Stern & Eisenberg Compliance Department Reengineering

The Stern & Eisenberg Compliance Department was originally established as a Risk Management function to ensure that the firm is in conformance with the client directives, state and federal laws, and court procedures. Running the compliance program requires the Firm to take a systematic approach to addressing compliance risk areas, adhering to governmental laws, rules and guidelines while involving the entire organization. “Compliance is there to drive the cultural of accountability within the organization, making sure we not only know the law, but also adhere to it for the benefit of our clients and the firm”, say Oliver Ayon, Esquire the S&E Director of Compliance and Executive.

During a time where a global pandemic introduced new challenges and opportunities, it was also the time for the S&E team to focus on the enhancement of systems and streamline processes guided by the firm’s Core Values, CREATE CHANGE. The Firm’s staff members, Managing Attorneys, Managing Paralegals, and Executives came together with an entrepreneurial outlook to redefine what is essential to secure and enhance quality control measures.

The S&E unification of ideas led to the reengineering of the Firm’s compliance department. Today, the department is driving innovations with product evolution and enhancing inter-organizational strategy and operational imperatives. The role of this Compliance Department is to proactively build efficiencies and proactive risk mitigation efforts, “bridging the gap” between the Firm employees, the individual departments, and the Firm’s leadership. The Compliance Department ensures that all Firm employees are engaged with the compliance program and educated on their role within the Firm so they will contribute meaningfully to their teams and the needs of our clients. Ayon’s vision of “bridging the gap” and collaborating with all employees, has been a steadying force for the organization in a time where the Firm is navigating the proverbial uncharted waters of 2022. “Oliver is a truly positive force in driving S&E into the future. He brings his passion, energy and diligence to our organization in ways that inspire others on the teams to look for ways to always improve the ways we meet and/or exceed expectations,” says CEO, Steven Eisenberg, Esquire, MBA.

The reengineered compliance team consists of S&E internal talent who were designated by the CEO, Steven K. Eisenberg, Esquire, MBA and the Director of Compliance, Oliver Ayon, Esquire. “We want our team to think outside of the box to achieve creative solutions to our clients’ ever changing legal needs,” says Eisenberg. The team’s diverse industry skill set, and experience align with the Firm’s current and long-term transformational goals. Whether it is providing interactive educational sessions to examining holistic solutions to many of the challenges we face, the compliance team is inspiring results across S&E.

It is the mantra of the Firm’s Compliance Department to always do the right thing in a preventive manner to lessen or remove the opportunity for any harm to come to our clients and our Firm due to a compliance risk. The Compliance Department is responsible for implementing written policies, procedures, and standards of conduct; conducting effective training and education; developing effective lines of communication; conducting internal and external auditing; responding promptly to and undertaking corrective action. Ayon and his team pride themselves on making sure the process is sound in order for our other departments to have a solid foundation for the routine so they can continue to bring creative solutions to some of the more challenging issues that our clients face and present to us.

Stern & Eisenberg is an ISO 27001 certified full-service law firm providing legal representation in a variety of matters throughout the firm’s footprint. S&E focuses on real estate and business law; general and mortgage default litigation; estate planning and administration; as well as real estate closings, both REO and retail, throughout the firm’s larger footprint. S&E’s multistate footprint for GSE matters includes New York, New Jersey, Pennsylvania, Delaware, West Virginia, and S&E also has attorneys also licensed in additional states, including, Maryland, Virginia, and Washington DC.

The firm recognizes and values the importance of high-tech compliance measures transforming all legal and client requirements driving efficiency and security.

Contact the Stern & Eisenberg Compliance Team today.

S&E New York Statutory Requirements – What about the Kessler Decision?

Published in The American Bar Association’s Section of Litigation about the Kessler Decision.

By: Arsenio Rodriguez, Esquire & Ali Degan, Esquire

Make sure that your section 1304 notices do not include anything beyond what the statute expressly prescribes and it is mailed in a separate envelope.

 

To interpret a statute is an important function of the judiciary. However, not all courts interpret statutes in the same manner. As such, it is helpful for practitioners to familiarize themselves with arguments analyzed and adopted by courts in construing statutes, especially those which may set the basis for a court action or proceeding.In this piece, we review a significant foreclosure matter entitled Bank of America, N.A., v. Andrew Kessler, et al., which was recently decided by the Appellate Division, Second Department for the Supreme Court for the State of New York (hereafter referred to as the “Second Department”). As a frame of reference, the Second Department is the intermediate appellate court for the New York City metropolitan area. As a result, decisions by the Second Department affect a large part of the population in the State of New York. The statute in question in Kessler is the Home Equity Theft Prevention Act (HETPA).Pursuant to the HETPA and the Real Property Actions and Proceeding Law (RPAPL) section 1304, mortgagees of a home loan are required to serve a notice to the mortgagors at least 90 days prior to the commencement of the action. The underlying purpose of these statutes is to provide a greater amount of notice to mortgagors confronted with foreclosure and in turn afford them with greater protections than homeowners may be afforded under the parties’ mortgage contracts.

Strict compliance with RPAPL section 1304 is required. Failure to do so may subject the action to dismissal without prejudice because, where applicable, proper service of an RPAPL section 1304 notice is a condition precedent to a judicial foreclosure action. Additionally, the mortgagor has the burden of proving their compliance with this condition, while the borrower has to merely allege non-compliance. However, failure to comply with RPAPL section 1304 is not jurisdictional, and violation of the statutes constitutes a defense to a home loan mortgage foreclosure action only when raised. In other words, the defense is waivable.

In Kessler, the borrower conceded that he did in fact receive an RPAPL section 1304 notice. However, the borrower alleged that the notice included language, in addition to the prescribed language required by RPAPL section 1304(1). The borrower contended that the inclusion of this additional language constituted a separate notice within the meaning of RPAPL 1304(2), and therefore violated the “separate envelope” requirement imposed in that subdivision. The trial level court accepted the borrower’s argument and held that the mortgagor did not strictly comply with RPAPL section 1304. Thus, the trial court held that a condition precedent to the foreclosure action was not met.On appeal, both the majority and dissent agreed on the purpose of the underlying statute. RPAPL section 1304(1) provides specific language for the notice which must be contained in every RPAPL section 1304 notice and must be in at least 14-point type. The language warns the homeowner, in essence, that their mortgage is in default, that the homeowner is at risk of losing their home, and the amount of arrears that must be paid in order to cure the default. If the default is not cured within 90 days, a foreclosure action may be commenced against the homeowner.RPAPL section 1304(2) provides additional guidance about how the RPAPL section 1304 notice must be delivered. In particular, “the notices required by this action shall be sent by the lender, assignee, or mortgage loan servicer in a separate envelope from any other mailing or notice[.]” Per the majority, the appeal required the Second Department to address the issue of how exacting the requirement of strict compliance is with respect to the “separate envelope” mandate of RPAPL section 1304; to wit, in a mortgage foreclosure action, how should the “separate envelope” requirement of RPAPL section 1304(2) be construed?

The Second Department ruled that the language in RPAPL section 1304(2) must be interpreted as strictly as RPAPL section 1304(1) is interpreted. In doing so, the court stated that in the matter of statutory interpretation, the primary consideration for a court is to discern and give effect to the legislature’s intention. The text of a provision is the clearest indicator of legislative intent, and as a result, courts should construe unambiguous language in a manner that gives effect to its plain meaning. When the plain language of a statute is precise and unambiguous, it is determinative.

The majority held that inclusion of any material in the separate envelope sent to the borrower under RPAPL section 1304 that is not expressly delineated in these provisions, constitutes a violation of the separate envelope requirement of RPAPL section 1304(2). Under this construction of the statute, the addition of any language (i.e. any word, sentence, or paragraph) that is not explicitly required by RPAPL section 1304(1) constitutes, as a matter of law, a violation of the separate “mailing or notice” requirement contained in RPAPL section 1304(2).

“This strict approach precluding any additional material in the same envelope as the requisite RPAPL section 1304 notices not only comport with the statutory language, it also provides clarity as a bright-line rule to plaintiff lenders and ‘promotes stability and predictability[.]’” As Associate Justice Colleen D. Duffy, JJ. of the Second Department wrote for the majority, “[t]he strict construction of the ‘separate envelope’ requirement is consistent with the Legislature’s intent.”

In contrast, the dissent took issue with such a bright-line ruling, and instead suggested that the issue was whether, in the absence of an explicit prohibition against such additional language in RPAPL section 1304, does such language invalidate the notice? The dissent opined that the statute should not be extended beyond its plain language in a manner that analyzes the additional language prior to rendering every inconsequential addition fatal.

The dissent argued that the plain language of the statute does not support the majority’s construction because the court has recognized that the plain language merely provides that any “lender, assignee or mortgage loan servicer shall give notice to the borrower… which shall include the following [language]” [emphasis added]. The dissent reasoned that the plain language does not purport to restrict the content of a valid notice or prohibit the inclusion of any other language beyond that which is explicitly required, but instead sets the minimum of what must be included in a valid RPAPL section 1304 notice.

For although the requirements of the statute must be strictly complied with, the statute itself must be strictly construed in the first instance because a statute in derogation of the common law, or which infringes upon an existing common right, must “be strictly construed”. The failure to do so here is error, as a matter of law. In its present form, there is no statutory basis or prohibitionary language to “conclude that any language beyond that which is required by RPAPL § 1304(1), however, slight or innocuous, constitutes a separate ‘mailing or notice’ within the meaning of RPAPL 1304(2)[,]” wrote Associate Justice Robert J. Miller of the Second Department, in dissent.

Justice Miller concluded that because the notice did actually include the language required by the statute, the mortgagor strictly complied with the statutory commands of RPAPL section 1304, and the additional information regarding bankruptcy or military status of the borrower were in furtherance of the intent of the statute to provide a homeowner with information necessary to preserve and protect home equity.

In the end, it seems that the majority expressly rejected the mortgagor’s position in the litigation that an analysis undertaken by certain trial courts in New York should apply: that courts should evaluate whether the additional material(s), contained in the envelope sent by the lender pursuant to RPAPL section 1304, prejudice(s) or assist(s) the borrower when ascertaining compliance with the RPAPL section 1304. It appears that the majority decided this case more from a workability and predictability standpoint with a formalistic bright-line rule, as opposed to approaching the issue from a spirit of the law, minimalistic, case-by-case pragmatic standpoint.

Practitioners should note that trial courts have already started dismissing several residential foreclosure cases following Kessler. Therefore, it is crucial for all real estate attorneys to examine the RPAPL section 1304 notices sent by them and/or their clients, and determine what implications, if any, Kessler has on their cases. Some foreclosure actions may need to be started over in order to comply with Kessler’s dictates. Such analysis may become even more necessary as the Second Department argues that its sister court, the Appellate Division, Third Department, is in agreement with this decision (although no appellate decision adopting Kessler has been released as of yet). Please note that a decision from the New York State Court of Appeals, New York’s highest court, may change these determinations, should a case presenting similar issue make it before the state high court. Stay tuned, but, for now, make sure that your section 1304 notices do not include anything beyond what the statute expressly prescribes.

Updated Certification of Diligent Inquiry Requirements in New Jersey

By: Lucas Anderson, Esquire

 

New Jersey has long required that the attorney who files a foreclosure complaint must also file a Certification of Diligent Inquiry setting forth that the attorney has communicated with an employee of the Plaintiff (or the Plaintiff’s mortgage loan servicer), who has reviewed the complaint and supporting documents and confirmed their accuracy.  Recent legislation has somewhat expanded the certification requirements.  Specifically, the new statute (N.J.S.A. 2A: 50-56.4) provides that, in addition to any pre-existing requirements, the attorney filing a foreclosure complaint must certify:

  • That the attorney has reviewed the facts of the case and that, based on the information received and the attorney’s review of the pertinent documents, to the best of the attorney’s knowledge, information and belief there is a reasonable basis for the commencement of the action and that the plaintiff is currently the residential mortgage lender entitled to enforce rights under those documents
  • That the attorney is aware that failure to comply with the Certification of Diligent Inquiry requirement may result in (i) dismissal of the complaint; (ii) denial of the accrual of any costs, attorney’s fees and other fees relating to the mortgage debt; or (iii) where the failure constitutes a violation of the Rules of Professional Conduct, sanctions imposed by the Supreme Court of New Jersey

Stern & Eisenberg has updated its Certification of Diligent Inquiry in compliance with N.J.S.A. 2A: 50-56.4.  We anticipate relatively little disruption to our clients’ processes as a result of this new statute.

PA Homeowner’s Assistance Fund to Begin Accepting Applications February 1, 2022

By: Kenya Bates, Esquire

PA announced that it will begin accepting applications for its Homeowner’s Assistance Fund (HAF) on February 1, 2022. HAF will distribute $350 million allocated to the Commonwealth through the American Rescue Plan Act of 2021 (Pub L No. 117-2, 135 Stat. 4). The program is intended to assist homeowners experiencing hardships as a result of the Covid-19 pandemic.

Eligible homeowners may apply for mortgage assistance for their owner-occupied primary residence. In order to be eligible, homeowners must have experienced a financial hardship after January 21, 2020, even if the hardship began before that date. Household income must be at or below 150% of area median income. Priority will go to applicants with household income at or below 100% of area median and those who are defined as Socially Disadvantaged. For the purpose of the program, an individual is social disadvantaged if their ability to purchase a home has been impaired as a result of diminished access to credit. This impairment may be the result of being (1) a member of a group who has been subject to racial or ethnic prejudice or cultural bias; (2) a resident of a majority-minority Census tract; (3) an individual with limited English proficiency; (4) a resident of a U.S. territory, Indian reservation; or Hawaiian Home Loan, or (5) an individual who lives in a county that has had 20% or more of its population living in poverty over the last 30 years (a persistent poverty county).

If accepted by the program, homeowners would be eligible for up to $30,000 or 24 months in mortgage assistance. Funds can be used to reinstate a first mortgage and for up to 6 months of mortgage payments going forward. Funds will also be available to pay for delinquent property taxes, insurance premiums, HOA fees and delinquent utilities.

Lenders and Servicers should expect delays in foreclosure timelines as courts allow homeowners leeway to apply to the program. This will be particularly true in those counties that have implemented foreclosure mediation programs. We anticipate that courts may be more inclined to grant postponements of sheriff’s sales, when requested by homeowners, so that they may apply to the program. Servicers with large portfolios in Philadelphia can expect the most significant impact.

Questions?
If you have any questions, please contact Stern & Eisenberg Managing Pennsylvania Attorney, Andrew Marley, EsquirePennsylvania Attorney, Kenya Bates, Esquire, or the Stern & Eisenberg Value Department.

Rule Relaxations and Proposed Rule Amendment for New Jersey Landlord Tenant Matters

By: Christopher Saliba, Esquire

 

On January 4, 2022, the Supreme Court of New Jersey issued an Order to relax certain provisions of Court Rule 1:38, to align with legislation that became effective December 1, 2021. Said legislation established confidentiality standards for certain landlord tenant cases arising out of non-payment or habitually late payment of rent owed between March 9, 2020 and August 3, 2021. In other words, certain landlord tenant cases arising during the pandemic are limited from public access and should be removed.

The Court also further relaxed and supplemented Rule 1:11-2(c) (“Appearance by Attorney for Client Who Previously Had Appeared Pro Se”) to allow attorneys providing short-term limited legal services to a client in a residential landlord tenant case to enter a limited appearance to review the case file before undertaking representation. As per the Court’s Order, any attorney who files a limited appearance under this Rule is not required to pay any filing fees.

The Supreme Court is proposing additional amendments to Court Rule 1:38, specifically 1:38-3(f) (“Court Records Excluded from Public Access”). The amendment seeks to include language that would remove landlord tenant matters from public access where a judgment for possession was entered more than seven years ago. Comments are welcomed by the Supreme Court by February 14, 2022.

CFPB Post-Covid Mortgage Servicing Rules

By: Salvatore Carollo, Esquire

Following the expiration of the federal foreclosure moratorium on July 31, 2021, the Consumer Financial Protection Bureau (CFPB) finalized its post-Covid-19 mortgage servicing rules which took effect on August 31, 2021 and will remain in place until December 31, 2021.  Generally, the new temporary rules which have been referred to as “procedural safeguards” have been implemented to prevent a mortgage loan servicer from initiating a new foreclosure, or completing an existing foreclosure proceeding before January 1, 2022.  In addition, the temporary provisions apply to all “federally-related mortgage loans” (as defined under RESPA) that are secured by the borrower’s primary residence.  As a result, the new rules can also apply to portfolio loans, rather than just federally backed mortgage loans that were subject to the CARES Act.

The temporary rule changes require enhanced foreclosure protections through December 31, 2021.  Until then, servicers are not permitted to commence a new foreclosure due to missed payments unless one of three safeguards have been met: (1) the borrower has submitted a complete loss mitigation application; (2) the property securing the loan is deemed abandoned; and (3) the servicer has not received any communications from the borrower for at least 90 days prior to initiating the foreclosure.  The prior existing servicing rules generally prohibit a loan servicer from noticing or filing a foreclosure action until the borrower is more than 120 days delinquent.  The rule changes essentially prohibit initial notices or first filings for any type of foreclosure until after December 31, 2021 with certain limited exceptions.  The rule changes further permit servicers to offer additional streamlined loan modification options to borrowers with COVID-19 related hardships based on the submission of incomplete loss mitigation applications so long as certain criteria and modification terms are met.

The new rules have also amended prior early intervention requirements of the loan servicer and introduce “live contact” options for COVID-19 related hardships.  These early intervention protocols require servicers to discuss with certain delinquent borrowers specific COVID-19 related information at two specific times: First, at an initial live contact if the borrower is not yet in a forbearance program and the owner or the assignee of the loan offers a COVID-19 hardship forbearance program.  Second, at the last “live contact” prior to the end of the forbearance period if the borrower is in a COVID-19 related hardship forbearance program.  These rule changes make it abundantly clear that under the current administration, the CFPB is displaying a renewed focus on prioritizing consumer protection over industry concerns.  Accordingly, the financial servicing industry is expected to remain current with these ever-changing regulatory developments and ensure compliance with fair lending statutes through continuous comprehensive internal review of fair lending policies and procedures.

Standards for Lender’s Application of Insurance Proceeds: Wilmington Savings v. Daw

By: Lucas Anderson, Esquire

In Wilmington Savings Fund Society v. Patricia E. Daw and Richard C. Daw, et al., (New Jersey Superior Court, Appellate Division, Docket No. A-0829-19), the court considered the question of what standards govern a lender’s determination of how to apply insurance proceeds following damage to the mortgaged property.  The case concerned the application of insurance proceeds stemming from damage caused by Superstorm Sandy.

In the Daw case, the lender held the insurance proceeds for more than three years before ultimately applying them to the mortgage debt.  The borrowers argued for a reduction in the final judgment based on the lender’s delay.  The Court held that, although the decision of how to apply insurance proceeds is the lender’s, the implied covenant of good faith and fair dealing constrains the lender’s discretion.  The implied covenant of good faith and fair dealing is a doctrine which holds that no party to a contract may act in a manner designed to prevent the other party from realizing the benefits of the contract, nor may they exercise their contractual functions arbitrarily, unreasonably, capriciously, or with an improper motive.  It is well settled that the implied covenant of good faith and fair dealing applies to all contracts governed by New Jersey law.

The Daw Court noted that most loan documents give the lender the authority to determine how to apply insurance proceeds.  Most such provisions require insurance proceeds to be applied to repairing the mortgaged property, unless repairs would be economically infeasible or would impair the lender’s security.  However, although the lender has the right to determine how to apply insurance proceeds, the Daw Court held that the lender must exercise this right consistent with the implied covenant of good faith and fair dealing.  In any given case, the question of whether insurance proceeds were applied appropriately is a fact-specific determination to be made by the trial court.  However, the Appellate Division has announced the following standards which lenders should bear in mind when handling insurance proceeds:

  • Insurance proceeds must be held in a separate, interest-bearing account until the lender determines how to apply them.
  • The lender’s decision as to whether repairs are feasible must be objective and made in good faith. The decision involves an analysis of the projected cost of repair, the projected increase in value which would result from the repair, the estimated length of time required, and the existence and extent of any default by the borrowers.  The lender is entitled to require the borrower to provide certain information (e.g. estimates of repair cost and market value) and is not required to defer to the borrower’s preference.  However, once the lender has received the necessary information, the decision must be made promptly.  If a court finds that a lender has unreasonably delayed the decision of how to apply insurance proceeds, the court has the power to abate the interest which accrued as a result of the delay.  Finally, the lender’s determination must be objectively based on the question of whether repairs are economically feasible.  The lender is not entitled to apply the insurance proceeds to the mortgage debt unless it has made a fact-based determination that repairs are infeasible or would impair the value of the security.
  • The lender must communicate clearly and consistently with the borrower. Regardless of whether the underlying decision of how to apply the insurance proceeds was justified, the Daw court was troubled that the lender in that case sent multiple inconsistent notices to the borrower.  Some of the notices urged the borrower to complete repairs, while others stated that repairs were not economically feasible and that the lender intended to apply the insurance proceeds to the mortgage debt.  Accordingly, while determining how to apply insurance proceeds, lenders should take care to ensure that all communications with the borrower are clear and consistent.  Communications related to the application of insurance proceeds should not make factual claims unless those claims have been verified to be true.  Finally, any notice to be sent should be reviewed to ensure that it does not contradict previous notices or undermine the position the lender intends to assert.

Ring Doorbells and Service of Process

By: Catherine Di Lorenzo, Esquire

October 1, 2021

You have to love technology. In some ways, it has enhanced our lives tremendously. However, in some ways, advancements in technology have proven to be problematic for process servers. Video home surveillance has been around for decades, but with the changes and improvements to technology, video surveillance can be integrated right into a homeowner’s doorbell and send the video right to the subscriber’s phone — even if they aren’t home.

Service of process is not an easy job. Many individuals do not understand why they are being served, the role of a process server, or the fact that being served is their constitutional right. For those who do not want to receive service of process, whether they want to try and sabotage the case by saying they were not properly served or if they are avoiding the situation entirely, video doorbells can be problematic because it gives the person who will be served a heads up. The advance notice eliminates the element of surprise that sometimes is necessary in getting a difficult defendant served. Whether the person decides to hide in the house and not answer the door or they evade service by leaving out a back door when the server arrives, video surveillance doorbells make process service more difficult, and especially so on tough serves.

Generally, Delaware allows service to be completed personally on the Defendant or through a substitute party who is over 18 and lives in the home.  In a foreclosure case service can also be effectuated by posting the complaint at the property address only after an attempt at personal service has been made.

Most video doorbells allow for communication between the process server and the person to be served. If the person verbally accepts service, you will not be able to prove that the individual accepting service is the Defendant or a resident of the home who is over 18. Unfortunately, video doorbells open up process servers to a number of liabilities with regard to effectuating proper service.  Attorneys risk their cases being dismissed if they rely on service in this manner.  While service can be completed in a foreclosure case by posting it will force lenders to incur even more costs related to the defaulted mortgage.

How video surveillance doorbells will continue to affect the civil process service industry, legislatively or otherwise, remains to be seen. While there may be some benefits to doorbells like Ring for homeowners, they certainly present some unique challenges for process servers, attorneys, and plaintiffs in general.