Foreclosure Buzz

Loan servicers and their henchmen (attorneys and real estate brokers) continue to ignore the requirements of the Protecting Tenants at Foreclosure Act.  Many take the position that tenants’ leases do not have to be honored, and instead only provide a 90 day notice to vacate.  Some decide to advise tenants of their “rights” expressly.  On October 28, 2011, American Home Mortgage Servicing, Inc. (AHMSI) was sued for issuing a letter to a tenant that said as much, and refusing to change its letter in the future despite numerous requests.  Without any basis in the law, AHMSI’s representatives also demand extensive documentation within a short time frame in order to get the 90 days.   AHMSI even said for the tenant to not be concerned with an eviction.  It appears that loan servicers hope to take advantage of tenants as much as possible and hope the law is not extended past December 2014.

Rather than merely defend frivolous eviction cases — loan servicers such as AHMSI should be sued for damages and for orders to require them to comply with the law.

Here are just some of the allegations in Davis v. AHMSI et al., Civil Action No. 1:11-cv-219, US District Court, S.D. Tex., Brownsville Division:

On or about April 29, 2010 [a few weeks after the foreclosure sale], Plaintiff Davis received a letter dated April 26, 2010 from Defendant AHMS through Defendant’s counsel. The letter was titled “Notice of Foreclosure & Tenant’s Rights Under the Federal Law.” This letter gave Plaintiff Davis three days’ notice to vacate if he was not a tenant of the former owner of the home and ninety days’ notice to vacate if he was a tenant of the former owner of the home. The letter demanded that Plaintiff Davis provide a written lease or proof of payment, a telephone number and proof of six months of rent payments within three days of receipt of the letter if he was a tenant. The letter misrepresented that Plaintiff Davis must comply with this demand to qualify for the rights and protections of the PTAF. The letter also presented Plaintiff Davis with an agreed judgment. The agreed judgment provided for a justice of the peace to issue a writ of possession as early as May 17, 2010. The letter instructed Plaintiff Davis not to be concerned about receiving a citation and not to attend the eviction hearing set by the justice of the peace after he submitted the signed agreed judgment to Defendant.

By the express terms of the letter, Defendant AHMS intended to advise Plaintiff Davis of his “legal rights under federal law.” Plaintiffs attach a true and correct copy of the letter as Exhibit 2.

On or about April 30, 2010, Plaintiff Davis sent an e-mail to Defendant AHMS through Defendant’s counsel that informed Defendant AHMS that Plaintiff Davis had paid his rent for April and May to his former landlord. Plaintiff Davis included a copy of the written lease and images of rent checks for payments he had made to his former landlord with his e-mail. Plaintiff Davis also provided his telephone number and informed Defendant AHMS that he only receives visitors at his home by appointment. On or about May 14, 2010, Plaintiff Davis received a letter from Defendant AHMS dated May 5, 2010. The letter demanded that Plaintiff Davis provide the following documentation to Defendant AHMS: a complete copy of the signed lease, a completed tenant questionnaire that was attached to the letter, front and back of cancelled checks for rent paid for the last six months, front and back of the cancelled check for the security deposit paid and copies of utility bills for the property addressed to Plaintiff Davis. The letter informed Plaintiff Davis that Defendant AHMS would commence eviction proceedings against Plaintiff Davis if he failed to provide Defendant AHMS with these documents within three days of receipt of the letter. The letter also asked Plaintiff Davis to contact an agent of Defendant AHMS to confirm that his identity is the one on the lease. Plaintiffs attach a true and correct copy of the letter as Exhibit 3.

On or about May 17, 2010, Plaintiff Davis sent Defendant AHMS a letter dated May 17, 2010. In this letter, Plaintiff Davis confirmed that he had met with the agent on May 14, 2010. He also attached another copy of his lease along with proof of payment. In the letter Plaintiff Davis inquired as to whom he could pay his rent for June 2010. On or about May 26, 2010, a representative of Defendant AHMS entered the grounds of the home without Plaintiff Davis’s permission. At or about 6:40 pm the representative came to Plaintiff Davis’s front door and demanded access to Plaintiff Davis’s home. Plaintiff Davis asked the representative to leave immediately. The representative returned to his vehicle, but then walked back to Plaintiff Davis’s home and affixed a notice to the brick veneer of the home with chewing gum. During this time Plaintiff Davis had a sign prominently displayed on the grounds of his home that states that entering the grounds is forbidden.

On or about May 27, 2010, Plaintiff Davis spoke with Defendant AHMS’s representative Joe John Watson. Plaintiff Davis informed Mr. Watson of what Defendant AHMS’s other representative had done at Plaintiff’s home on May 26, 2010. Mr. Watson told Plaintiff Davis that Defendant AHMS wanted to deliver an information package to him using a different representative who would also inspect the property. Plaintiff Davis asked that he be sent the package by mail to his P.O. Box and that no more representatives of Defendant AHMS visit his home. Mr. Watson agreed.

On or about June 10, 2010 Mr. Watson called Plaintiff Davis and rescinded his agreement to communicate by mail.

Original Complaint and Exhibits here.

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Fannie Mae and Freddie Mac are dumping their law firm networks and instead will let mortgage servicers hire their own lawyers to process foreclosures.

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While paying homage to School House Rock’s “I’m Just a Bill” and a host of other classic instructive cartoons of that series that began in the 70s, the Daily Show pulled no punches in describing the Dodd-Frank financial reform law including its creation of the Consumer Financial Protection Bureau - “a sham.”  The show’s version of Bill — HR 4173 — took the stage and castigated itself:

“The only way Congress would have passed me was if the details of the rules and regulations were unspecified giving K Street lobbyists all the time they would need to water me down post-passage … and if any actual tough rule managed to squeak through, Congress people [would] cut the budget of the agency responsible for enforcing it.  The whole thing is a giant punt.  I’m no law.  I’m no law, John. I’m just an undefined, impotent, 2,300 page piece of legislative sh#t.”

Dodd-Frank Act, as portrayed by John Oliver of the Daily Show, July 29, 2011, clip here (including crass humor).

When CFPB was created, many (including me) feared it would become the next OSHA or Consumer Products Safety Commission, and that fear has become fact.  The agency has become a political football. American Banker, here.

The Obama Administration has made big promises for American families tolling with the financial services industry — like the creation of the HAMP program, but the reality is that the pillars of all his promises are easier to dodge than the Maginot Line.

The administration at least should have stuck with Elizabeth Warren who conceived the bureau to let her head it.  It is not clear whether he could have appointed her during a Senate recess (Daily Show says he could have by now, but story here re May recess) — regardless he abandoned her.  Story here. (Now of course Senate Republicans are vowing to block any nominee until the agency is stripped of power.)  The administration could have reigned in the federal Office of the Comptroller of the Currency for the issuance of weak corrective suggestions (aka “consent orders”) in response to overwhelming evidence of systemic fraud in the foreclosure process across the county — which were made by OCC and other federal agencies some say to remove the political force behind a real enforcement effort by a task force of  all 50 state attorneys general. Story here. When will borrowers achieve justice?

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MERS, that strange little company that has played a significant roll in eliminating lender responsibility, accountability and transparency pulled back the curtain some more (after Fannie clipped its wings in April, story here):

Effective July 22, 2011:

• No foreclosure proceeding may be initiated, and no Proof of Claim or Motion for Relief from Stay (Legal Proceedings) in a bankruptcy may be filed, in the name of Mortgage Electronic Registration Systems, Inc. (MERS)

• The Certifying Officer must execute the assignment of the Security Instrument from MERS before initiating foreclosure proceedings or filing Legal Proceedings and promptly send the assignment of the Security Instrument for recording in the applicable public land records

MERS Policy Bulletin 2011-5 (here).

MERS remember was supposed to merely track the ownership of a mortgage and its servicer to eliminate the requirement of multiple assignments every time a mortgage was bought and sold.  It was allegedly never invented to be a dodge of the financial service industry so the industry says.  Of course MERS morphed itself at the behest of its members of the industry and began to pretend to take actions in its name and hide the real entity behind the curtain a la the Wizard of Oz (says the courts, story here and here).

It also appears that the Certifying Officer of MERS (a lender representative with credentials granted him or her by MERS with a click of a mouse) must now record an assignment in deed records before the foreclosure begins it appears.  The assignment would purport to transfer the  right to foreclose from MERS to the current owner of the note. In judicial foreclosure states this may already be happening, but in non-judicial foreclosures MERS was skipping this step unless it was sued.  Of course, whether the assignment by the CO of MERS is any good or not is another question — does MERS have the authority to transfer or assign anything?  The right to foreclose is based on the ownership of a promissory note for which there has been a default.  MERS never collects money from borrowers, it is not authorized to collect money, it does not ever own, possess or hold the promissory note — so how can it give something to someone it never owned?  Can it transfer the right to foreclose without transferring the right to collect the money?  Some courts say MERS can, some no.  Recent cases say yes, story here.  (MERS says: “This year alone courts in Georgia, California, Michigan, Kansas, New York and New Hampshire have upheld the MERS business model recognizing MERS as a mortgagee.” MERS release here.) Regardless, it is a nice to see MERS pulling back the curtain, although I think it would gladly help to foreclose on Dorothy and her little dog too.

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It has been more than two years and some attorneys for lenders and others are still out there claiming that the Protecting Tenants at Foreclosure Act (PTFA) does not require the purchaser at the foreclosure sale to honor a pre-existing lease of a bonafide tenant.  These attorneys are not uninformed — I would argue they hope to change what the public, tenants, judges, tenant advocates, media believe the law requires — in effect blunting it merely by misinformation.

The bad argument goes that PTFA only requires a tenant get 90 days notice to vacate after a foreclosure sale if the lease is “terminable at will under state law”.  These folks claim that the state at issue allows a buyer at a foreclosure sale to ignore a pre-existing lease, therefore it is “terminable at will,” and therefore a lease for a fixed term of a year or whatever can still be terminated by the purchaser (often a lender) by merely giving the bonafide tenant 90 days.  This argument is sheer lunacy.

The sole purpose of PTFA is to require purchasers at foreclosure sales to honor pre-existing leases of bonafide tenants and thus to trump state law.  The exception “terminable at will under state law” refers to tenancies where there is no fixed term and are month to month or week to week.  In those cases PTFA mandated that these tenants at least get 90 days notice to vacate.

There are few cases on this point because the law is so obvious and few reputable attorneys have likely wanted to pursue it.  But here is one case where the tenant (Joel) tried to argue he had a lease for a fixed term and thus should have gotten more than 90 days notice from the lender who bought the property at the foreclosure sale (HSBC):

The issue is whether the lease is terminable at will, in which case HSBC can end the lease by providing 90 days’ notice to Joel, or whether it is a lease for a fixed term, in which case HSBC will have to let Joel remain in the property until it sells the property to a purchaser who will use it as a primary residence. The fact that HSBC was not a party to the original lease does not mean that it cannot interpret the express language of the contract to derive the parties’ intent.  Joel’s argument that the leasing agreement established a lease for a fixed term, rather than a tenancy at will, also fails. By its terms, the lease created a “month-to-month tenancy” that could be terminated by either party with 30 days’ notice. Because Georgia law requires at least 30 days’ notice before terminating a tenancy at will, the lease effectively created a tenancy at will. See O.C.G.A. § 44-7-7. Therefore, under the PTFA, HSBC could terminate the lease after providing 90 days’ notice to Joel.

Joel v. HSBC Bank USA, N.A., 2011 U.S. App. LEXIS 6707 (11th Cir. Ga. Mar. 31, 2011).

Here is another:

[PTFA] specifies that a successor property owner acquires its property interest subject to the right of a bona fide tenant who is “without a lease or a lease  terminable at will under state law” to receive “the 90 day notice under subsection (1).”   Accordingly, by its express terms, § 702 (a) requires that a successor property owner provide a bona fide month-to-month tenant with a 90-day notice to vacate before terminating the tenancy, and the 90-day period must be completed before the notice’s effective date.

Bank of N.Y. Mellon v. De Meo, 2011 Ariz. App. LEXIS 65, 8-9 (Ariz. Ct. App. May 3, 2011) (emphasis added).

The law itself, the legislative history of the law, and the opinions above make it obvious.  PTFA requires purchasers to honor leases of bonafide tenatns (unless they want to occupy it themselves as their primary residence).  Yet I continue to hear stories of lender attorneys in eviction cases in the lower courts making the argument that their clients don’t have to honor the lease and some servicers continue to give notice to tenants to be out in 90 days and not mention that they will honor existing leases.  Unless the tenant knows the law, they will likely move as demanded by the lender attorneys.  In court, unless the tenant is represented or the judge knows the law, some judges might fall for this bogus argument.  Regardless, the rhetoric — aka deceptive representation of the law — impacts the knowledge base of the public, even that of real estate attorneys that may be reputable.  For example in an ABC New story today:

“In a distressed economy, renters have to be extra cautious they know what they are getting themselves into,” says Singer. If the bank forecloses on the property after a homeowner association foreclosure the renter would only have 90 days to move based on the Protecting Tenants at Foreclosure Act. To keep themselves from falling victim to predators “tenants should do the due diligence” and find out who they are renting from, Singer says.

Gary Singer, Real Estate Attorney, ABC News, July 27, 2011 (story here).

The story discusses what happens after a HOA forecloses for nonpayment of dues — investors buy the property and then rent it out, but don’t pay the underlying mortgage. Then when the bank forecloses the tenants it appears fall victim per the story.  This is incorrect information.  No problem it is just ABC News. PTFA clearly requires a purchaser at a foreclosure sale to honor all fixed term leases of bonafide tenants (unless the purchaser intends to occupy the property as his primary residence).  Mr. Singer might have been misquoted, or might have been talking about tenants obtaining month-to-month leases from investors (but it does not look like it).

Even Fannie Mae, the largest lender in the world now controlled by the federal government dances around the subject in its materials and information it sends to tenants occupying property that has been foreclosed on.  It seems to give lip service to the law but clearly intends to deceive:

Fannie Mae’s REO Tenant-in-Place Rental Policy FAQs

Fannie Mae’s rental policy allows renters in Fannie Mae-owned, single-family foreclosed properties the opportunity to stay in their homes by signing a new lease with Fannie Mae or by continuing an existing lease protected under the Protecting Tenants at Foreclosure Act or other applicable law.

Who is affected by the rental policy?

The Tenant-in-Place rental policy applies to qualified renters occupying a Fannie Mae-owned home at the time of foreclosure. Mortgagors may also have the opportunity to rent through Fannie Mae’s Deed-for-Lease program (more information on this program is available at www.fanniemae.com). Renters occupying any type of single-family property may be eligible. This includes residents of two- to fourunit properties, condominiums, co-ops, single-family detached homes and manufactured housing. The policy applies to all renter-occupied single-family Fannie Mae-owned properties. Approval from the Department of Housing and Urban Development will be required on properties where the loans were insured by FHA.

Source: http://www.fanniemae.com/homebuyers/pdf/rental_faqs.pdf

Notice that Fannie Mae says nothing about the law requiring it to honor existing leases — Fannie merely states that they have a policy with requirements.  It is true that a tenant must be bonafide before PTFA applies — but that merely means that the lease is legitimate (not between family, for market rent, etc.). Fannie clearly is trying to hide the ball from renters so that they will not realize that they have rights under PTFA.  Fannie then completely states a complete falsehood — that FHA must give approval before it has to honor a pre-existing lease.

I’m sure if I kept digging I could find more examples all over the place.  My point is we must diligently defend tenants’ rights under PTFA from attacks from all sources — if nobody corrects the media, servicers, GSEs and others then in the end the law has been eviscerated and the lenders will have once again weaseled their way out of another federal law.

Note: Another lender attorney argument is that while PTFA requires an actual notice to vacate of 90 days to be sent to people with month-to-month leases, lenders merely have to wait 90 days before starting eviction proceedings and never have to give the notice.  This argument is consistent with the audacity of the one above and lenders’ view of federal laws in general as opposed to federal bailouts.  This notice-not-required argument has also failed when it reached at least one appellate court. Bank of N.Y. Mellon v. De Meo, 2011 Ariz. App. LEXIS 65 (Ariz. Ct. App. May 3, 2011).

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