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.

 

Updates Regarding New Jersey Eviction Moratoria and Procedures

By: Christopher Saliba, Esquire

On August 4, 2021, Governor Phil Murphy signed Bill Nos. S-3691 and A-4463 into law. S-3691 provides residential eviction prevention and utility assistance for renters who have been financially impacted by the COVID-19 pandemic by appropriating an additional $500 million for the COVID-19 Emergency Rental Assistance Program (CVERAP) and $250 million for utility assistance, which are programs administered by the New Jersey Department of Community Affairs (DCA). A-4463 provides an additional layer of protection for defaulted renters during the public health emergency by mandating that court records pertaining to their non-payment during this period be kept confidential.

The new legislation sets forth new eviction moratoria expirations for those who were unable to pay their rent during the period of March 1, 2020 through August 31, 2021, or, for certain tenants, through December 31, 2021. For residential tenants with household incomes below 120% Area Medium Income (AMI) but above 80%, the eviction moratorium concluded at the end of August. For certain households with incomes below 80% AMI, the moratorium concludes at the end of the year. In order for the special protections described above to take effect, the tenant must provide the required self-certification form to their landlords and/or to the court. As to evictions stemming from a residential foreclosure action, said moratorium is set to expire November 15, 2021.

While tenants who are covered by this special protection may not be evicted, the rent is still due to landlords and landlords may pursue this rent through a money judgment. Further, landlords who are receiving rental assistance must waive any late fees accrued by tenants during the special protections period and may not report delayed rent to crediting agencies. Lastly, landlords may not disclose non-payment of rent to others and prospective landlords may not deny renting to a person who wasn’t able to pay rent during the covered period of March 1, 2020 through August 31, 2021.

Pursuant to its July 1, 2021 Order, the New Jersey Supreme Court has authorized mandatory settlement conferences in all residential landlord tenant cases. This requirement took effect immediately and all vicinages will schedule settlement conferences for pending landlord tenant cases. The Order directs that priority will be given to the nearly 14,000 landlord tenant cases that have been pending for more than one year or in which more than 12 months of rent is claimed to be due.

Since the beginning of the pandemic, all landlord-tenant trials have been suspended, absent certain circumstances. The Judiciary now is gearing up to resume trials in residential landlord tenant cases, with evictions occurring in accordance with the newly enacted legislation described above.

Through the Court’s June 11, 2020, Omnibus Order, vicinages were authorized to schedule conferences in landlord tenant cases, including to conduct settlement negotiations in an effort to resolve cases without trial. However, voluntary participation has been sparce and as a result, the Court is now mandating settlement conferences to be scheduled. The Order provides that the conferences will primarily be conducted in a remote format, unless a Judge, in their discretion, schedules an in-person conference based on the individual circumstances of a case.

Both parties are required to appear at the settlement conference. The landlord is recommended to submit all required documents, such as a lease and registration statement (if applicable) five days before the settlement conference. If the landlord fails to appear, the case will be dismissed; and if the tenant fails to appear, default will be entered by the clerk.

If the landlord is prepared to proceed, the Court will hold a proof hearing; otherwise, a proof hearing will be held within 10 days of the settlement conference date. If the landlord establishes entitlement to relief at the proof hearing, the Court will enter default judgment, but the eviction cannot proceed until the end of the moratorium on residential evictions.

The goal of the settlement conferences is to have both parties appear, where the settlor will assist the parties in working out an agreement, which will be reduced to writing, placed on the record, and distributed to the parties. However, it is expected that not all matters will settle. For those where no settlement can be reached, the matter will be scheduled for trial. Trials were expected to begin September 1, 2021, but that date has been slightly pushed back due to the new legislation signed into law.

The Court’s authorization of mandatory settlement conferences does not affect commercial landlord tenant proceedings, which have resumed pursuant to the Court’s June 2, 2021, Order. Likewise, commercial foreclosure evictions are not bound by any moratoria and are allowed to proceed.

PHFA Proposes Use of HAF Funds for Pennsylvania Homeowners in Need of Assistance

The Pennsylvania Housing Finance Agency (PHFA) has set forth a proposal on how to distribute American Rescue Plan Act of 2021 funds to Pennsylvania residents in need of assistance. The attached is the proposal. The public comment period on the proposal will run from September 11, 2021 to October 11, 2021.  Any comments on the proposal may be made to https://www.phfa.org/haf/.

Please be advised that the proposal does not limit proceeding with foreclosures or Sheriff Sales in Pennsylvania.  As drafted, the proposal will require the eligible homeowner to take affirmative steps to reach out and request assistance.

Addressed in the proposal are the eligibility requirements, as well as what expenses qualify for assistance, which does include mortgage payment assistance for qualified individuals. The proposed eligibility of participants is as follows:

  1.  Homeowner must be a natural person or trustee of a living trust that holds title to the property. Heirs, equitable owners, and successors-in-interest, as that term is defined in section 1024.31 of Title 12 of the Code of Federal Regulations (12 CFR 1024.31), meet this ownership requirement. A reverse mortgage, a loan secured by a manufactured home, or a contract for deed (also known as a land contract) may fall within this definition.
  2.  Homeowner must have experienced a Qualified Financial Hardship after January 21, 2020 (including a hardship that began before     January 21, 2020, but continued after that date).
  3.  Homeowner must currently own and occupy the property as their primary residence and be located in Pennsylvania.
  4.  Homeowner must meet the Homeowner Income Eligibility Requirements.
  5.  Homeowner must agree to provide all necessary documentation to satisfy program guidelines within timeframes established by the   State, including self-attestation.
  6.  The original, unpaid principal balance of the homeowner’s first mortgage or housing loan, at the time of origination, was not greater   than the conforming loan limits in effect at time of origination.
  7.  Based on Treasury guidance, HAF funds should supplement other loss-mitigation efforts. Thus, homeowners will be encouraged to   utilize other loss mitigation resources, if available, while simultaneously applying for HAF.

Additionally, there will be income requirements based upon the location of the homeowners property. As PHFA works towards finalizing rules for the program we will keep you updated.

Questions?

Should you have any questions or concerns, please do not hesitate to reach out to Andrew Marley, Managing Attorney for Pennsylvania Foreclosure or our Value Department.

Supreme Court Rules CDC Has Exceeded its Authority with Eviction Moratorium – Eviction Moratorium Held Invalid

August 27, 2021

On September 4, 2020, the CDC issued an order seeking to halt evictions under a statute that appeared to be limited in scope.  Stern & Eisenberg sent the attached announcement setting forth our position that the order was beyond the authority of the CDC.  The efforts of the CDC to extend this inappropriate continuation of authority has finally been put to an end by the Supreme Court.

On Thursday, the Alabama Association of Realtors successfully challenged the CDC Moratoriums whereby the Supreme Court held that the CDC’s action were well beyond the scope of the CDC’s authority.  The CDC’s new moratorium has been held unlawful and is now suspended.  We are glad that the Highest Court has taken decisive action to put an end to the overreach by the CDC.

Attached you will find the Supreme Court’s decision.

For additional information on how Stern & Eisenberg may assist you, please feel free to reach out to us for further detail  Our value team can be reached at (SEValue@SternEisenberg.com).

U.S. Supreme Court Declines to Strike Down National Eviction Moratorium, Warns CDC it Lacks Authority to Extend the Ban Past July 31

By: Lucas Anderson, Esquire

The Supreme Court on June 29 declined to grant an application to vacate a stay of eviction proceedings based upon the nationwide eviction ban imposed by the Centers for Disease Control and Prevention (CDC).  The application was brought by the Alabama Association of Realtors, who contended that the CDC lacks the authority to impose such a sweeping moratorium, which implicates the property rights of thousands of land owners across the country.  Although the court denied the Association’s application, four of the court’s more conservative justices—Thomas, Alito, Gorsuch, and Barrett, voted to vacate the stay.  Justice Brett Kavanaugh joined Chief Justice John Roberts and the court’s liberals denying the application, but his concurring opinion argues that the CDC exceeded its existing statutory authority in issuing the nationwide eviction moratorium.  Kavanaugh wrote that the CDC plans to end the moratorium in a few weeks, allowing for “additional and more orderly distribution of the congressionally appropriated rental assistance funds.”  Kavanaugh concluded that the CDC lacks the authority to extend the eviction ban past July 31 absent “clear and specific congressional authorization (via new legislation).”  The case is Alabama Association of Realtors, et al. v. Department of Health and Human Services, et al., No. 20A169.

Establishment of the Statewide Landlord Tenant Legal Specialist Program in New Jersey

By: Christopher Saliba, Esquire

Through a Notice to the Bar dated June 4, 2021, the Supreme Court of New Jersey approved the establishment of a statewide Landlord Tenant Legal Specialist Program (the “Program”), as recommended by the Judiciary Special Committee on Landlord Tenant. This new Program was created to assist in the review and administrative processing of all landlord-tenant actions, including the current pending cases and the massive influx of new filings expected once the moratorium has expired.

The Program will be administered at the vicinage level under the authority of the Assignment Judge, who will appoint the Landlord Tenant Legal Specialist(s) for the vicinage using the regular recruitment and appointment process for vicinage staff. The Specialists main focus will be to perform nonjudicial administrative functions. Such duties will include:

  • Reviewing landlord tenant pleadings to determine compliance with legal requirements, including the all statutes, Court Rules and any Executive Orders.
  • Conducting case management conferences to collect and confirm information, such as claims and defenses.
  • Conducting settlement conferences in an attempt to reach an amicable resolution without trial.

It is noted that landlords can still file complaints for possession for evictions in the Special Civil Part Landlord-Tenant Division, but no evictions and lockouts can take place, absent certain circumstances.

New Jersey Supreme Court Clarifies Ethical Expectations in Email Communications with Represented Parties and their Attorneys

By: David Lambropoulos, Esquire

 

It is perhaps the first ethical rule taught to recently matriculated law school students:  it is inappropriate and unethical to communicate directly with a party who is represented by an attorney.  This rule has seemingly endured for as long as the practice of law itself and its necessity and propriety are self evident. In New Jersey, this ethical commandment is codified as Rule of Professional Conduct 4.2.  Significantly, this basic mandate predates the creation of email and its subsequent adoption as a generally accepted (and often preferred) mode of communication.

With this canon of legal conduct deeply ingrained into attorneys’ behavior, it does not take much creativity to envision a practical dilemma.  Late one night a dramatically overworked partner is toiling away at his desk and IT happens: an email joins the thousands of others in the partner’s inbox.  This email, however, is different:  it is from an opposing attorney who has copied her client!   A bead of sweat drips down the partner’s furrowed brow…what is he to do?!  Replying all would be as ethically bereft as commingling client funds or double billing, right?!  Believe it or not, the answer depends on where the attorney is practicing.  In some jurisdictions, “replying all” and thereby communicating directly with opposing counsel and her client would constitute an ethical violation.

After receiving an inquiry from an attorney who advised that he often copies his client on emails to opposing counsel, the Supreme Court of New Jersey had cause to consider this issue.  The attorney complained that opposing counsel often utilized  “reply all,” thus directing their responsive email to both the complaining attorney and his client.  The complaining attorney thus suggested that his adversary had committed an ethical violation for which sanctions would be appropriate.  In Advisory Committee on Professional Ethics (“ACPE”) opinion 739, the Supreme Court of New Jersey resoundingly disagreed.  As the court clearly and succinctly stated, “reply all in a group email should not be an ethics trap for the unwary or a ‘gotcha’ moment for opposing counsel.” Thus, lawyers who include their clients in the “to” or “cc” lines of a group email are deemed to have provided implied consent to a “reply all” response from opposing counsel. Likewise, if a lawyer were to initiate a conference call and include her client on the call, the lawyer would be deemed to have impliedly consented to opposing counsel’s communication with both the attorney and her client. In contrast, a lawyer who receives a written letter from opposing counsel that copies the sending lawyer’s client may not send a responsive letter to both the attorney and their client.   The Committee thus expressly recognized the informal and conversational usage of email correspondence and decided  its use should be treated differently (from an ethics perspective)  than a formal letter.

In its March 10, 2021 opinion, the Committee acknowledged that other jurisdictions have rejected the notion of implied consent of represented parties.  Ultimately, however, the Committee concluded that those opinions failed to fully appreciate the informal nature of group email chains or to recognize the unreasonableness of exposing responding lawyers to ethical violations for such conduct.  In the view of the Committee, if a sending lawyer does not want opposing counsel to reply all, they have the ability (and the responsibility) to take the extra step to separately forward or blind copy their client.

Alas, the ethically enlightened partner from our example above is free to “reply all” and continue the Sisyphian daily clearing of his inbox (in New Jersey, at least).  If our partner happened to be practicing in another jurisdiction, however, they would need to review that venue’s local rules to avoid unwittingly drifting into an ethical iceberg.

**This article is provided for informational purposes only and is not intended (and may not be inferred) as providing legal advice. If you need legal advice, please call our office to speak with an attorney or retain alternate counsel of your choosing***

 

David Lambropoulos is the Managing Attorney of Stern & Eisenberg’s New Jersey practice and can be reached at (609) 397-9200.