On April 19, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued an amendment to Regulation F, as identified by Docket CFPB-2021-0008. The interim final rule (“IFR”) now requires that debt collectors provide written notice to certain consumers about temporary eviction protections under the Centers for Disease Control and Prevention (“CDC”)’s eviction moratorium. The IFR also prohibits a debt collector from misrepresenting that a consumer is ineligible for eviction protection under the moratorium.
The IFR provides that debt collectors who evict tenants that may have rights under the CDC moratorium without providing notice of the moratorium or who misrepresent tenants’ rights under the moratorium can be prosecuted for violations of FDCPA and are also subject to private lawsuits by tenants. Debt collectors who are seeking to evict tenants for non-payment of rent must provide tenants who may have rights under the CDC order with clear and conspicuous written notice of those rights. The notice must be provided in writing. Phone calls or electronic notice such as text messages or emails are not sufficient. The notice must be provided on the same date as the eviction notice, or, if no eviction notice is required by law, on the date that the eviction action is filed.
The amendment to the rule will take effect on May 3, 2021.
Some states and localities have adopted their own eviction moratoria, where debt collectors may be required to provide certain notices. The CFPB advised that IFR does not preempt more protective state law.
On April 9, 2021, the New Jersey Appellate Division issued an unpublished opinion in Federal National Mortgage Association v. Kathleen Halbert, 2021WL 1327160 which affirmed the trial court’s order granting a judgment of eviction in favor of plaintiff and remanded for the court to enter an amended judgment awarding defendant/tenant an additional sum for rent paid during a period of uninhabitability in 2018. The crux of defendant’s appeal involved her challenge with a part of the trial court order directing the plaintiff to pay her $9,000.00 for nine-months’ rent she paid prior to the eviction because the premises had been deemed uninhabitable since January of 2019.
The appellate court took particular note of the evidence presented at trial which in relevant part, established that defendant’s counsel identified fourteen “defective conditions” in a letter submitted to plaintiff’s counsel on December 1, 2016 that he asserted rendered the home uninhabitable. These conditions included damage to the property from pipes that burst due to cold weather, a leaking hot water heater, a septic tank that required cleaning in accordance with the “the town ordinance,” two of three bathrooms that did not function, and an inoperable oven, dishwasher, washer-dryer. Defendant’s correspondence requested remediation of the conditions, but plaintiff failed to take any action in response to the request. Defendant’s counsel submitted additional letter and email requests to plaintiff for remediation which continued to go ignored, including a January 9, 2018 email informing plaintiff’s counsel that the burst pipes caused the septic system to overflow causing sewage to flow into the first floor of the home.
Testimony from the township fire marshal and plaintiff’s own real estate broker demonstrated that the home was found to be “unsanitary for human occupancy, due to the septic backup,” and that plaintiff permitted the property to become unfit for human occupancy in January 2018 and likely prior to that date. Following a bench trial, the court found that the “home is simply uninhabitable,” and that it makes no sense for defendant to live on the second floor, and put water in the toilet so it flushes.” The court also found the home “beyond disgusting,” and determined the believable evidence” established the “property should be vacated due to mold remediation” and that “[t]here’s no question … the place has to be emptied.” As a result, the trial court granted plaintiff’s request for an order of eviction pursuant to N.J.S.A. 2A:18-61.1(g)(2), which permits removal of a tenant where the landlord “seeks to comply with local or State housing inspectors who have cited [the landlord] for substantial violations affecting the health and safety of tenants and it is unfeasible to so comply without removing the tenant. The court also concluded that, as a condition of defendant vacating the premises, plaintiff must reimburse defendant for the rent she paid ($9,000) for the nine-month period from January 2019 through the September 2019 trial. The court did not offer a reason for limiting the rental reimbursement to that period.
On appeal, the court considered the narrow issue raised by defendant that the trial court erred by limiting her recovery of rent paid to the nine-month period prior to trial. The tenant argued that she was entitled to a return of rent paid while the home was uninhabitable and that the court’s award was not supported by the evidence, which shows the property was uninhabitable for the twenty-one-month period commencing on January 8, 2018, when the pipes burst in the home. The appellate court found that the evidence overwhelmingly established that the deplorable conditions at the property rendered it uninhabitable in January 2018 and those conditions were never remediated by plaintiff. Further, the appellate court found no evidentiary support for the trial court’s unexplained decision to limit the return of rent to defendant to the nine-month period between January 2019 and the trial in September. Accordingly, the appellate court affirmed the trial court’s order directing that defendant vacate the property and requiring plaintiff to pay defendant $9,000 for the rent paid from January 2016 through September 2019 and remanded for the lower court to determine the amount of rent paid by defendant from January 2018 through December 2018 and for entry of an amended final judgment also awarding defendant the full amount of rent paid during that period.
The New Jersey legislature has recently passed Assembly Bill A2964, which amends N.J.S.A. 46: 10B-51.1 to add an additional post-sale notice requirement. The statute applies to non-owner occupied properties, and requires lenders who take title to such properties as a result of a sheriff’s sale or deed in lieu of foreclosure to provide notice to the municipality, as well as to any Homeowners Association, Condominium Association, or other common interest community to which the property belongs.
The statutory notice must provide the new owner’s name and address. If the owner is located out of state, they must designate an in-state agent who is authorized to accept service of process on behalf of the property owner. The notice must be provided within 10 business days of receipt of the Sheriff’s Deed or Deed in Lieu of Foreclosure. Stern & Eisenberg will monitor our files to ensure that the appropriate notices are sent.
On March 15, 2021, Governor Phil Murphy signed into law legislation which was sponsored by Senators Joe Cryan (D-Union) and Troy Singleton (D-Burlington). The legislation (S-2961 / A-1063), which becomes effective September 1, 2021, enhances the notification requirements for the state’s foreclosure mediation program. Specifically, the legislation requires homeowners facing foreclosure to be advised that there is no cost to participate in the mediation program and that their cooperation with a foreclosure default mitigation counselor is a pre-requisite to entry. This notice must be provided (in English and Spanish) at the time the notice of intent to foreclose is sent and again following the filing of a residential foreclosure complaint. The plain language of the prior and amended legislation excludes application to commercial loans.
One of the Bill’s primary sponsors, Senator Troy Singleton said “During this time, many were struggling with unemployment and could not pay their mortgage. We must give homeowners every tool possible to stay in their homes. By making sure homeowners are aware of free mediation services, we can help them avoid foreclosure. We have worked too hard to address the previous foreclosure crisis, and must do all we can to avoid it from happening again.”
The altruistic aim of the bill is clear and the new legislative mandate – which seeks to enhance homeowners’ knowledge of publicly available tools to assist them in times of crisis – is tailored to increase participation in the mediation program. Naturally, more robust participation in the program should facilitate a higher percentage of settlements and loan workouts, to the benefit of all parties involved.
Practically, the change supplements similar disclosures already required by existing law. Given the relative simplicity of the additional notice requirements, which expand upon those first enacted in November of 2019, one may well question why the effective date is not for another six months? Some believe that the effective date of this legislation offers the observer a window into the New Jersey government’s prediction as to when “regular” foreclosure activity will resume, while others believe a more significant lead time is simply a necessity to allow servicers to update their forms and procedures. Regardless of the macro timeline questions the effective date of the legislation is sure to spur for the servicing industry, few can argue with the bill’s intent. Ultimately, the legislation will be viewed as a success if it increases participation in the mediation program and facilitates increased settlement. While these remain welcome propositions for all parties involved, only time will tell if this legislation has delivered upon its noble goals.
New Jersey has recently announced the enactment of the COVID-19 Emergency Rental Assistance Program Phase II (“CVERAP-II”) to assist eligible households struggling to pay rent and utilities due to the ongoing pandemic.
This program utilizes over $350 million given under the $1.9 trillion American Rescue Plan signed into law by President Biden. Further, over $230 million in federal stimulus money was provided to directly to 14 of the 21 New Jersey counties and to two cities for rental assistance. The counties that received direct federal assistance funds include: Atlantic, Bergen, Burlington, Camden, Essex, Gloucester, Hudson, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, and Union; and the cities include: Jersey City and Newark. While each county and city that received direct federal money will have their own application procedure and requirements in place, CVERAP-II will have a statewide designated portal.
The application portal will be available 24 hours a day beginning March 22, 2021, at 9:00 a.m. Applications will be accepted until an adequate number have been received to distribute the full funding amount. All applications will be entered into a randomized lottery, and those who are selected will be notified via email.
According to the CVERAP-II, an eligible household includes those that:
Qualify for unemployment or have faced a significant reduction in household income, incurred significant costs, or experienced a financial hardship due to COVID-19;
Demonstrate a risk of homelessness or housing instability; and
Have a household income at or below 80% of area median income based upon household size.
The CVERAP-II will assist qualifying households with a maximum of 12 months for past-due, unpaid rent, dating back to March 13, 2020. If any funds in the pool remain after arrears have been paid, an additional three months to assist with future rent payments may be available. Past-due, unpaid rent will be paid first, with the remainder available for future rent through December 2021.
Rental amounts will be capped at 125% of the area Fair Market Rent (“FMR”) if a household has a lease agreement. However, for households that will be relying on the self-certification process (do not have a lease), their rental payments will be capped at 100% of the greater of FMR, or the Small Area Fair Market Rent for their area.
If an applicant is successfully selected, payments will be made directly to the landlord and an award letter will be mailed to both the tenant and their landlord indicating payment.
Applicants are not precluded from applying for other rental assistance; however, CVERAP-II assistance will cease if the applicant is awarded rental assistance from another source. Further, if a household is receiving funding from other rental assistance programs such as Housing Choice Voucher (Section 8) or Public Housing, that household will not be eligible to receive CVERAP assistance if the assistance results in duplicative benefits for the same months of assistance.
Recently, Fannie Mae made the news regarding Pennsylvania Ejectment actions. Federal National Mortgage Association (“FNMA”), most commonly known as “Fannie Mae,” is a government sponsored enterprise established by Congress to provide stability in the secondary market for residential mortgages. 12 U.S.C. § 1716(2). In Fannie Mae v. Janczak, 2021 Pa. Super 10 (Jan. 2021), FNMA initiated an ejectment action in the name of “Fannie Mae.” Janczak, an occupant for a properly foreclosed upon property, challenged the FNMA’s standing to sue under the fictitious name of “Fannie Mae” in violation of the Pennsylvania Fictitious Name Act, 54 Pa. C.S.A. §§ 201-322 (“Act”). Under the Act, “[n]o entity which has failed to register a fictitious name as required by this chapter shall be permitted to maintain any action in any tribunal of this Commonwealth until such entity shall have complied with the provisions [of the Act.]” 54 Pa. C.S.A. § 331(a).
FNMA argued that under 12 U.S.C. §1723a(a), FNMA was authorized to conduct regular business under the fictitious name of “Fannie Mae” “without regard to any qualification or similar statute in any State of the United States, including District of Columbia, the Commonwealth of Puerto Rico, and the Territories and possessions of the United States[. . .]” (see 12 U.S.C. §1723a(a)) and that under FNMA’s bylaws, “[while t]he name of the corporation is Federal National Mortgage Association[, FNMA] may also do business under the name Fannie Mae.” Fannie Mae Bylaws, Art. 1, Sec. 101, as amended through Jan. 29, 2019. FNMA further argued that the Act is contrary to the Supremacy Clause of the United States Constitution. Janczak, 2021 Pa. Super 10 (Jan. 2021).
The Court found that under the plain meaning of the FNMA Charter, FNMA shall only “sue and be sued, and to complain or defend” under its corporate name, Federal National Mortgage Association. See 12 U.S.C. §1723a(a). The Court reasoned that while FNMA’s Charter allows FNMA to regularly “conduct its business without regard to any qualification or similar statute in any State of the United States, including District of Columbia, the Commonwealth of Puerto Rico, and the Territories and possessions of the United States[. . .]” (id.), “the language of the statute is plain and unambiguous with regard to the name in which it is empowered to commence suit in a court of law – its corporate name[,]” Federal National Mortgage Association. Janczak, 2021 Pa. Super 10 (Jan. 2021) citing 12 U.S.C. § 1723a(a). The takeaway from this case is that it is important to use proper designations and descriptions of Plaintiff’s in Pennsylvania ejectment cases.
The New Jersey Appellate Division in New York Mortgage Trust v. Deely, 2021 WL 520063 (App. Div. 2021) has recently published the latest in a series of opinions concerning equitable subrogation. Equitable subrogation, “rooted in principles of equity, is used to compel the ultimate discharge of an obligation by the one who in good conscience ought to pay it,” regardless of whose mortgage was recorded first. Prior decisions on equitable subrogation such as Investor Savings Bank v. Keybank Nat’l Ass’n, 424 N.J. Super. 439 (App. Div. 2012), Sovereign Bank v. Gillis, 432 N.J. Super. 36 (App. Div. 2013, and Ocwen Loan Services, LLC v. Quinn, 450 N.J. Super. 393 (App. Div. 2017) were instrumental to the latest ruling in Deely.
The underlying facts in Deely involved a mortgage priority dispute between plaintiff and defendant Bank of America in a residential mortgage foreclosure action. On cross-motions for summary judgment, the Chancery Division applied equitable subrogation to give plaintiff’s mortgage priority, even thought it was recorded after defendant’s mortgage. When applying a de novo review to the grant of summary judgment, the Court affirmed the trial court’s decision having recognized that appellate “review of a trial court’s decision to apply an equitable doctrine is limited,” and the panel would not “substitute our judgment for that of the trial judge in the absence of a clear abuse of discretion.”
This opinion is a departure from prior case decisions which have held that a new lender is not entitled to subrogation, absent an agreement or formal assignment, if it possesses actual knowledge of the prior encumbrance. SeeFirst Union Nat’l Bank v. Nelkin, 354 N.J. Super. 557 (App. Div. 2002). Instead, the Deely panel opted not to follow the “actual knowledge” rule and adopted a principle from the Restatement (Third) of Property: Mortgages, that makes “material prejudice to the intervening lienor” the directing principle.
In his opinion, Judge Geiger relied in large part on the Gillis holding and explained that “[e]quitable subrogation is appropriate when loan proceeds from refinancing satisfies the first mortgage, the second mortgage is paid in full as part of the transaction, and the transaction is based on a discharge of the second mortgage, so long as the junior lienor, here defendant, is not materially prejudiced. Under such circumstances, equitable subrogation should not be precluded by the new lender’s actual knowledge of the intervening mortgage. To do otherwise would allow [defendant] to reap an undeserved windfall by allowing the junior lienor to vault over the priority of the refinancing mortgage lender.”
On February 5, 2021, the New Jersey Supreme Court issued an Order clarifying and expanding certain provisions of the Court’s July 14, 2020, Order relating to Order to Show Cause applications for residential and commercial landlord/tenant eviction trials.
As a background, the July 14, 2020, Order provides that landlords may apply for an Order to Show Cause requesting a landlord/tenant trial be scheduled in certain emergent circumstances. The basis of that landlord/tenant action cannot be nonpayment of rent, except in the case of the death of the tenant. In determining whether to issue the Order to Show Cause, the court will review the complaint and determine whether an emergency exists (e.g., violence against other tenants; criminal activity; extreme damage to residence; death of tenant resulting in vacancy of the rental unit), and based on that determination may schedule a landlord/tenant trial. As permitted by Executive Order 106, an eviction may proceed in the “interest of justice.” This guideline applied to both residential matters and commercial matters.
The Court’s most recent Order expands the guidelines relating largely to commercial actions. Specifically, the Court’s Order provides that landlords may, in emergent circumstances, apply for an Order to Show Cause for eviction in commercial matters. For these matters, the basis of the landlord/tenant action cannot be nonpayment of rent, except where: (i) the tenant has vacated the property; (ii) the tenant’s business is not operating and will not resume operations; or (iii) the commercial landlord is facing foreclosure or a tax lien. The court, based on its determination as to whether an emergency exists, may schedule a landlord/tenant trial, as permitted by Executive Order 106. Following any such trial an eviction may proceed in the “interest of justice.”
On February 5, 2021, the New Jersey Supreme Court issued a Notice to the Bar resuming the issuance of writs of possession in commercial foreclosure actions only. Even though commercial foreclosure trials have continued throughout the ongoing pandemic, the courts have withheld all post-judgment action, including the issuance of writs of possession. Effective February 15, 2021, New Jersey courts will resume post-trial activity, including issuance of writs of possession, for commercial foreclosure matters.
Many Pennsylvania counties (some examples Philadelphia, Bucks, Montgomery, Monroe, Allegheny, and Butler) have a mediation or conciliation program to afford homeowners the opportunity to work with their lenders and see if loss mitigation or some other resolution can be reached. Typically, when a case is entered into the mediation program the underlying foreclosure action is stayed while the parties are working. Before COVID, these mediations were typically in person in front of a mediator or a Judge. Counsel would report the status of the loss mitigation if any, make requests for documents, or in the event of non-compliance seek removal from the program. The borrowers appeared at these as well often with a housing counselor who assists in the process. Since COVID, most counties have resumed their mediation programs (the notable exceptions being Philadelphia and Montgomery), but now the mediations occur remotely. Given the limitations of remote conferences and remote/limited staff these mediations are schedule more infrequently than they would have been previously. These mediations provide a good opportunity to workout an amicable resolution and get a loan back into performing status whether it be through a modification, forbearance, repayment plan, or some other workout.
In the event a borrower is not cooperating or submitting documents and the lender would like to seek removal the best way is to have clear documentation of communication: Be clear in what documents are missing; set clear deadlines to comply with any document requests; and identify where documents are to be sent. To further strengthen your position, have copies of any correspondence sent to the borrower sent to counsel so it can be relayed to the borrowers housing counsel and/or opposing counsel. Mediators and Judges will often err on the side of the borrower if it is not clear when/how/ and to whom a correspondence was sent. The more information you can provide your counsel; the better we are able to represent you at these mediations. If you have questions about Pennsylvania Mediations or Conciliations conferences, please reach out to Ed McKee, Esquire or Andrew Marley, Esquire for assistance.
Each day new federal and state legislation are issued establishing new accommodations for borrowers due to COVID-19. The Cares Act has created many restrictions on lenders and how they can protect their own interests and enforce their rights. Failing to properly navigate the red tape could result in future liability litigation for lenders.
Before enforcing a mortgage default, a lender should consider whether a borrower’s default is attributable to COVID-19. Lenders should ask themselves whether acting would be consistent with the covenant of good faith and fair dealing given the effects of COVID-19, the industry response, and regulatory action.
The Cares Act has created an array of new claims borrowers could assert in a foreclosure. A key contract defense that will impact contractual performance and liability is a force majeure clause. This provision provides an excuse not to perform due to events outside the contractual parties’ control. COVID-19 may force courts to interpret force majeure clauses and their applicability to a lender’s obligations to perform while a borrower’s ability to perform remains “impossible.”
More and more borrowers are requesting loan modifications and forbearance plans due to Covid-19. Lenders must be very careful that they are considering the borrower’s application and supporting documents carefully. Lenders also must be aware of what they tell their borrowers regarding eligibility for these programs. To the extent the lender makes any representations or omits material information from the borrower, such comments or omissions may form the basis of a negligent or fraudulent misrepresentation claim.
If lenders and their vendors fail to adhere to the accommodations in the Cares Act, they may subject themselves to future liability. Such liability, however, would be contingent on courts finding that borrowers have a private right of action to enforce the CARES Act. Courts may also extend liability under the CARES Act based on a contractual representation/warranty in which both parties agree to adhere to all applicable state and federal law.
Lenders can protect themselves and take steps now to avoid liability. All communications with borrowers should be well documented and employees should be reminded of the importance of properly maintaining such records. Lenders need to regularly revisit their protocols and procedures to determine whether changes need to be made or temporary practices need to be implemented. Lenders should provide training to employees so that they understand the impact of new legislation that may alter regular procedures (i.e. credit reporting, foreclosure referrals). Resources for customers should be readily attainable for customers too as appropriate (e.g., who to contact for relief; documentation, if any, needed to demonstrate financial hardship). Lenders should consider what industry leaders and trade associations are doing and advising so they are not materially deviating from the industry behaviors set by their peers.
If we learned anything from the 2008 mortgage crisis, it’s that new claims always arise following a financial crisis. The best defense is to anticipate them and take steps to eliminate the potential for liability.
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