ch. 19, §

20 must enter in the form and format adopted by this rule:

The statewide telephone contact number for handling

consumer queries as 800-SAFENET (800-723-3638)

The telephone number of the Oregon State Bar’s Lawyer

Referral Service as 503-684-3763;

The Oregon State Bar’s Lawyer Referral Service toll-free

number as 800-452-7636;

The website address of the Oregon State Bar as http://

www.osbar.org;

The website address for the organization providing more

information and a directory of legal aid programs as

http://www.oregonlawhelp.org.

1.

2.

3.

4.

5.

1.

2.

3.

4.

5.

Oregon Implements New Procedural Requirements for Trustees

United Trustees Association Fall 2007United Trustees Association Summer 2008

State News

39

Stat. Auth.: 2008 Or Laws, ch. 19, § 20

Stat. Implemented: 2008 Or Laws, ch. 19, § 20

Hist.: New.

OAR --

Contents of Foreclosure Notices

The sender of a notice form required by 2008 Or Laws, ch. 19, §

20 must enter in the form and format adopted by this rule:

The statewide telephone contact number for handling con-

sumer queries as 800-SAFENET (800-723-3638)

The telephone number of the Oregon State Bar’s Lawyer

Referral Service as 503-684-3763;

The Oregon State Bar’s Lawyer Referral Service toll-free

1.

2.

3.

number as 800-452-7636;

The website address of the Oregon State Bar as http://

www.osbar.org;

The website address for the organization providing more

information and a directory of legal aid programs as

http://www.oregonlawhelp.org.

Stat. Auth.: 2008 Or Laws, ch. 19, § 20

Stat. Implemented: 2008 Or Laws, ch. 19, § 20

Hist.: New.

4.

5.

40

Summer 2008 United Trustees Association

State News

Idaho Amends Notice of Default Requirements: Senate Bill 1431, Effective date July 1st, 2008. This new law in Idaho will require trustees to provide a Notice of Default to all individuals who own an interest in the subject property. Additionally, the new law will require that the Notice of Default be accompanied by a notice that warns borrowers to be careful of persons who offer to “save” their homes from foreclosure.

Idaho Enacts the Uniform Power of Attorney Act: Senate Bill 1335, Effective date July 1st, 2008: This new law in Idaho repealed the laws regulating powers of attorney and enacted the Uniform Power of Attorney Act. — (Update provided by Buckley Kolar, LLP).

Washington Allows Electronic Recording of Documents: House Bill 2459, Effective date June 11th, 2008: This new law allows documents to be electronically recorded pursuant to the Uniform Real Property Electronic Recording Act.

Washington Enacts New Residential Mortgage Lending Laws, Makes Mortgage Fraud a Felony and Amends Notice of Default Requirements: House Bill 2770, Effective June 12, 2008. These new residential mortgage lending laws are applicable to all financial institutions. The term “financial institution” includes state-licensed mortgage lenders and brokers, as well as state-chartered banks and credit unions. Under the new law, financial institutions are prohibited from making a payment-option or hybrid ARM containing a prepayment penalty that will extend beyond the date occurring 60 days prior to the loan’s initial reset date.

The law also requires financial institutions to provide a disclosure summary of all material loan terms and prohibits nega-tive amortization on loans subject to the Guidance on Nontraditional Mortgage Product Risks and the Statement on sub prime Mortgage Lending. Licensed mortgage lenders and brokers are additionally prohibited from steering borrowers into loans with less favorable risk grades than the borrowers would otherwise qualify for under the lender’s current underwrit-ing guidelines. In addition, the bill makes mortgage fraud a felony and amends Washington’s non-judicial foreclosure law to require the inclusion of an additional statement on the notice of default. — (Reprinted with permission from Buckley Kolar, LLP).

Maryland Enacts Foreclosure, Mortgage Fraud Legislation: H.B. 361, enacted on April 3, 2008 provides protections to distressed homeowners. The law addresses the regulation of “foreclosure consultants and foreclosure rescue transac-tions.” The law also creates additional provisions regarding the sale or transfer of a “residence in default.” The other new law in Maryland, H.B. 360 enacts the Mortgage Fraud Protection Act, and criminalizes mortgage fraud.

Ralph Wutscher, Esq., of Roberts Wutscher provided UTA with a quick summary of the new Maryland legislation, from a more detailed summary written by Marjorie Corwin, Esq., of Gordon Feinblatt.The new Maryland laws among other things provide for:

Additional information to be included in residential mortgage loan security instruments;

Foreclosure waiting periods of 90-days after default and 45-days after sending the notice of intent to foreclose;

1.

2.

New State Laws

41

United Trustees Association Summer 2008

State News

Affecting Foreclosures

Mortgage fraud liability, applicable to lenders, borrowers and others involved in the settlement process; and

Eliminated and narrowed exemptions from the state “foreclosure rescue” statute for title insurers, title agents, real estate brokers and salespersons, mortgage brokers, mortgage lenders, and mortgage loan owners, other than banks and other insured depository institutions, and their subsidiaries and affiliates.

Minnesota Amends Foreclosure Law and Authorizes Electronic Document Recording: On April 25, Minnesota Governor Tim Pawlenty signed a bill (H.F. 3516) to amend Minnesota’s foreclosure law and authorize electronic record-ing of documents. The new law requires the name of the transaction agent, mortgage servicer, and mortgage originator to be recorded on the notice of pendency, notice of sale, and certificate of sale. The new law also creates a Statewide Foreclosure Data Collection group to study the most efficient and cost-effective way to develop and implement an elec-tronic filing system for foreclosure data. Lastly, the new law authorizes electronic recording and signing of documents in connection with any law that requires, as a condition for recording, respectively (i) that a document be an original, on paper, or another tangible medium, or in writing, or (ii) that a document be signed. The foreclosure notice requirements become effective August 1, 2008; the Statewide Foreclosure Data Collection group electronic filing study is effective immediately; and the authorization for electronic recording and signing of documents is effective July 1, 2008.

Minnesota Changes Redemption Period: Governor Tim Pawlenty recently signed H.F. No. 3474. affecting the Redemption Period in the State of Minnesota. — (Reprinted with permission from BuckleyKolar, LLP).

New York Assembly Passes Mortgage Foreclosure Legislation: On May 7, the New York State Assembly passed four bills that included financial assistance for borrowers facing foreclosure and a foreclosure moratorium. The legislation would (i) provide $25 million in temporary financial assistance to homeowners with sub-prime or unconventional mort-gages facing foreclosure, capped at an amount equal to three months of mortgage payments and provide legal services and counseling to assist certain homeowners in default or foreclosure, (ii) establish requirements on all home loans, including (A) establishing a lender’s responsibility to verify a borrower’s ability to repay loans and to verify income, (B) establishing an agency relationship between the mortgage broker and borrower, and (C) prohibiting practices such as balloon payments, negative amortization and prepayment penalties, (iii) allow a court to delay the actual order to transfer title when faced with the foreclosure of a sub-prime mortgage under specific conditions for no more than one year in order to allow the mortgagor to apply for relief, and (iv) require mortgage lenders and brokers to provide consumers with a bill of rights pamphlet that must be read and signed by the consumer prior to applying for a mortgage, enumerating all information that a prospective homeowner needs to know in order to make a decision about a home loan including how to file a complaint with the Banking Department or the Department of State. The bills have been sent to the state senate. (Reprinted with permission from BuckleyKolar, LLP) .

Virginia Legislation Places Additional Requirements on Servicers: VA SB 797 places additional requirements on servicers pertaining to foreclosure notification and forbearance.

3.

4.

42

Summer 2008 United Trustees Association

State News

New Hawaii Law Requires Mortgagee to be Represented by Attorney with Office in the State: On June 4th, Hawaii Governor Linda Lingle signed legislation (SB 2454) into law that would require the mortgagee to provide the party in breach of the mortgage agreement with the contact information, including the electronic address, of the mortgagee’s attorney who must be physically located and licensed in Hawaii; and ensure that the different non-judicial foreclosure processes include provisions for interested parties to receive sufficient notice and obtain information about the intent to foreclose, amounts to cure the mortgage default, fees and costs, and public sales of the mortgaged property.

More New State Laws Affecting Foreclosures

JUDGE C. DARNELL JONES

After a city council resolution

calling for a moratorium on

foreclosures, the Philadelphia

sheriff ’s office canceled an April auc-

tion of foreclosed homes. Now, at the

urging of a judge, mortgage companies

and consumer groups in Philadelphia

have begun discussions to make loans

more affordable

According to the Wall Street Journal,

under Judge C. Darnell Jones II of Court

of Common Pleas of Philadelphia, “a lender or its agent would

indicate on a foreclosure filing that the borrower lives in the

house. The court would then arrange for free counsel for the

homeowner and set up a conciliation hearing between lender

and borrower. The negotiations would ideally lead to modified

loan terms or some other arrangement that would keep bor-

rowers in their homes…The judge indicated that foreclosure

auctions would likely be suspended, at least through May, for

homeowners qualified for the negotiated settlement.” Michael

McKeever, an attorney representing lenders stated that lenders’

legal rights were not protected and disagreed with the sheriff ’s

decision.

Sheriff’s Decision to Cancel Auction Leads to Philadelphia Judge Urging New Loans

43

44

Featured Article

Spring 2007 United Trustees AssociationSummer 2008 United Trustees Association

XXXXXXXX —Continued from page 44

Spring 2007 United Trustees Association

Case Law

Summer 2008 United Trustees Association

Four Foreclosure Cases Worth ReviewBy Martin T. McGuinn, Esq., Kirby & McGuinn, APC

Bedik v. Stewart Title Guarantee Company

() WL (unpublished)

CASE SUMMARY

Stewart sought to recover from the seller of property

an overpayment of sales proceeds received as a result

of an incorrect lender’s payoff demand. The case has

important implications for lenders, escrow and title compa-

nies. The trouble started because an incorrect loan number

was provided by the seller for use by escrow in obtaining the

payoff demand. The lender, Financial Freedom, relying only on

the loan number, submitted a payoff demand. Stewart sent pay-

ment to Financial Freedom based upon a demand that showed

the wrong borrower, loan number and property address. Two

months later after receipt of the funds and escrow had been

long closed Financial Freedom demanded additional funds

required to pay off the correct loan. Stewart which insured the

buyer, paid Financial Freedom and sued the seller.

The Court of Appeal reversed the Summary Judgment in favor

of Stewart. It ruled under Civil Code section 2941(e) a benefi-

ciary is bound by its statement in response to a request for a

payoff demand after the close of escrow and a demand must

be issued within 21 days under Civil Code section 2943(a)(4).

The Court noted that even though Financial Freedom submit-

ted a wrong payoff demand on the wrong property it’s lien

against the correct property had been satisfied. Stewart’s deci-

sion to honor its obligation under the title policy by paying

off Financial Freedom made it a volunteer for whom equitable

recovery was not permitted, even on the basis of unjust enrich-

ment in the case.

The opinion clearly blames the lender for relying solely upon

the loan number rather than the name, address or Social

Security number of the borrower. In the Court’s analysis, it is

easy for someone requesting a loan payoff to make a one-digit

mistake on a loan number and harder to get the other data

wrong. The reasoning may be considered unrealistic given that

most major lenders have call-in 800 numbers generating pay-

off demands rather than relying strictly on written demands.

However it makes it clear that the risk of incorrect payoff infor-

mation will be shifted to the lender rather than to the former

owner. Note however, that the borrower does not always get off

scot free in these situations. The lender who did not receive the

correct loan payoff would be able to pursue the borrower even

on a purchase money deed of trust on an unsecured basis to

avoid unjust enrichment.

Cameron v. U.S. Bank

(2007) WL 1366085 ( unpublished)

CASE SUMMARY

Borrower filed an action against the bank to set aside a foreclo-

sure sale for breach of contract, fraud, and breach of statutory

duties, resulting in the first appeal in which the lender pre-

vailed. The Court of Appeal reversed the finding the notice of

default the lender used to be invalid and that the lender could

not foreclose based upon the notice of default. The notice of

default purported to be based on a tax deficiency but identified

the default as installments of principal, interest, accrued late

charges and/or impounds.

The case returned to the trial court and the trial court awarded

the lender $67,830.00 in attorneys’ fees and $4,286.00 in costs

pursuant to Civil Code section 1717 and the provisions of

Paragraph 7 of the deed in trust. The lender argued that Valley

Bible Center v. Western Title Ins. Company (1983) 138 Cal. App.

3d 931 supported the bank’s request for fees since it prevailed

on all the causes of actions except being able to proceed with its

foreclosure sale under the NOD it previously filed.

The Court of Appeal held it was an abuse of discretion to award

fees when the borrowers halted the foreclosure sale. Even

though the borrowers were not successful in litigating several

of their claims, they were successful in achieving their overall

objective by showing that the notice of default was invalid.

Under such circumstances the bank was not the prevailing

party and not entitled to an award of fees.

45

United Trustees Association Summer 2008

Featured Article

United Trustees Association Summer 2008

Case Law

Why This Case Is Important To Trustees And Lenders

This case points out that winning most claims asserted by

the borrower and being able to record a new notice of default

does not equate to a victory such that a lender may be entitled

to add its attorney’s fees and costs to a second foreclosure. In

this case, the lender will forego $70,000.00 which incurred in

attorney’s fees defending a lawsuit plus the cost of the second

appeal which it will not recover from the borrowers. If primar-

ily tort claims are litigated under standard FHLMC/FNMA

loan documents, do not count on fees being awarded to you

for a successful defense of the litigation.

Circle Star Center Associates, LP v. Liberate Technologies

(2007) 147 Cal.App.4th 1203

CASE SUMMARY ATTORNEYS’ FEES

Plaintiff ’s landlord leased commercial space to the tenant.

When Liberate went into default and the parties could not

reach a resolution, Circle Star’s attorney wrote to Liberate and

copied the lender on the building about Liberate’s conduct. Th e

tenant, Circle Star, contended that the statements in the let-

ter were defamatory and six months later Liberate moved out

and fi led a Chapter 11 petition. After defending Liberate’s at-

tempt to reduce its liability to Circle Star from $45,000,000.00

to $8,000,000.00, Circle Star was successful in getting the bank-

ruptcy dismissed. After the bankruptcy was dismissed Circle

Star, fi led a breach of lease defamation and conversion against

Liberate. It also sought recovery of more than $1,200,000.00 in

attorneys’ fees incurred by Circle Star in the bankruptcy case.

Th e trial court held that the landlord was not entitled to claim

the attorney’s fees based on bankruptcy law because the fees

were expended litigating primarily federal law issues. Whether

the law was changed by Travelers v. PG&E, 30 127 S. Ct. 199

(2007) remains an open issue.

Th e Court of Appeal reversed the decision fi nding that the

proposition that an unsecured creditor could not recover at-

torney’s fees incurred from pursuing pure bankruptcy issues.

However, none of the cases cited involved the right of a party

to seek fees in state court after dismissal of the bankruptcy.

Th e Court of Appeal held that the diff erence in posture of the

bankruptcy case was the key. Th us, Circle Star’s claim was not

against the bankruptcy estate and would not diminish the estate

to the detriment of other creditors and Liberate’s bankruptcy

was dismissed. A dismissal unless otherwise ordered “re-vests

property of the bankruptcy estate in the entity in which the

property was vested immediately prior to the commencement

of the case.” Th us, under Bankruptcy Code section 349(b)(3),

the eff ect of the dismissal is to undo the bankruptcy case as far

as practical and restore all the parties’ rights and interest to the

position they found themselves at the beginning of the case.

Why This Case Is Important To Trustees And Lenders

Th is case can be cited for the proposition that after a bank-

ruptcy case is dismissed a creditor may have the right to re-

cover its legal fees incurred for litigating issues in the bank-

ruptcy context after dismissal of the bankruptcy case. Whether

or not such a recovery is possible will depend primarily upon

the language of the note and deed of trust or other loan docu-

ments between the borrower and the lender. While the stan-

dard FNMA/FHLMC documents probably do not likely cover

most tort claims asserted by borrowers against the lender, they

would cover attempts by the borrower to cram down the lend-

er’s interest or otherwise reduce the lender’s claim in bank-

ruptcy proceedings.

Wolfe v. George, 486 F.3d 1120 (9th Cir 2007)

Molski v. Evergreen Dynasty Corp.,

500 F.3d 1047 (9th Cir. 2007)

(2007) WL 2458547 (9th Cir)

Moran v. Murtaugh, Miller, Meyer and

Nelson LLP, 40 Cal. 4th 780 (2007)

CASE SUMMARY - VEXATIOUS LITIGANTS

California’s vexatious litigant statute Code of Civil Procedure

section 391, et seq. defi nes a vexatious litigant as a pro se liti-

gant who has lost at least fi ve pro se lawsuits in the preced-

ing seven years, sued the same defendants for the same alleged

Continued on page 70

46

Summer 2008 United Trustees Association

State News

Spring 2007 United Trustees Association

UTA and Industry News

Summer 2008 United Trustees Association

UTA Considers Challenge to Local Ordinances That

Require Trustees to Inspect, Register, Secure and Maintain

Properties in Foreclosure With No Compensation

Following the lead of other local jurisdictions like the

Cities of Palmdale and Chula Vista, the County of

Riverside’s (California) Board of Supervisors has passed

an emergency ordinance (Ordinance Number 880), effective

May 13, 2008 that imposes mandatory duties upon trustees

with respect to residential properties in foreclosure. Important

elements of the Riverside County ordinance include:

• The trustee or beneficiary must inspect the property prior

to recording the Notice of Default;

• If, based upon the inspection, the trustee or beneficiary

determines that the property is vacant or shows evidence

of vacancy, the trustee or beneficiary must register the

property and pay an annual registration fee;

• If the property is not vacant or there is no evidence of

vacancy, the trustee or beneficiary must inspect the prop-

erty once a month during the foreclosure and register,

secure and maintain the property if, at any time, the prop-

erty is vacant or shows evidence of vacancy;

• If the property is vacant or shows evidence of vacancy,

then the beneficiary or trustee must secure and maintain

the property generally by hiring a local property manager

no more than 40 miles from the property;

• A sign must be placed in the window of the property advis-

ing the public (including vandals) of the contact informa-

tion of the local property manager.

• Trustees and beneficiaries who violate the statute risk

administrative fines as well as civil penalties of up to

$1,000.00 per day, per property, and all administrative

costs including abatement, attorney fees, and other costs.

Under most of the local ordinances the responsibilities of the

trustee and benefi ciary continue until the foreclosure is rescind-

ed, the property is sold to a third party purchaser or the lender

obtains the property through a deed-in-lieu of foreclosure.

Although the Riverside Ordinance has already passed, UTA ap-

peared at a public forum held by the County of Riverside on Fri-

day, June 27th where the County explained the ordinance and

took comments from the public. UTA’s Legal Counsel, Phil

Adleson, Esq., Executive Director Richard Meyers and Legisla-

tive Committee Chair Ron Roup, Esq., were in attendance.

UTA is considering challenging at least one of the

local ordinances as being unenforceable for various

reasons, including an argument that the ordinance is

unconstitutional. Th is will be a costly endeavor and will

require substantial donations even though UTA’s attorneys

will reduce their normal fees to support the eff ort. Th is is

not an amicus eff ort but an actual court trial challenge to

the ordinance. Appeal of the result is likely regardless of

which way the trial court rules.

UTA legal eff ort could cost more than $50,000. As

UTA’s budget does not include funds for this critical

and important eff ort, UTA cannot proceed without

substantial contributions from its members and its

supporters. UTA urges all members and supporters to

immediately contribute to the “UTA Ordinance Fund”.

Simply mail your check to:

Attention “UTA Ordinance Fund”

United Trustees Association

2030 Main Street

Suite 1300

Irvine, CA 92614

A trustee fi ghting this on its own (when confronted by unfair

and excessive penalties) could easily spend $50,000 to $100,000

defending the case. Th e best approach is as a group.

UTA believes that once it successfully challenges one of these

ordinances, others will be easier to challenge. Ultimately, cities

will be more cautious in writing such ordinances that attempt

to expand the role of the trustee.

47

United Trustees Association Summer 2008

State News

United Trustees Association Summer 2008

UTA and Industry News

If you are aware of or familiar with other similar local (county

or city) ordinances that have passed, please forward them to

the UTA offi ce for our review. We will post these ordinances

on the UTA website so members can determine whether they

must do pre-notice of default inspections.

“Foreclosure Prevention Act of ” Expected to Pass

Congress: President Bush Threatens Veto

PRESIDENT BUSH SAYS HE WILL VETO FORECLOSURE RELIEF

LEGISLATION

President Bush sur-

prised Democratic

sponsors of the

Foreclosure Prevention

Act, by stating that he

would veto the bill. The

Democratic sponsors, led

by Senator Chris Dodd of

Connecticut and Senator

Harry Reid of Nevada, the

Senate Majority Leader,

had believed that the

administration supported

key provisions of that bill,

and other bills, introduced

in the House of

Representatives by

Congressman Barney Frank

(D-MA) and Speaker Nancy Pelosi (D-CA), among others.

Although the legislation had not been considered yet by the

Senate as of press time, a deal had been reached in the Senate

on the bill, and companion legislation had passed the House

of Representatives by a vote of 266-154. The House legislation

would underwrite $300 billion in new loans and is estimated by

proponents to keep as many as 500,000 houses from foreclos-

ing.

The Democratic leadership bill, known as “The Foreclosure

Prevention Act of 2008” contains provisions from earlier legis-

lation, S. 2636, introduced by Senator Harry Reid (D-NV) and

S. 2338, introduced by Senator Christopher Dodd (D-CT). This

legislation does not include bankruptcy legislation, S. 2136,

previously introduced by Senator Dick Durbin (D-Ill).

“We are indeed fortunate to have had the bankruptcy amend-

ment provisions dropped from the bill,” said Ron Roup, Roup

& Associates, UTA’s Legislative Committee Chair. “There was

an urgency to move forward with a bill on a bipartisan and

expedited basis due to the current mortgage crisis situation.

However, amending the Bankruptcy Code to allow bankruptcy

judges to modify the debtor’s residential mortgage would likely

have increased the interest rates for all borrowers, even those

not affected by the mortgage crisis. The bankruptcy amend-

ment provision would have been a lengthy process as demon-

strated by the nearly ten years it took to pass the Bankruptcy

Abuse Prevention and Consumer Protection Act of 2005

(BAPCPA) and would have been an anchor on the desired

legislations.”

New UTA Membership Brochure Available

UTA has a new membership brochure, designed to both

provide current members with a better understand-

ing of the many benefits of UTA membership and to

help recruit new members into the association. The beautiful

four-color brochure divides membership benefits into four

broad categories (Education, Communication, Networking &

Business Growth; and Legal Initiatives) and includes ten mem-

ber testimonials.

If you would like complimentary copies of the UTA Brochure

to distribute to potential members, please contact the UTA

office.

Spring 2007 United Trustees Association

Education News

48

Summer 2008 United Trustees Association

Annual Education Conference is Loaded with Hot Topics

THE RED ROCK WILL HOST THE 2008 CONFERENCE

UTA’s 33rd Annual

E d u c a t i o n

Conference, held

at the Red Rock Resort in

Las Vegas, November 16-

18th will once again fea-

ture the hottest, most

exciting and relevant edu-

cation sessions for attend-

ees. This year’s confer-

ence will feature general

sessions on Foreclosure

Scams; Challenges to

Foreclosure; as well as the ever-popular Case Law Updates;

Bankruptcy Panel; Legislative Updates. Breakout sessions will

be held on HOAs; HUD Issues and FHA Foreclosure; and

Redemption Proceedings; Bankruptcy 101 and the Injunction

Process; and Municipal Ordinances / Differences in Operation

Regarding REOs.

In addition to the MCLE accredited sessions, this year’s meet-

ing features a trade show, an exciting Monday evening dinner/

social networking event in the Red Rock’s “Cherry Lounge”;

a social golf tournament; a social bowling tournament; many

exciting raffle giveaways and UTA’s Foreclosure Certification

Course and Exams for California, Arizona and Nevada (offered

on Saturday).

Retuning to the site of the 2006 Conference, this year’s confer-

ence will be held at the Red Rock Resort and Spa, the first bil-

lion-dollar resort to be built off the Las Vegas strip, featuring

the most expensive rooms built in Las Vegas. Each elegantly

appointed room is filled with luxury amenities, including 42”

high-definition plasma TVs, 15” LCD TVs in the bathroom;

iPod docking stations, guest robes and slippers, automated

private bars and “ooh-la-la” linens. All rooms offer spectacular

views of the Las Vegas strip or the Red Rock Mountains. The

resort also features a three-acre pool and beach area.

Attendees from last year’s conference gave very high marks to

the speakers, the social dinner event, and the golf event. This

year’s program promises to be even better, so plan on attend-

ing the conference. The conference brochure and registration

information will be available by both mail and online at the

UTA website, www.unitedtrustees.com in July.

“We take great pride and care in the content of our sessions,

the fun networking events and a trade show that allows trust-

ees and servicers to spend more face time with each other

than at virtually any other conference in the industry,” said

UTA President and Conference Chair, Gary Wisham of Allied

Trustee Services.

We thank Platinum Sponsors First American National Default

Title Services and FIS Default Solutions; and Silver Sponsors

Foreclosure Solution, Reliable Posting & Publishing, and

RSVP.

Annual Conference Hotel Room Reservations Are Available

Hotel room reservations are now being accepted for

the 2008 UTA Annual Education Conference &

Trade Show. Certification Courses will be held on

Saturday, November 15th. The annual golf tournament and

Bowling Event will be on Sunday, November 16th (the opening

reception is Sunday evening). The education sessions will be

held Monday and Tuesday, November 17-18th. UTA’s annual

dinner event will be Monday evening.

This year’s annual conference and trade show will be held at the

Red Rock Resort, Casino & Spa. Room rates at the five-star

resort will be an unbelievable $149 per night single/double

for UTA conference registrants. To reserve your hotel room,

please contact the hotel directly at 1-866-767-7773 and

note that you are with the”UTA”. The Red Rock Resort will

honor these rates three (3) days prior and three (3) days follow-

ing our conference dates, based on availability. To guarantee

availability and rates, reservations must be made prior to

October 5th.

49

United Trustees Association Fall 2007

Education News

United Trustees Association Summer 2008

Because there is a major convention in Las Vegas during these

dates, we recommend that you make your reservations as soon

as possible to guarantee a room in the resort. Remember, you

can cancel your room reservation without penalty three days

prior to the conference.

Annual Conference Offers

Bowling Fun & Golf Tournament

16TH ANNUAL GOLF TOURNAMENT AT ARROYO CLUB AT RED ROCK

Remember to

mark your cal-

endars for

Sunday November 16th.

That’s the day that UTA

will offer two social net-

working activities at the

33rd Annual Conference

in Las Vegas.

For the first time, UTA will offer a fun bowling event – held

right at the Red Rock Hotel & Casino’s VIP Bowling Suites.

The beautiful VIP lanes add a twist to the traditional bowling

experience - providing contemporary lounge style seating with

leather sofas, giant LCD screens, a state-of-the art sound sys-

tem and privately hosted beverage service.

Prizes will be awarded for highest score and for special ‘chal-

lenges’, including, bowling with your feet; bowling between

another team member’s legs; spinning three times and bowling;

and bowling off of one foot.

Not to be outdone, the 16th Annual UTA Golf Tournament

will be held at the beautiful Arroyo Golf Club at Red Rock. The

Arroyo course is an Arnold Palmer Signature Course 6,883

Yard Par 72 links style layout with Bermuda grass fairways and

Bentgrass greens. Coordinated by Jeremy Harmon of First

American National Default Title Services, the golf tourna-

ment will again feature prizes for winning team; longest drive;

and closest to the pin. High value hole-in-one prizes will again

be offered.

California & Texas Foreclosure Courses

Offered

MARY SPEIDEL

Don’t miss these opportunities to

take UTA’s California and/or

Texas Foreclosure 101 courses:

July 12th, (Saturday) 10:00 am – 2:00 pm:

The three-hour California Foreclosure 101

course will be taught in San Diego and cov-

ers basic industry terminology; what fore-

closure is; and what information the lender

provides, and why. After taking the course, attendees will have

an understanding of all phases in the trustee’s timeline. The

course reviews and provides samples of relevant documents

as well as basic information concerning TSGs and other title

issues.

Course Instructors are Randy Fernando, Orange Coast Title

and Randy Newman, National Foreclosure Service. This

course is sponsored by Trustee’s Assistance Corporation.

August 15th, (Friday) 1:30 pm – 4:30 pm: The Texas

Foreclosure 101 course will be taught in Houston and will

cover industry terms, loan documents, the foreclosure time-

line, Texas non-judicial foreclosure flow chart and other issues

designed for employees who are new in the default/foreclosure

industry in Texas.

Course instructors are Jim DeLoach, Esq., of Butler & Hosch,

Mary M. Speidel, Esq., of Codilis & Stawiarksi Stawiaski,

and Jay Jacobs of Land Records of Texas. This course is spon-

sored by Land Records of Texas and Foreclosure Solution.

To register for any of these upcoming UTA events, visit the

UTA website, unitedtrustees.com.

Spring 2007 United Trustees Association

Education News

50

Summer 2008 United Trustees Association

California Basic Foreclosure Certification Course

Available on DVD

DVD CA-I INSTRUCTOR RANDY NEWMAN

UTA’s California Basic

Foreclosure Certification

Course (CA-1) is now available

on DVD. The DVD course is three

hours in length total and includes pow-

erpoint summary slides along with the

course instruction. An accompanying

CD produces all of the written course

materials and exhibits.

The Basic Foreclosure Certification

Course Syllabus includes: Outline of state foreclosure proce-

dures; Monetary and non-monetary defaults; Judicial v. non-

judicial foreclosures; What a Lender provides to the Trustee;

What a Trustee does; Notice of Default (NOD); What a Lender

receives from a Trustee; Review of Trustee’s Sale Guarantees;

Reinstatement; Notice of Sale (NOS); Presale Redemption;

Sale; Trustee’s Deed; Proceeds of Sale; Bankruptcy.

After completing the course, an exam can be scheduled at a

location and time of convenience or you may challenge the

exam at the annual conference in Las Vegas. The Trustees Sale

Officer certification exam is a one-hour open book exam and

costs $100.

Randy Newman, the DVD Course Instructor, is one of the

principals of National Foreclosure Service. Since 1982, he has

been involved in real estate when he began work as a parale-

gal. Licensed as an attorney in New York since 1989 and New

Jersey since 1994, Randy has personally represented hundreds

of buyers, sellers, owners, and lenders in connection with the

sale, purchase, finance, lease, and foreclosure of residential and

commercial real property throughout the United States.

Randy holds a BBA in Accounting and is licensed as a real estate

broker in California. Randy is certified by the United Trustees

Association as a Trustee Sale Officer, Level II California. Randy

has previously been an adjunct assistant professor of business

law and currently teaches Real Estate Principles to aspiring

new real estate licensees and trains new real estate agents on

contracts and real estate transactions in California.

To purchase the CA-1 Basic Foreclosure Certification Course

and materials for $100, contact the UTA office.

Watch a Video Montage from

Recent UTA Conferences

Visit

ww.unitedtrustees.com

and click on “annual conference”

51

Spring 2007 United Trustees Association

Membership News

52

Summer 2008 United Trustees Association

Members on the Move

Barrett Burke Wilson Castle Daffin & Frappier is now

Barrett Daffin Frappier Turner & Engel, LLP. The

Law firm is still managed by the same management team

with the addition of Steve Turner and Brian Engel. Michael

Barrett continues in his role as Chairman and Mary Daffin

as Managing Partner … We spotted a photo of Linda Orlans

Esq., of Orlans in the pages of Conde Nast Portfolio … Martin,

Leigh, Laws & Fritzlen, P.C. has been selected as one of

Kansas City’s Top 10 Small Businesses of the Year by the Kansas

City Chamber of Commerce …. Berry Laws III was quoted

in the Pittsburgh Post-Gazette and other McClatchy-owned

newspapers in a article on foreclosures … Calabasas, California

based All Valley Trustee, a nonjudicial foreclosure trustee, has

hired Michael S. Goldstein as Executive Vice President of

Marketing. He will handle client relations, marketing, training

and educational opportunities, as well as be responsible for

forming the new national attorney network. Prior to joining

All Valley, he was with the LOGS Network for over 20 years

as vice president of marketing … Chris Bolger, formerly with

First American National Default Title Services, is the new

Senior Vice President, Default Title/TSG Operations with

ServiceLink. Chris will be responsible for all operating ele-

ments of the business, service delivery to clients, and develop-

ing and providing innovative Default Title products. … We hear

that Andy Fragassi, VP Operations Manager, of FIS Default

Solutions is the proud father of a new baby boy, Luke Bradford

Fragassi … Julie Leah Greenfield, is the Managing Attorney

of Wright, Finlay & Zak’s new Compliance, Regulatory and

Licensing Practice Group ... To assist lenders who are seeking

assistance in modifying borrowers delinquent loan obligations

using standard loss mitigation and loan modification forms

National Default Exchange (NDEx) and Barrett Daffin

Frappier Turner & Engel, L.L.P. announced that they are

presently working with national lenders and NeighborWorks

to assist lenders with their loan modifications and other loss

mitigation tools through document preparation initiatives

… Hank Lopez, formerly with Countrywide is the new VP,

Business Development with RSVP.… Jeff Pugh, formerly

Vice President Division Counsel with First American Title is

the new Senior Vice President TSG Division Director, with

First American National Default Title Services.

June Christy: Technology Investment Key to

Improving Workflow

JUNE CHRISTY

We spoke with June Christy

of Standard Trust Deed

Service and RSVP about

the future of the nonjudicial default

servicing industry, her company and

of course – herself.

Tell us about your background and how you got into the indus-try.

I have 35-plus years in the foreclosure industry. In my first

job with a bank I processed FHA and VA claims following

the foreclosure sale. I was then employed by T. D Service

Company and TAC for about 23 years. I have been with

Standard Trust Deed Service Co and RSVP in the capacity of

Vice President of Operations for 7 years.

Can you give us a brief background of your company?Standard Trust Deed Service Co. was founded in 1987 and

provides nonjudicial foreclosure services to banks, credit

unions, mortgage companies, as well as small investors and

other independently owned companies.

Founded in 1994, RSVP serves the outsourcing needs of

law firms and trustees by providing posting, publishing and

auctioneering services in support of real estate foreclosure

processing. RSVP is the largest firm in its industry segment

with a presence in 18 states, and the District of Columbia.

Tell me something unique about your company?We have a loyal and experienced team of employees who

pride themselves on their exacting attention to detail. Our

average employee has 11 years of experience in foreclosure

processing.

How is the current growth in foreclosures affecting what you do?

It’s challenging us to work smarter so we can meet the

53

United Trustees Association Summer 2008

Membership News

growth in volume required by our customers. We are invest-

ing in technology that improves our workflow and signifi-

cantly reduces the potential for error. Thanks to technology

and a willingness to challenge the status quo, every day we’re

identifying new ways that we can exceed our customers’

expectations for responsiveness and flexibility.

How are you keeping up?We are developing automated processes for accepting and

processing orders, from typesetting to ad scheduling and

placement and coordinating auctions. This is enabling us to

provide faster service even as order volume grows.

We are also evaluating software that will allow for paperless

processing of foreclosure orders and enable us to operate

more efficiently for our foreclosure customers.

What service has the most potential for growth?Extending the reach of our posting, publishing and auction-

eering services to new states so we can create a national solu-

tion for our customers.

What do you enjoy most about your job?I enjoy building strong teams to deliver an exceptional prod-

uct to our clients.

What are your responsibilities?Day-to-day operation of both RSVP and Standard Trust

Deed Service Co.

What motivates you? How do you motivate others?Happy customers motivate me! I motivate other with a posi-

tive attitude and proper training. I try to instill that a team

working together gets the job done, not just one person. For

example, you will often find me filing when no one else has

the time. (I have always believed that if you look at the glass

half full rather than half empty life seems to go smoother.)

What is your proudest accomplishment with your company?

Being able to handle a huge increase in volume with few

errors.

What is your company’s greatest challenge over the next year? Or over the next several years?

In the near term, our greatest challenge is to completely re-

engineer and automate our workflow so we can process more

volume in more states without increasing staff. Longer term,

we want to involve our customers and trading partners in

automating order submission, verification and processing to

achieve greater efficiency and create more capacity.

What does your company get out of – or hope to get out of – its membership in UTA?

We want to participate in dialogue and education to help our

employees develop their knowledge and credentials, improv-

ing our value to our customers.

How do you spend time outside of work? What are your hobbies?

Outside of work I enjoy Bocce Ball, reading and spending

time with my family.

54

Featured Article

Spring 2007 United Trustees AssociationSummer 2008 United Trustees Association

XXXXXXXX —Continued from page 54Avoiding Costly Mistakes —Continued from page 1

Implementing these recommendations will help trustees

and benefi ciaries to safely navigate the treacherous foreclo-

sure river.

Bankruptcy Filings Create

Additional Risks of Liability

Before sailing across the river, fi rst check your boat for dan-

gerous leaks.

Th e rise in foreclosures will likely result in a corresponding

rise in bankruptcies fi led by homeowners desperate to stave off

foreclosure. Trustees and benefi ciaries beware! Th e interac-

tion between federal bankruptcy law and state foreclosure law

is complex. In addition to the strict requirements of Civil Code

section 2924 (which regulates foreclosures), federal bankruptcy

law adds another thick stack of rules and regulations.

One of the biggest landmines in the bankruptcy code is that

bankruptcy judges have the authority to award damages to the

debtor – including attorneys’ fees and punitives – for willful

violations of the automatic stay. (See 11 U.S.C. section 362(h).)

Th is creates an incentive for members of the plaintiff ’s bar to

sue trustees and benefi ciaries for perceived or actual violations

of the automatic stay. In an era when the vast majority of homes

in foreclosure will have little or no equity at the time they are

sold at a trustee’s sale, alleging violations of the automatic stay

(with a potentially lucrative award of attorneys’ fees from the

bankruptcy court) may be the only way for contingency fee at-

torneys to fi nd paid work in the foreclosure arena. As a con-

sequence, trustees and benefi ciaries should consider taking a

less aggressive approach when attempting to foreclose against

property owned by a debtor operating under the protection of

the automatic stay.

Further, any act taken by a creditor in violation of the stay is

void ab initio, rather than merely voidable. Th is means that any

trustee’s sale that was completed while the debtor was under

the protection of the automatic stay (or under the protection of

Bankruptcy Rule 4001’s ten-day grace period following a mo-

tion for relief from stay) will be set aside. One of the safe har-

bors for a trustee or benefi ciary facing this situation is that only

federal courts have jurisdiction to adjudicate alleged violations

of the automatic stay.

While the automatic stay is the most common tool used by a

debtor to preclude a foreclosure sale, the bankruptcy code in-

cludes another type of stay that bankruptcy trustees can use to

prevent foreclosures. Specifi cally, 11 U.S.C. section 105 autho-

rizes a bankruptcy court to issue a discretionary stay even after

a secured creditor has been granted relief from the automatic

stay and is advancing through the foreclosure process. Section

105 stays are rare but trustees and benefi ciaries must remain

aware of their power and potential ability to invalidate foreclo-

sure sales.

Issue: How can trustees and benefi ciaries reduce the risks as-

sociated with bankruptcy cases?

Solutions: (1) Send written notice of the bankruptcy filing to

all potentially interested parties (including the trustor) as soon

as you learn of it, along with an explanation of the trustee’s right

to postpone the sale and the trustor’s and junior lienors’ obliga-

tion to remain informed about the postponements; (2) Video-

tape all sale postponements resulting from the bankruptcy fil-

ing; (3) Verify that the debtor and all junior lienors have actual

notice of any order lifting the automatic stay or dismissing the

case; and (4) Videotape the actual sale of the property, when it

eventually occurs.

Trustees Must Act with Precision

When Noticing the Trustor’s Default

and Noticing the Trustee’s Sale

To cross the river, everyone holding a oar has to row in uni-

son and toward the same destination.

Civil Code section 2924 requires trustees to act with precision

when noticing the trustor’s default and subsequently noticing

the trustee’s sale. Even slight deviations from the statutory pro-

cedures can result in an illegitimate trustee’s sale.

55

United Trustees Association Summer 2008

Featured Article

Trustors can and will challenge both the content of the Notice

of Default and Notice of Sale as well as the timing of the re-

cording, publishing, mailing, or posting of those documents.

With respect to the content of the Notice of Default, trustees

should work with benefi ciaries to clearly and accurately list on

the fi rst page of the Notice of Default every alleged violation that

justifi es foreclosure on the property. Th ere is a safe harbor for

trustees but it is a good idea to verify the information with the

benefi ciaries. Small mistakes on the Notice of Default can lead

to large litigation down the road. For example, if the promissory

note contains a grace period for late payments (i.e., payment is

due on the fi rst day of the month but not offi cially considered

late until the fi fteenth day of the month), then if the trustee is

commencing foreclosure on a day of the month prior to expira-

tion of that grace period (i.e., the tenth day of the month) the

trustee should not include that month in calculating the Notice

of Default amount. If necessary, the missed payment will be ac-

counted for at reinstatement as a recurring obligation. Taking

this precaution will ensure that the redemption amount in the

Notice of Default is correct as of the date of recording.

With respect to the timing of the recording and mailing of the

Notice of Default, trustees should mail themselves an extra

(and exact) copy of the Notice of Default and retain the un-

opened (postmarked) envelope in their records. Th is will pro-

tect against future challenges by the trustor or junior lienors on

the issues of whether the Notice of Default was mailed in time

and whether the mailed copy included every page. Trustees can

save themselves a lot of heartache by simply putting in place

internal control systems that verify that critical documents are

mailed on time.

As an extra bit of insurance, trustees can upload key documents

56

Featured Article

Spring 2007 United Trustees AssociationSummer 2008 United Trustees Association

to a public webpage. Th is will create additional internal quality

control and will serve as an additional tool for trustees to use to

prove that trustors and junior lienors had actual knowledge of

the trustee’s sale.

Trustees can obtain additional peace of mind by verifying – pri-

or to sale – that documents sent to be recorded were actually

recorded in their entirety (without missing pages) and are as-

sociated with the correct property.

Although trustees bear the brunt of the work when it comes to

noticing and conducting a trustee’s sale, benefi ciaries are also

at risk. For example, a benefi ciary could be exposed to liability

if it improperly requests the sale of a home or fails to provide

the trustee with updated contact information for the borrower,

notably the borrower’s current mailing address if diff erent than

the property address.

Issue: How can trustees reduce the risks associated with notic-

ing the trustor’s default and noticing the trustee’s sale?

Solutions: Trustees should: (1) Mail themselves extra copies

of the Notice of Default and Notice of Sale and retain the un-

opened, postmarked envelopes in their records; (2) Upload to a

public Webpage electronic copies of key documents at the same

time that those documents are recorded, mailed, published, or

posted; and (3) Verify prior to sale that necessary documents

were mailed on time and were actually recorded in their en-

tirety (without missing pages) on the correct property.

Don’t Mess with Near Tender – If the

Trustor’s Pre-Sale Offer to Cure the

Default then Postpone the Sale

Don’t run aground on the shoals of near tender.

Civil Code section 2924 authorizes trustors and junior lienors

to redeem property in foreclosure by tendering the amount

necessary to cure the default that caused the foreclosure.

Trustees must use care in calculating the redemption amount.

As a general rule, trustees may rely in good faith on the infor-

mation provided by the benefi ciary regarding the amount in de-

fault. Nevertheless, the safe harbor is tiny and there are count-

less scenarios that could wipe out the trustee’s immunity in this

area. Trustees must take great care in calculating the redemp-

tion amount. Th ere is little room for error.

Trustees must also scrutinize whether an attempted tender is

adequate to cure the default and redeem the property. A good

rule of thumb is that any tender that is within 25 percent of the

amount in default should cause the trustee to postpone the sale.

Th ere is no real safe harbor for trustees who fail to accept what

turns out to be adequate tender, and an improper sale could

result in signifi cant liability for the trustee.

Issue: How can trustees reduce the risks associated with ten-

der off ers?

Solution: Trustees should postpone sales if the attempted ten-

der is within 25 percent of the amount in default.

Post Sale Issues

You’re not safe until the boat’s out of the water and on dry

land.

Th e law provides trustees a second chance to double check the

validity of the sale. To perfect a trustee’s sale, trustees must re-

cord the Trustee’s Deed within 15 days of the sale. Th is is a win-

dow of opportunity for a trustee to review all facts and issues

related to the sale. A trustee has the power to rescind a sale and

should do so prior to recording the Trustee’s Deed if there is a

legitimate concern that a particular sale was invalid. If the red

fl ags are serious enough, a trustee should also consider contact-

ing the trustor and junior lienors directly to confi rm that they

received notice of the sale and had an opportunity to attend.

With respect to preparing and recording the Trustee’s Deed,

trustees should use common sense. Misspellings of formal

names or miscalculations of amounts can result in future litiga-

tion, even if meritless. It is critical that trustees include on the

Trustee’s Deed the notice recitals described in Civil Code sec-

tion 2924(c), which provide additional protection to the trustee

should a trustor or junior lienor challenge a sale.

Th e fi nancial cost of redoing a sale is far less than the fi nancial

cost of future litigation. When in doubt, postpone and evalu-

ate.

57

United Trustees Association Summer 2008

Featured Article

Dissuading Frivolous Suits with the

Specter of Attorneys’ Fees

Sometimes a bigger boat is the best way to cross the river.

One underreported aspect of the battle between trustees, ben-

efi ciaries, and trustors is that trustees and benefi ciaries are not

powerless to protect themselves from frivolous litigation. Many

deeds of trust include an attorneys’ fee clause that grants both

the benefi ciary and the trustee the right to collect from the trus-

tor any attorneys’ fees incurred by the benefi ciary or trustee in

defending against a trustor’s wrongful foreclosure action. Th e

“magic language” of an attorneys’ fee clause in a deed of trust is

a wonderful asset for a trustee facing a frivolous action.

Although the appellate courts have not issued any recent rul-

ings on the issue, trustees should feel confi dent in seeking re-

covery of attorneys’ fees from trustors. In the case of a trustor

that is organized as a single purpose entity (typically a LLC), a

trustee should (if the specifi c facts justify it) allege that the cor-

porate trustor is nothing more than the alter ego of the natural

person in control of the trustor. By doing so, the trustee can

seek to recover attorneys’ fees from both the single purpose en-

tity (which will likely have no assets following the foreclosure

and be judgment proof) and the person or entity in control of

the trustor (which will likely have assets available to satisfy an

award of attorneys’ fees).

Finally, Civil Code section 2924l provides another piece of pro-

tection for trustees. If a trustee is named as a defendant in a

civil action solely in its capacity as trustee, rather than being

named for wrongful acts or omissions on its part in performing

its duties as a trustee, then the trustee may fi le a Declaration

of Nonmonetary Status. Filing such a declaration may allow a

trustee to opt-out of the action and avoid any liability or legal

fees.

In the rising tide of foreclosure-related civil actions, trustees

and benefi ciaries must use care when commencing, noticing,

and conducting non-judicial foreclosures. Taking simple, af-

fordable precautions can reduce long-term liability and legal

costs.

Antony D. Nash and John J. McNutt

are senior associates in the Real

Estate and Environmental

Litigation Group at Luce Forward

Hamilton & Scripps, LLP, and reg-

ularly defend trustees in foreclo-

sure-related civil actions and class action litigation. Luce also

has an experienced bankruptcy practice group to assist on all

bankruptcy issues that arise in foreclosure litigation. Mr. Nash

and Mr. McNutt can be reached at [email protected] and jmc-

[email protected] respectively.

Need…

UTA Ad Rates?

A Trustee’s Fee Calculator?

A Board Candidate

Profile Form?

Conference Session

Proposal Form?

Visit

www.unitedtrustees.com

and click on “About UTA/

Forms & Documents”

58

Featured Article

Spring 2007 United Trustees AssociationSummer 2008 United Trustees Association

Bullet Point: A written notification to the occupant

of the property to be posted and mailed

with the Notice of Sale. The notice is to

contain statutory language in English and

all the recognized secondary languages

of California - Spanish, Chinese, Korean,

Vietnamese, and Tagalog, which con-

stitute approximately 83 percent of all

Californians who speak a language other

than English.2

Q. “That statute is for a contract negotiated in a language

other than English. Why apply it to mortgage loan docu-

ments approved by Fannie Mae and Freddie Mac in

English?”

A. “We don’t know what language the occupant speaks, and

we want everyone to be apprised in their native tongue as

to anything that might affect their peaceful enjoyment of

their dwelling.” His chest was swelling and I was getting

worried about his blood pressure.

Q. “Are you going to require utility disconnect notices to be

in all six languages, too?” and at first he seemed deflated.

Then, I felt like I had only stoked the flames of regulation

as the senator pondered the question.

Bullet Point: The tenant after a foreclosure is now given

sixty (60) days, instead of thirty (30) days

after the foreclosure sale before an eviction

can be commenced.

Q. “If the occupants have the Notice of Sale and a six-lan-

guage notification and posting prior to sale and then get an

additional sixty days after the foreclosure, aren’t they really

getting 3 to 4 months to live for free on the property?”

A. “Perhaps they can save up for a down payment to purchase

a house and help ease the mortgage crisis in our state.”

replied the optimistic senator.

Q. “But, it’s at the expense of the lender. Why not give them 6

or 9 months for a bigger down payment?”, and again I felt

like I was giving him ideas and I withdrew the question.

A. B. 2359 - This bill was pending in the Assembly and as of

May 15, 2008 proposed to eliminate the Holder-in-Due-Course

protections of the institutional lender from the acts of the

originating loan broker.

Bullet Point: Any loan purchased after January 1, 2009

would be subject to the same claims and

defenses that the borrower could assert

against the original loan broker or lender.

Q. “Why leave the institutional investor holding the bag for

any alleged representations of some loan broker who made

the paperwork look proper?”

A. “We have to hold someone responsible for those dastardly

acts.”

Q. “How about the loan broker who committed them?”

A. “We’ve already regulated them, and we’re tightening up

more. But, they’re all in the Cayman Islands now.” Now I’m

starting to understand his logic.

Shortly after my meeting with Xavier, I purchased the com-

plete Matrix (Warner Bros, 1999) set of DVDs to watch with

my boys. I really needed to go back and watch the first movie

since I didn’t remember that much. My 14 year-old diagnosed

me with Alzheimers and told me it was about AI (and I really

didn’t remember Allen Iverson driving through the cast for lay

ups). I was quickly informed in a condescending manner that

AI means “Artificial Intelligence.” It seems that in the future,

Artificial Intelligence, a.k.a. the Machines, rival and overtake

Humans for superiority and create a Matrix world, that we

all live in, which is nothing more than a computer program

of electronic simulations of the world around us regulated by

their Agents to keep Humans entertained while they use us

as batteries for their energy needs.3 Well, I couldn’t resist the

corollary to today’s legislative atmosphere.

Legislative Matrix —Continued from page 6

59

United Trustees Association Summer 2008

Featured Article

Of course, the legislature is the Artificial Intelligence4,

who created a Matrix of legislation to regulate the Humans,

who I figure are the taxpayers, in order to syphon off their

Energy, which has to be our tax dollars. Xavier would make a

good Agent Smith of the Matrix, but he’d have to lose some

weight and move a lot faster than presently in the Senate.

Neo, the leader of the Humans who have escaped the Matrix

and can hack into and out of it, will be named at the UTA

Annual Conference in Las Vegas this November. Send your

“Nominations for Neo” to Richard Meyers, the UTA executive

director. He’ll appreciate the attention.

Don’t get me wrong. I agree with regulations to correct the

causes of the problems (“cause-regulations”). But with all the

bills attempting to regulate the result (“result-regulations”)

before the market can adjust to the problems, it just seems to

create new problems. The subjective ambiguities as to what

is a good faith effort, undefined terms, assignee liability, and

translations could become the basis for a plethora5 of judicial

challenges to the statutory non-judicial foreclosure process.

So, I asked Senator House about how all these proposed result-

regulations appear to just create new problems to replace the

old ones.

“It’s self-propagating”, he replied. “It provides clean up legisla-

tion for the next term, and with term limits, I just might return

to the practice of law to take advantage of these ambiguities

again,” said the Senator with a sparkle in his eye. “You know the

Trial Lawyers Association is a major contributor to my cam-

paign.” I resisted the temptation to express my wish that he go

self-propagate himself and just wished him well in the upcom-

ing election. You never know when you’ll need an attorney. Or,

a senator for that matter.

As I drove home, I kept thinking about “The spoon doesn’t

exist” scene from The Matrix and tried to remind myself that

it’s not life as programed by the Legislative Matrix, it’s life as it

really exists.

Hopefully, we’ll all wake up sober, and not ugly. After all,

Abraham Lincoln and Neo are my American Idols.

1 Although sometimes attributed to Lady Astor, Churchill’s bodyguard con-fi rmed that it was Bessie Braddock, who was known as “Battling Bessie” from Liverpool and not shy about her 50”- 40”- 50” size frame.

2 Honest. California Civil Code 1632(3). I have friends who are German, Italian and Russian, and don’t understand why they’re left out.

3 Th e late Gene Siskel and Roger Ebert probably did a better review, but they couldn’t successfully oppose a restraining order.

4 You can go where you want with that one. Th is article is too short for me to go there.

5 I spelled that right the fi rst time! (If it means what I think it means.)

Ronald Roup has been a member of the California

State Bar since 1980 and is the principal of Roup

& Associates located in Lake Forest, California.

For over twenty years, his practice has empha-

sized a full spectrum of legal services for loss

mitigation and asset management for secured

creditors and title companies, including judicial and nonjudi-

cial foreclosure services, and legal representation for loan

default work-outs, bankruptcy, eviction, title matters, and

lender defense. Ron is UTA’s Legislative Committee Chair and

can be contacted at [email protected].

Want an Update on State

LegislativeActivity?

Visit

ww.unitedtrustees.com

and click on “Legislative Advocacy”

60

Featured Article

Spring 2007 United Trustees AssociationSummer 2008 United Trustees Association

2 Valley Bible Center v. Western Title Ins. Co., 138 Cal. App. 3d 931, 188 Cal Rptr. 335 (1983); Saucedo v. Mercury Savings & Loan Association, 111 Cal App. 3d 309, 168 Cal. Rprt. 552 (1980)

3 See, Bank of Italy Nat. Trust & Sav. Ass’n v. Bentley (1933) 271 Cal. 644; Lancaster Sec. Inv. Corp. v. Kessler(1958) 159 Cal. App. 2d 649.

4 See, Hatch v. Collins, 225 Cal. App. 3d 1104 (1990)

5 See, Schmidt & Co. v. Berry (1986), 183 Cal. App. 3d 1299

6 See, Saucedo v. Mercury Savings & Loan Association, infra

7 Id.

8 See Civil Code Section, 1717(b)(2); subject to some exceptions outside the scope of this article.

9 See, Pacifi c Custom Pools, Inc. v. Turner Const. Co. (2000) 79 Cal. App. 4th 1254.

10 Hsu v. Abbara (1995) 9 Cal 4th 863

Robert Finlay is a partner with Wright, Finlay &

Zak, LLP and member of the UTA, CMBA, MBA

and AFN. He specializes in representing lenders,

foreclosure trustees and title companies in mort-

gage and title related litigation throughout

California. As a firm, Wright, Finlay & Zak, LLP

represents and advises its lending and trustee clients on a vast

array of mortgage and finance issues in California and Nevada,

including but not limited to, Wrongful Foreclosure actions,

Judicial Foreclosures and Receiverships, Accounting disputes,

lender and broker Repurchase disputes, Predatory lending

issues, as well as FDCPA, FCRA, TILA, RESPA, HOEPA and

other Federal and State statutory matters. Mr. Finlay can be

reached at (949) 477-5050 or via email at rfinlay@wrightlegal.

net.

Sonia Plesset’s practice areas includd litigation

and representation involving mortgage banking,

loan servicing, general business and real estate

matters, and bankruptcy and eviction. She earned

her B.A. from UCLA and her J.D. from Loyola

Law School. She can be reached at splesset@

wrightlegal.net.

Can Trustee Recover Attorney’s Fees? —Continued from page 60

Want to read UTA’s By-Laws

or Code of Ethics?

Visit www.unitedtrustees.com

and click on “About UTA/

Forms & Documents”

61

62

Featured Article

Spring 2007 United Trustees AssociationSummer 2008 United Trustees Association

Although ultimately proving the point is far more difficult,

claiming the mortgage is invalid because of fraud in the induce-

ment is hardly an unheard of assertion. Then there is the claim

that the mortgage is not due because the mortgagee gave an

extension, or was irresolute in some correspondence on the

subject or erroneously rejected a remittance or misapplied a

check. Then there is waiver, unconscionable conduct, bad faith,

and the lower grade laches or unclean hands, among hosts of

others.

And might not a mortgagor successfully argue pursuant to the

“undue hardship” standard: “I can refinance this mortgage in

five months. In a judicial foreclosure case, which wouldn’t con-

clude for twelve months, I would obtain all the funds to save

the property and satisfy the mortgage. But in this rapid power

of sale proceeding, the foreclosure will be over before I can get

the money. I will suffer under hardship!” Maybe. Moreover,

undue hardship is an ill-defined phrase. It is difficult to predict

what a court might do, particularly when loss of property and a

business is in the offing.

If a mortgagor’s assault on the non-judicial proceeding is suc-

cessful, the hapless mortgagee endures all the time generated in

starting the power of sale case and then attempting to fend off

the attack. Defeat confines the remedy solely to judicial fore-

closure, and whatever time would have been saved by the non-

judicial method thereby proved illusory. Even if the borrower’s

offensive is routed, the apparent economy of the power of sale

procedure is considerably reduced.

Conclusion

This brief discussion of power of sale in New York does not

explore the considerable detail of the statute; there is consider-

ably more to it. But the details are not the point. That it exists,

but does not quite live up to all expectations, is the message.

Particularly for commercial foreclosures pursued essentially on

consent, power of sale is especially welcome. Beyond that, New

York’s reputation as a difficult state to prosecute a foreclosure

remains intact.

Mr. Bergman, author of the three volume treatise,

Bergman on New York Mortgage Foreclosures,

Lexis Nexis Matthew Bender(rev. 2008), is a part-

ner with Berkman, Henoch, Peterson & Peddy, P.

C. in Garden City, New York, a member of the

USFN, the American College of Real Estate

Lawyers and the American College of Mortgage Attorneys. He is

listed in Best Lawyers in America and his biography appears in

Who’s Who in American Law. He can be reached at b.berg-

[email protected].

Nonjudicial Foreclosure in New York —Continued from page 17

Discount Offered if

Advertising in

Membership Directory,

UTA Quarterly,

and UTA eNews

Visit

www.unitedtrustees.com

for details!

63

United Trustees Association Summer 2008

Featured Article

they can discuss how to proceed with their counsel.

Claims of Indemnity by Mortgage

Lenders and Mortgage Servicers

Although Borrowers cannot sue any entity other than a

Mortgage Lender or Mortgage Servicer for TILA violations,

Mortgage Lenders and Mortgage Servicers are now routinely

filing cross –complaints against Escrow and Title Companies

for indemnity based upon the failure of the Escrow or Title

Company to provide two accurately-completed copies of the

Notice of Right to Cancel and the TILA Federal Box Disclosure

to each Borrower and person with an interest in the Secured

Property. They are asking for damages in the amount of the

windfall to the Borrower that is a loss to the Mortgage Lender

or Mortgage Servicer.

In our above example involving the $500,000 rescinded

Mortgage Loan, the Mortgage Lender or Mortgage Servicer

would be seeking damages of $65,000.00 plus attorneys’ fees

(which can be in the tens of thousands of dollars) against the

Escrow or Title Company if the rescission has resulted from

the failure to provide the Borrower with two accurately-com-

pleted copies of the Notice of Right to Cancel. This is only one

Mortgage Loan rescission.

How Can Escrow Companies, Settlement Agents

and Title Companies Avoid Liability for Indemnity

to Mortgage Lenders and Mortgage Loan Services

in Connection with TILA Rescission claims?

As you can see in the above examples, the penalties for viola-

tions of TILA that enable a Borrower to rescind can be harsh.

Escrow Companies, Settlement Agents and Title companies

involved in the closing of Mortgage Loan transactions must

establish procedures and must train their notaries and employ-

ees who handle closings to be certain to accurately complete

the Notices of Right to Cancel and to give two accurately-com-

pleted copies of the Notice of Right to Cancel to each Borrower

and person with an interest. Failure to do so could result in

punitive liability that Escrow Companies, Settlement Agents

and Title Companies cannot afford.

1 15 USC Section 1635 and Regulation Z Section 226.23(a)(1). 2 Regulation Z Section 226.23(a)(3) fn.47.3 Th e applicable tolerance for the Finance Charge is $100.00 which in-

creases to ½ of 1% of the principal balance in a refi nance transaction but decreases to $35.00 if the Mortgage Loan is in foreclosure (i.e., the No-tice of Default has been fi led). 15 USC Section 1605(f ); Regulation Z Sec-tion 226.18(d)(1); Regulation Z Section 226.23(g); Regulation Z Section 226.22(a)(2)-(4).

4 15 USC Section 1640(a).5.i. 15 USC Section 1640(e).6 Assignee liability is found in 15 USC Section 1641.7 Regulation Z Section 226.23(b)1).8 15 USC Section 1635(f ).9 15 USC Section 1635(b).10 Palmer v. Wilson, 502 F.2d 860(9th Cir. 1974).

Robert Finlay is a partner with Wright, Finlay &

Zak, LLP and member of the UTA, CMBA, MBA

and AFN. He specializes in representing lenders,

foreclosure trustees and title companies in mort-

gage and title related litigation throughout

California. As a firm, Wright, Finlay & Zak, LLP represents and

advises its lending and trustee clients on a vast array of mort-

gage and finance issues in California and Nevada, including but

not limited to, Wrongful Foreclosure actions, Judicial Foreclosures

and Receiverships, Accounting disputes, lender and broker

Repurchase disputes, Predatory lending issues, as well as

FDCPA, FCRA, TILA, RESPA, HOEPA and other Federal and

State statutory matters. Mr. Finlay can be reached at (949) 477-

5050 or via email at [email protected].

Julie Leah Greenfield, is the Managing Attorney

of Wright, Finlay & Zak’s new Compliance,

Regulatory and Licensing Division. She has more

than 30 years of experience working in-house with

some of the nation’s largest prime and subprime

mortgage lenders. Ms. Greenfield specializes in federal and state

laws and regulations governing mortgage loan origination and

servicing as well as Federal and State licensing, fair lending,

predatory lending, privacy, disclosure, usury, advertising, origi-

nation and servicing laws and regulations, as well as loan sales,

repurchases and secondary marketing. She can be reached at

[email protected].

Recission Under TILA —Continued from page 19

64

Summer 2008 United Trustees Association

State News

TSG prices are regulated by the California Department

of Insurance and a borrower cannot be charged a fee in

excess of that regulated fee in a nonjudicial foreclosure. At

this time, SB 1375 places no limitation or regulation over

the price for this new product which is being touted as

reducing costs to the borrower.

Neither the nature of the product nor information about

who may provide the product is made clear in SB 1375.

The New Product is not a “guarantee” product containing

specific assurance regarding the information needed by a

trustee to process a nonjudicial foreclosure. Therefore, if

the New Product contains incorrect information, relied

upon by the trustee in processing the nonjudicial foreclo-

sure, will the product have the benefits and protections of

a TSG?

There appears to be no requirements for a company pro-

ducing the New Product, therefore, trustees and beneficia-

ries may incur liability because of the error of the producer

of the New Product with no recourse other than suing the

producer who may be insolvent or judgment proof.

There is uncertainty whether the new product would pro-

vide information for mailings relating to the general index

for tax liens, ERISA liens, etc. which may result in the

failure to give appropriate notice to the taxing authorities

resulting in foreclosed sales being rescinded and started

over or in the tax liens remaining on the foreclosed prop-

erty creating potential liability for the Trustee or benefi-

ciary.

When TSG’s are purchased, it is generally easy for the pur-

chaser at the trustee’s sale to obtain post-sale title insur-

ance. Title companies may be hesitant to issue post-sale

title insurance policies on properties following trustee’s

sale where a TSG was not used.

1.

2.

3.

4.

5.

6.

Because the New Product does not provide the protec-

tions of a TSG, and there is no assurance that the producer

will indemnify the trustee or beneficiary, it is feared that

restarts and rescissions of sales will increase. The result

could be increased neighborhood blight as there would

be a greater number of properties left vacant, or with

occupants who do not have an interest in maintaining the

properties, for longer periods of time.

If the new product is less expensive, but a trustee chooses

a TSG, it raises the question of whether there would be

exposure to liability for not choosing a less expensive

product but less complete product.

Finally, the legislation circumvents the provisions of the

Insurance Code for TSGs which is incorporated in CC §

2924c(c) as a limitation on the cost of the TSG.

UTA worked with a coalition regarding the legislation, includ-

ing the California Land Title Association.

7.

8.

9.

Initial CA Foreclosure Report Bill Will Not Be Pursued —Continued from page 25

Looking for Staff or

Seeking Job

Opportunities?

Visit

www.unitedtrustees.com

and click on “Career Opportunities!”

65

66

Summer 2008 United Trustees Association

State News

is the only password that can go back in to the database

and add the additional required information to the record.

Thus, it will be absolutely crucial that the original party

who opened the record on a foreclosure keep track of the

password that was utilized to open the initial record.

The 90-day right to reinstate requirements of Chapter 244,

§35A take effect on May 1, 2008 and apply to applicable mort-

gages which have been accelerated or where foreclosures are

completed prior to May 1, 2008. Note again that the account-

ing requirements of Chapter 183 §27 took effect on November

29, 2007.

Identification of Mortgage Brokers and Mortgage Loan

Originators on Recorded Mortgages and Assignments

• Chapter 183, §6D provides that for any mortgage loan

originated after November 29, 2007, mortgages and

assignments of mortgages on 1-4 family owner-occupied

homes must include either an endorsement of the name,

post office address and license number of the mortgage

broker involved in the loan, the loan originator respon-

sible for placing the loan or a notation that “no mortgage

broker or loan originator is involved.” The loan origina-

tor identification requirement is not effective until July 1,

2008 because that is the date that loan originators must be

licensed by Massachusetts. The DOB has stated that in the

event of a complaint on this requirement, a statement from

the mortgage holder or servicer that it has no information

and cannot determine if a mortgage broker or loan origina-

tor was involved will not be acceptable to the DOB; and

• Chapter 183, §6D states that the failure to include the

required information on the mortgage or assignment

will not affect the validity of the documents so that the

Registries of Deeds should not reject deficient documents

for recording. In spite of the statutory reference, we have

been advised that there are Registries that are refusing to

accept deficient documents for recording.

In her practice, Ms. Antonelli advises creditors,

lending institutions, banks and mortgage compa-

nies about creditors’ rights in foreclosures, bank-

ruptcies and collection matters and works with

clients to assist in and enforce compliance with

Rhode Island and Massachusetts law. She can be

reached at [email protected].

Mr. Lovell’s practice includes the representation of

creditors in litigation, bankruptcy and state court

receivership matters, as well as class action

defense of lenders, including TILA and HOEPA

complaints. He is the Chair of the Firm’s Creditors’

Rights Practice Group and advises lending insti-

tutions, banks and mortgage companies on creditors’ rights mat-

ters and works with these institutions to enforce their rights

under Rhode Island and Massachusetts law. He can be reached

at [email protected].

Massachusetts Intermediate Appeals Court Upholds

Fremont Preliminary Injunction

The Massachusetts appellate court judge upheld the

preliminary injunction entered against Fremont

Investment and Loan, preventing Fremont from initiat-

ing or advancing foreclosures on loans that are deemed “pre-

sumptively unfair” without prior approval from the court.

The appellate court noted that “[i]t has long been understood

that a factor to be considered in determining whether a prac-

tice should be deemed unfair is whether it is ‘within at least

the penumbra of some common-law, statutory, or other estab-

lished concept of unfairness.”

Massachusetts Legislation —Continued from page 31

67

United Trustees Association Summer 2008

State News

Moreover, the court also noted that “[t]he fact that particular

conduct is permitted by statute or by common law principles

should be considered, but it is not dispositive on the question

of unfairness.” According to the appellate court, because the

loan terms at issue (see our update below) were not explicitly

authorized under state or federal law, Fremont could not qual-

ify for the exemption under the Massachusetts UDAP statute

for conduct permitted under state or federal law.

The Massachusetts State court had granted a motion for a

preliminary injunction against Fremont Investment & Loan,

barring Fremont from initiating or advancing foreclosures on

mortgage loans that the Court deemed “presumptively unfair

loans” unless certain conditions are met.

The court held that a loan is “presumptively unfair” if it pos-

sesses the following characteristics:

• The loan is an adjustable rate mortgages with an introduc-

tory period of three years or less:

• The loan has an introductory or “teaser” interest rate that

is at least three percent lower than the fully-indexed rate;

• The borrower has a debt-to-income ratio that would have

exceeded 50% (not based on stated-income application

representations, but upon other evidence of income), cal-

culated using the fully-indexed rate; and

Fremont extended 100% financing or the loan has a substantial

prepayment penalty or penalty that lasts beyond the introduc-

tory period.

Information provided and written by Ralph Wutscher, Esq. of

Roberts Wutscher. Mr. Wutscher can be contacted via email at

[email protected].

68

Summer 2008 United Trustees Association

State News

“defective” bidding or under what circumstances a sale might

be deemed “void”. It also begs such questions as “Do we need to

draw a distinction between void and voidable sales?” and “Will

a court still recognize a trustee’s common law ability to condi-

tion the fi nality of its auctions?”

Because it is unclear whether this amendment will be deemed

to have retroactive eff ect, trustees should follow the statute for

all foreclosures pending on the amendment’s eff ective date,

June 12, 2008.

SHB

Substitute House Bill 2770, Section 22, eff ective June 12, 2008,

amends RCW 61.24.030(7) to add a new subsection (k). RCW

61.24.030(7) mandates the contents of the notice of default.

New subsection (k) requires the following additional language

to be inserted “prominently . . . at the beginning of the notice”

of default if the home is owner-occupied:

You should take care to protect your interest in your home.

This notice of default (your failure to pay) is the first step

in a process that could result in you losing your home. You

should carefully review your options. For example:

• Can you pay and stop the foreclosure process?

• Do you dispute the failure to pay?

• Can you sell your property to preserve your equity?

• Are you able to refinance this loan with a new loan from

another lender with payments, terms, and fees that are

more affordable?

• Do you qualify for any government or private hom-

eowner assistance programs?

• Do you know if filing for bankruptcy is an option?

What are the pros and cons of doing so?

Do not ignore this notice; because if you do nothing, you

could lose your home at a foreclosure sale. (No foreclosure

sale can be held any sooner than ninety days after a notice

of sale is issued and a notice of sale cannot be issued until

thirty days after this notice.) Also, if you do nothing to pay

what you owe, be careful of people who claim they can help

you. There are many individuals and businesses that watch

for the notices of sale in order to unfairly profit as a result

of borrowers’ distress.

You may feel you need help understanding what to do.

There are a number of professional resources available,

including home loan counselors and attorneys, who may

assist you. Many legal services are lower-cost or even free,

depending on your ability to pay. If you desire legal help in

understanding your options or handling this default, you

may obtain a referral (at no charge) by contacting the coun-

ty bar association in the county where your home is located.

These legal referral services also provide information about

lower-cost or free legal services for those who qualify.

Because it would be time-consuming to verify in every case

whether the home is owner-occupied, we recommend includ-

ing this blurb in every notice of default.

David Fennell is a founding partner and senior

counsel in Routh Crabtree Olsen, PS. David rep-

resents financial institutions in foreclosure, bank-

ruptcy, and litigated matters. David is one of the

industry leaders in the mortgage banking and

default servicing industry. He is a member of the

Real Property and Probate section of the Washington State Bar;

USFN (and a former board member); and is a past Fellow of the

American College of Mortgage Attorneys. He can be reached via

email at [email protected].

Washington Legislation —Continued from page 27

69

70

Spring 2007 United Trustees AssociationSummer 2008 United Trustees AssociationSummer 2008

Case Law

wrongs after losing, repeatedly fi led meritless papers, or used

frivolous tactical devices, or who has already been declared a

vexatious litigant for similar reasons. Defendants in such law-

suits can move for an order requiring security by showing that

the plaintiff is a vexatious litigant and has no probability of pre-

vailing. A court may, on its own motion or on a defendant’s,

enter a pre-fi ling order which prohibits a vexatious litigant

from fi ling a new litigation in the courts in pro per without fi rst

obtaining leave of the presiding Judge of the court where the

litigation is proposed to be fi led. Th e presiding judge can allow

the litigation to be fi led only if it appears the litigation has merit

and not been fi led for purposes of harassment or delay. In addi-

tion, it allows the Court to require the vexatious litigant to post

a bond before being able to fi le suit.

Analysis

Wolfe v. George was a case where a declared vexatious litigant

attacked the statute on unconstitutional grounds. Th e Ninth

Circuit Court Appeals dismissed the constitutional challenge

upholding that the statute is rationally related to a legitimate

state purpose. Pointing out the obvious, the vexatious litigant

tied up a great deal of the court’s time denying time to litigants

with substantial cases. In addition, it found that the state has

an interest in protecting defendants from harassment by frivo-

lous litigation just as it has an interest in protecting people from

stalking.

In Molski v. Evergreen Dynasty Corp., Molski appealed two

orders declaring him a vexatious litigant and ordering him to

obtain leave of court before fi ling any further Americans with

Disability Act (“ADA”) suits in the United States District Court

for the Central District of California. Th e District Court’s order

barred Molski’s attorneys from fi ling similar suits. Th e Court

found that Molski’s numerous and similar complaints against

numerous small businesses were lacking in credibility. Th e

District Court concluded that Molski’s motivation in bringing

these numerous type suits was to extract cash settlements from

defendants. Th e Ninth Circuit concluded that it had satisfi ed

due process requirements in apprising Molski and his attorneys

of the court’s intent to issue this release and that the Order was

narrowly tailored to this vexatious litigant’s wrongful behavior.

In Moran v. Murtaugh, Millet, et al., the Court held that a para-

legal who had been hired by a law fi rm that was fi red for failure

to reveal a felony conviction was required to post costs before

proceeding with the instant litigation. Th e Court held that the

Court could make the determination of whether or not a party

qualifi es as a vexatious litigant on the basis of declarations fi led

in support of the security motion. Th us, the Court can weigh

the declarations and the evidence in making its ruling and fi t

within due process standards.

Why These Cases Are Important To Trustees And Lenders

Th ese cases all collectively will be of assistance to lenders and

their counsel in proceeding in future cases where pro per liti-

gants continue to litigate issues that have previously been lost

or to attack the lender’s actions. Th e vexatious litigant statutes

provide the means at which counsel can research the pro per

litigant’s prior actions to see if the case may qualify for relief

under the statute. Th e fact that a pro per litigant who has been

fi ling numerous suits against the lender and the trustee over

a disputed foreclosure sale can be prohibited from proceeding

unless he or she posts a signifi cant cash bond may be the death

knell of that litigant’s continued ability to cost clients money

and unnecessary expense.

Martin T. McGuinn, Esq., a real estate and credi-

tors’ rights litigator, is a principal in the law firm

Kirby & McGuinn, who focuses his practice in the

representation of lenders, servicers, receivers and

trustees in complex bankruptcy, foreclosure and

lender liability litigation, including class action

suits. He can be reached via email at mmcguinn@kirbymac.

com.

Four Cases Worth Review —Continued from page 45

71

United Trustees Association2030 Main Street, Suite 1300

Irvine, CA 92614