January 8, 2012
Steve Friedman, Senior Attorney, National Legal Research Group
The Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2601-2617, is a federal consumer protection statute that regulates, among other things, the servicing of mortgage loans. Among the several duties RESPA imposes is that loan servicers must respond promptly to any "qualified written request from the borrower (or an agent of the borrower) for information relating to the servicing of such loan." 12 U.S.C. § 2605(e)(1)(A). If the servicer fails to adequately respond to such a request, then the borrower may recover actual damages, statutory damages if there is "a pattern or practice of noncompliance," id. § 2605(f), and the costs of suit, including reasonable attorney's fees.
The threshold inquiry for this statutory scheme is the "qualified written request."
For purposes of this subsection, a qualified written request shall be a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that—
(i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and
(ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.
Id. § 2605(e)(1)(B).
With regard to the statutory definition of a "qualified written request," two federal courts of appeals have recently stated as follows:
RESPA does not require any magic language before a servicer must construe a written communication from a borrower as a qualified written request and respond accordingly. The language of the provision is broad and clear. To be a qualified written request, a written correspondence must reasonably identify the borrower and account and must "include a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower." 12 U.S.C. § 2605(e)(1)(B) (emphasis added). Any reasonably stated written request for account information can be a qualified written request. To the extent that a borrower is able to provide reasons for a belief that the account is in error, the borrower should provide them, but any request for information made with sufficient detail is enough under RESPA to be a qualified written request and thus to trigger the servicer's obligations to respond.
Catalan v. GMAC Mortg. Corp., 629 F.3d 676, 687 (7th Cir. 2011); Medrano v. Flagstar Bank FSB, No. 11-55412, 2012 WL 6183549, at *3 (9th Cir. filed Dec. 11, 2012) (quoting Catalan, 629 F.3d at 687).
Furthermore, the Ninth Circuit opinion went a step further than the Seventh Circuit one had and explicitly articulated a three-part test:
[A] borrower's written inquiry requires a response as long as it (1) reasonably identifies the borrower's name and account [12 U.S.C. § 2605(e)(1)(B)(i)], (2) either states the borrower's "reasons for the belief . . . that the account is in error" or "provides sufficient detail to the servicer regarding other information sought by the borrower," [12 U.S.C. § 2605(e)(1)(B)(ii),] and (3) seeks "information relating to the servicing of [the] loan" [12 U.S.C. § 2605(e)(1)(A)].
Medrano, 2012 WL 6183549, at *3.
Additionally, although not explicitly included in the Medrano test, the statute also clearly requires that the servicer "receive [the] request from the borrower (or an agent of the borrower)," 12 U.S.C. § 2605(e)(1)(A), adding what is essentially a fourth element to the Medrano test.
Whereas the first element of the Medrano test is readily and objectively understandable, the remaining elements are more subjective. Fortunately, the above-cited federal appellate decisions have helped to give some clarity to these somewhat fuzzy requisites of § 2605(e).
The implied fourth element of the Medrano test—that the request may be from the borrower's agent rather than from the borrower directly—derives from the plain and unambiguous terms of the statute, which requires that a qualified written request come "from the borrower (or an agent of the borrower)." Id. In Catalan, the borrowers had sent a written request to the U.S. Department of Housing and Development ("HUD"), and HUD then forwarded the letter to the loan servicer. The court had no "difficulty interpreting that requirement, under the circumstances of [that] case, to include HUD's intercession on the plaintiff's behalf." 629 F.3d at 688 (plaintiffs "had exhausted every reasonable avenue in their communications with [the loan servicer]," including sending multiple written correspondence to the servicer's legal counsel, with no pertinent action in response by the servicer, as well as attempting to send multiple checks to the servicer as payments on the loan, which payments were rejected).
The Catalan court's rulings on four borrower letters illustrate how subjective the determination can be on the first prong of the second element of the Medrano test—whether the borrower has sufficiently detailed to the servicer the reasons why he or she believes the account is in error. In one letter, the borrowers had merely "set forth their expectations for how [the servicer] would handle their account going forward." The court held that such a letter "did not raise any disputes or errors in their account." Catalan, 629 F.3d at 688. In another letter, the borrowers recounted their failed attempts to bring their account current and then merely asked for a "quick resolution of whatever issues remain." Id. at 689. The court determined that such a letter could not reasonably be construed "as a statement of [the borrowers'] belief that [the] servicing of their account was in error." Id.
By contrast, a "three-page letter describ[ing] in great detail the difficulties the [borrowers] encountered at the hands of [the servicer]," id. at 687, was deemed clearly sufficient to be a qualified written request. The letter included an account of how the servicer had "raised the [borrowers'] monthly payment amount without informing them of the change," and noted that "each of [the borrowers'] attempts to communicate with [the servicer] was rebuffed until [the servicer] at last acknowledged its error and dismissed its foreclosure action[.]" Id. In another letter, the borrowers expressly stated that they were "disputing [the servicer's] attempt to collect on the above referenced account" and, further, "that they had sent the full amount required to bring the account current, but [the servicer] had refused to process [the] checks." Id. at 689. Here, too, the court held that the borrowers' letter "was a statement of their belief that their account was in error." Id.
Similarly, the subjectivity of the second prong of the second element of the Medrano test—whether sufficient detail has been provided about what information is being sought by the borrower—is likewise exemplified by the court's rulings on three borrower letters. In one letter, the borrowers had merely "set forth their expectations for how [the servicer] would handle their account going forward." The court determined that "their 'expectations' were not requests for information." Id. at 688.
By contrast, the borrowers, in another of their letters, "very clearly requested specific information regarding their account—namely, an explanation of how their account balance increased from $229,098 to $428,298 over a two-month time span." Id. at 689-90. This letter was ruled "unequivocally" a qualified written request under RESPA. And in another letter, which the court concluded was a qualified written request, the borrowers had asked the servicer to explain why it had cashed certain checks after it had already sold the account to another entity, and they had also requested an accounting of the funds the borrowers had paid the servicer. Id. at 687-88.
The third element of the Medrano test requires that the request "relat[e] to the servicing of [the] loan." As explained by the Ninth Circuit, this requirement
ensures that the statutory duty to respond does not arise with respect to all inquiries or complaints from borrowers to servicers. RESPA defines the term "servicing" to encompass only "receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts . . . , and making the payments of principal and interest and such other payments." [12 U.S.C.] § 2605(i)(3). "Servicing," so defined, does not include the transactions and circumstances surrounding a loan's origination—facts that would be relevant to a challenge to the validity of an underlying debt or the terms of a loan agreement. Such events precede the servicer's role in receiving the borrower's payments and making payments to the borrower's creditors. Perhaps for that reason, Congress drafted the statute so as not to include those matters.
The statute thus distinguishes between letters that relate to borrowers' disputes regarding servicing, on the one hand, and those regarding the borrower's contractual relationship with the lender, on the other. That distinction makes sense because only servicers of loans are subject to § 2605(e)'s duty to respond—and they are unlikely to have information regarding those loans' originations.
Medrano, 2012 WL 6183549, at *3-4 (emphasis in original).
In the Medrano case, the court held that the plaintiffs' three letters were not "qualified written request[s]" under RESPA, and thus the loan servicer was not required to respond thereto, because the plaintiffs' letters were
challenges to the terms of the loan and mortgage documents and are not disputes regarding [the] servicing of the loan. The first letter states that the loan documents did not "accurately reflect . . . the proper payment schedule represented by the loan broker." That assertion amounts to an allegation of fraud or mistake during the closing of the loan and the drafting of the relevant documentation. Thus, it concerns only the loan's validity and terms, not its servicing. Likewise, in the second letter, Plaintiffs demanded that Flagstar "revise all documentation concerning the current loan" to reflect the "original terms" of the agreement. A request for modification of a loan agreement, like one for rescission, does not concern the loan's servicing. Finally, the sole request in the third letter is that Plaintiffs' monthly payment be reduced because they were told, when they purchased their home, that those payments would not exceed $1,900. Again, that demand is a challenge to the terms of the loan and mortgage documents, premised on an assertion that the existing documents do not accurately reflect the true agreement between Plaintiffs and the originating lender. Because the letter requests modification of those documents, it is not related to servicing.
Id. at *4 (emphasis in original) (footnote omitted).
The Lawletter Vol 37 No 6
Alistair Edwards, Senior Attorney, National Legal Research Group
In light of the recent and ongoing residential foreclosure crisis, the use of loan/mortgage modification agreements in the mortgage industry has become commonplace. However, homeowners will often believe that they have executed a binding loan modification with their mortgage lender, only to discover that the lender is continuing with the foreclosure of the home.
For example, in Barroso v. Ocwen Loan Servicing, LLC, No. B229112, 2012 WL 3573906 (Cal. Ct. App. Aug. 21, 2012), a California Court of Appeal analyzed whether the borrowers had a valid and enforceable loan modification agreement. The lender—actually, the loan servicer—after being sued by the borrower following the alleged wrongful foreclosure of the home, argued that there was no binding loan modification since the servicer had unilaterally failed to sign and send executed copies of the mortgage modification agreements to the borrower. Per the express terms of the loan modification, it would not take effect unless both the borrower and the servicer had signed the agreement and a fully executed copy had been returned to the borrower. Despite these defects, and despite the express requirement in the agreement that it would not take effect unless signed by the servicer and returned to the borrower, the court found that a valid contract had been formed. The court concluded that failing to find contract formation would make the contract extraordinary, harsh, unjust, or inequitable because it would grant the servicer sole control over the formation of the contract despite the borrower's alleged full performance. The court stated:
In its brief, Ocwen argues there was no agreement to modify Barroso's loan because she did not allege that she received a copy of any modification agreement signed by both her and Ocwen. Each modification plan offered to Barroso included language that it would not take effect unless both Barroso and Ocwen signed the agreement and a fully executed copy was returned to Barroso. While Barroso alleges that the signed documents are in Ocwen's possession, she does not allege Ocwen's signature and return to her of any of the loan modification documents. Significantly, at oral argument, counsel for Ocwen stated that Ocwen does not argue that its failure to sign and send executed copies of the modification agreements to Barroso precluded formation of the contract for modification. . . .
"'A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.' (Civ.Code, § 1643; Beverly Hills Oil Co. v. Beverly Hills Unified Sch. Dist. (1968) 264 Cal.App.2d 603, 609, 70 Cal.Rptr. 640.) 'The court must avoid an interpretation which will make a contract extraordinary, harsh, unjust, or inequitable.' (Strong v. Theis (1986) 187 Cal.App.3d 913, 920, 232 Cal.Rptr. 272.)" (Powers v. Dickson, Carlson & Campillo (1997) 54 Cal.App.4th 1102, 1111-1112, 63 Cal.Rptr.2d 261.)
The interpretation Ocwen had asserted below and in the briefing here would violate these fundamental principles of contract interpretation. Were we to adopt that interpretation, Ocwen would have sole control over the formation of the contract despite Barroso's full performance, simply by refusing to return a signed copy to her.
Id. at *7-8.Barroso
illustrates that borrowers should be very careful when attempting to procure a binding loan modification agreement. Even though the borrower may think that it has a valid loan modification in place (and is even paying the modified amount), the lender may later claim that no valid modification was ever formed. In order to avoid this result, the borrower should carefully read the language of the modification agreement and insist that the lender strictly comply with all of the requirements for contract formation, either as set forth in the agreement or arising under the law.
September 11, 2012
Steve Friedman, Senior Attorney, National Legal Research Group
The doctrine of adverse possession provides that title to real property may be acquired, without an affirmative conveyance thereof, if the claimant takes actual and uninterrupted possession of the property, intending to claim it as his own to the exclusion of the true owner, and makes an outward showing of such claim for a sufficient period of time. See 2 C.J.S. Adverse Possession § 1 (Westlaw database updated May 2012); Weinstein v. Hurlbert, 2012 ME 84, ¶ 8, 45 A.3d 743, 745; Whetstone Baptist Church v. Schilling, No. SD 31412, 2012 WL 3094954, at *5 (Mo. Ct. App. July 31, 2012) (not yet released for publication).
Back in law school, I recall learning about adverse possession and thinking to myself that this ancient doctrine was probably just an academic exercise that would not have much practical application in today's world. But as Bart Simpson says, "Au contraire mon frère!" In the years since law school, I have worked on a great many adverse possession cases. Most often, the dispute concerns whether the claimant's possession was sufficiently hostile or open and notorious. See, e.g., Weinstein, 2012 ME 84, 45 A.3d 743 (holding that adverse possessors' use of property was not hostile and notorious). And just when I thought there were no new issues to be raised regarding the doctrine, I once again stand corrected.
Virtually all jurisdictions hold that adverse possession does not apply against the State, which oftentimes includes the political subdivisions thereof. See 2 C.J.S., supra, §§ 9, 16; e.g., Houck v. Huron County Park Dist. Bd. of Park Comm'rs, 116 Ohio St. 3d 148, 2007‑Ohio‑5586, 876 N.E.2d 1210. And the State of Washington is no exception: "[N]o claim of right predicated upon the lapse of time shall ever be asserted against the state." Wash. Rev. Code ("RCW") 4.16.160.
That rule sounds simple enough, right? Well, the Supreme Court of Washington was recently asked whether RCW 4.16.160 bars a quiet title action against a municipality asserting title to real property by adverse possession where the claimant alleges that he adversely possessed the property while it still belonged to a private individual and before that private individual conveyed the property to the municipality. See Gorman v. City of Woodinville, No. 85962-1, 2012 WL 3516888 (Wash. Aug. 16, 2012) (en banc).
James Gorman, the record title owner of a certain parcel of real estate, alleged that he had acquired title to an adjacent parcel of real estate by adverse possession prior to December 2005, the time when the subject property was dedicated to the City of Woodinville by the record title owner. The City had identified the property as a necessary part of a capital improvement plan for improving a busy intersection to alleviate vehicle congestion and address safety concerns. Some 19 months after the dedication to the City, in July 2007, Gorman decided to initiate the instant quiet title action against the City.
The City moved to dismiss the complaint for failure to state a claim upon which relief could be granted, asserting that the claim was precluded by RCW 4.16.160. The trial court granted the City's motion and dismissed the claim, but the Court of Appeals of Washington reversed and remanded the case to the trial court for a determination of the validity of Gorman's claim. The City appealed the intermediate court's decision to the supreme court. In a unanimous decision, and as a matter of first impression, the supreme court allowed the adverse possession claim to proceed against the municipality.
Rejecting the City's arguments, the supreme court observed that "Gorman is not asserting a claim 'predicated upon the lapse of time'—the type of claim barred by RCW 4.16.160—as against the City" but, rather, is asserting that "the requisite period of time already ran against the private owner." Id. ¶ 9 (court's emphasis). But cf. Houck, 116 Ohio St. 3d 148, 2007‑Ohio‑5586, 876 N.E.2d 1210, at ¶ 9 (because the county park districts were immune from adverse possession, the sale of the property to the park districts effectively terminated the claimant's continuous possession prior to the expiration of the statutory period, and thus the adverse possession claim failed).
Once title is acquired by adverse possession, it cannot be divested except by those means recognized to transfer title, e.g., deed, will, or adverse possession. See Gorman, 2012 WL 3516888, ¶ 10. In other words, once the statutory "period has run, the [adverse] possessor is vested with title and the record owner is divested." Whetstone Baptist, 2012 WL 3094954, at *5. And thus Gorman was not required to bring the instant lawsuit prior to the City's acquisition of the property, because, if title had already been acquired by Gorman prior to the dedication to the City, then an earlier quiet title action would have merely clarified what was already the case—that Gorman, rather than the private party purporting to dedicate the property to the City, owned the subject real estate.
And because the private party from whom Gorman had acquired title by adverse possession did not have title to the property at the time he purported to dedicate the property to the City, the City acquired nothing thereby. See 26 C.J.S. Dedication § 7 ("No one except the owner of an unlimited estate or an estate in fee simple, or someone expressly authorized by such an owner, can make a dedication of land." (footnotes omitted)); 26A C.J.S. Deeds § 245 ("No matter how property in a deed is described, a deed may convey only property that was owned by the grantor.").
Although the decision in Gorman was unanimous, it was not without what I would term a "quasi-dissent." Chief Justice Barbara A. Madsen concurred in the judgment and result based on the current state of the law, but she made an impassioned plea for the state legislature to curtail, if not wholly abandon, the doctrine of adverse possession. In short, Justice Madsen reasoned as follows:
Many of the beneficial purposes the doctrine is said to serve do not justify the doctrine in modern times. Moreover, the doctrine's basic premise is legalization of wrongful acquisition of land by "theft," conduct that in our time we should discourage, notwithstanding the possibility of putting land to a higher or better use. The doctrine also creates uncertainty of ownership, lying as it does outside documents in writing and the recording statutes. I encourage the legislature to seriously consider phasing the doctrine out, at least where the adverse possessor has no colorable title or good faith belief in ownership of the land.
Id. ¶ 15 (Madsen, C.J., concurring). As illustrated by the facts of the instant case, the City's laudable project (improving a busy intersection to alleviate vehicle congestion and address safety concerns) has been, at best, significantly delayed and made much more expensive and, at worst, precluded altogether.
Rather than just pointing out the deficiencies of adverse possession, Justice Madsen offers some solutions for fixing them. For instance, several other western jurisdictions have legislatively curtailed the doctrine to combat the "theft" aspect of traditional adverse possession by imposing an additional requirement that the adverse possession claimant have a good-faith belief that he or she owns the property in question. Minnesota has gone even further, providing that recordation of one's deed stands as an absolute defense to adverse possession. Finally, Justice Madsen notes an even more drastic solution, albeit one that has yet to be adopted by any jurisdiction: "to require the adverse possessor to pay for the land at a reasonable price, and so protect the record title holder with a liability rule rather than offering the record title holder no protection at all." Id. ¶ 28 n.3 (citing Jeffrey Evans Stake, The Uneasy Case for Adverse Possession, 89 Geo. L.J. 2419, 2445 & n.115 (Aug. 2001) (citing Thomas W. Merrill, Property Rules, Liability Rules, and Adverse Possession, 79 Nw. U. L. Rev. 1122, 1145-54 (1984))).
So perhaps my instincts in law school were not that far off, and the doctrine of adverse possession is indeed an antiquated concept that should no longer be followed? And perhaps I was just a little ahead of my time.
The Lawletter Vol 37 No 1
Charlene Hicks, Senior Attorney, National Legal Research Group
Overall, residential mortgage borrowers have not met with much success in obtaining modifications to their existing mortgages under the federal Home Affordable Modification Program ("HAMP"), enacted during the economic crisis of 2008. In Miller v. Chase Home Finance, LLC, No. 11-15166 Non-Arg. Calendar, 2012 WL 1345834 (11th Cir. Apr. 19, 2012), the Eleventh Circuit Court of Appeals dealt another blow to residential mortgage borrowers by ruling that neither HAMP nor the common law provides a private right of action to borrowers based on a lender's refusal to grant a permanent modification to an existing home mortgage.
In that case, Jason Miller had secured a mortgage loan from Chase's predecessor. In 2009, Miller sought a loan modification from Chase on the ground of financial difficulties. Although Chase agreed to temporarily modify Miller's loan, in August 2010, Chase informed Miller that it would not extend a permanent loan modification to him. Miller then filed suit, alleging that Chase had failed to comply with its obligation under HAMP and that this failure gave rise to actions for breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel. The district court dismissed Miller's complaint for failure to state a claim upon which relief could be granted.
Concluding that HAMP does not provide a private right of action, the Eleventh Circuit affirmed. In making this determination, the court found that HAMP had been designed to enable the Secretary of the Treasury to restore liquidity and financial stability to the nation's financial system. The program was not enacted "for the 'especial benefit' of struggling homeowners, even though they may benefit from HAMP's incentives to loan servicers." Id. at *2. Because no relevant factor favored the finding of a private right of action in favor of residential mortgage borrowers, the court ruled that Miller lacked standing to pursue his claims against Chase.
In addition, the court determined that "[t]o the extent Miller's claims fall outside of HAMP, they fail as a matter of law." Id. Miller's breach-of-contract claim was not independent of Chase's obligations under HAMP. Further, under Georgia law, the implied duty of good faith imposed on Chase was inseparable from Chase's contractual obligations and could not form an independent basis for liability. Finally, Miller did not present a viable estoppel claim, because he failed to set forth any factual allegations that Chase had promised to permanently modify his loan. Moreover, Miller was unable to show that he had reasonably relied on any such promise by Chase.
demonstrates, courts tend to set high hurdles for a home mortgagor to overcome in order to prevail on a claim against a lender for breach of a promise concerning the underlying mortgage. These high standards have not been ameliorated by the enactment of federal legislation designed to avert mortgage foreclosures, such as HAMP.
The Lawletter Vol 37 No 1
Alistair Edwards, Senior Attorney, National Legal Research Group
Enacted in 1974, the Real Estate Settlement Procedures Act ("RESPA") regulates the market for real estate "settlement services," a term defined by statute to include "any service provided in connection with a real estate settlement." 12 U.S.C. § 2602(3) (Westlaw current through P.L. 112‑104 (excluding P.L. 112‑96 and 112‑102) approved 4‑2‑12). These services include, but are not limited to
title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by a real estate agent or broker, the origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans), and the handling of the processing, and closing or settlement.
RESPA also provides in pertinent part that "[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service . . . other than for services actually performed." Id. § 2607(b). The Supreme Court recently held that this section does not prohibit a single settlement-service provider's retention of an unearned fee. Freeman v. Quicken Loans, Inc., No. 10-1042, 2012 WL 1868063 (U.S. May 24, 2012). Rather, in order to establish a violation of this RESPA section prohibiting the splitting of fees for which no services were provided in return, a consumer must demonstrate that a charge for settlement services was divided between two or more persons.
Writing for a unanimous Court, Justice Scalia agreed with the Fifth Circuit Court of Appeals that § 2607(b) covers only transactions in which a provider shares a part of a settlement‑service charge with one or more other persons who did nothing to earn that part. The Court stated:
In order to establish a violation of ' 2607(b), a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons. Because petitioners do not contend that respondent split the challenged charges with anyone else, summary judgment was properly granted in favor of respondent. We therefore affirm the judgment of the Court of Appeals.
The Lawletter Vol 37 No 1
Anne Hemenway, Senior Attorney, National Legal Research Group
The Establishment Clause of the First Amendment to the U.S. Constitution has long been interpreted as precluding courts from deciding ecclesiastical issues, on the ground that the courts lack subject-matter jurisdiction over disputes involving church doctrine. Serb. E. Orthodox Diocese v. Milivojevich, 426 U.S. 696, 709 (1976) (finding that the controversy before the Court did not involve a property dispute but a religious dispute, "the resolution of which . . . is for ecclesiastical and not civil tribunals"); see also Banks v. St. Matthews Baptist Church, 706 S.E.2d 30, 33 (S.C. 2011) ("[W]hen a civil court is presented an issue that is a question of religious law or doctrine masquerading as a dispute over church property or corporate control, it must defer to the decisions of the proper church judicatories to the extent it concerns religious or doctrinal issues.").
The U.S. Supreme Court's review of church property disputes has evolved over a long period of time. In such cases, the courts have subject-matter jurisdiction and must review the issue raised. Early on, in Watson v. Jones, 80 U.S. (13 Wall.) 679 (1871), the Supreme Court adopted the "rule of compulsory deference" theory, which required the courts to decide property dispute issues in deference to the rule of the church in question. This theory was substantially modified in Presbyterian Church in the United States v. Mary Elizabeth Blue Hull Memorial Presbyterian Church, 393 U.S. 440 (1969), which required courts to apply general civil laws applicable to all property disputes to church property disputes. Later, in Jones v. Wolf, 443 U.S. 595 (1979), the Supreme Court adopted the "neutral principles" approach to determining church property issues. The Court explained:
The primary advantages of the neutral-principles approach are that it is completely secular in operation, and yet flexible enough to accommodate all forms of religious organizations and polity. The method relies exclusively on objective, well-established concepts of trust and property law familiar to lawyers and judges. It thereby promises to free civil courts completely from entanglement in questions of religious doctrine, polity, and practice.
Id. at 603.
Importantly, in Jones, the Supreme Court did not overrule Watson but allowed States to decide whether to apply the compulsory-deference rule or the neutral-principles approach when confronted with church property disputes. Even today, however, most state courts have not clearly determined which direction to take when confronted with a church property dispute, many of which concern real estate and other significant assets. In Pearson v. Church of God, 478 S.E.2d 849 (S.C. 1996), the South Carolina Supreme Court specifically adopted the neutral-principles approach over the Watson approach. See also Banks, 706 S.E.2d at 33. Similarly, New York appears to have adopted the neutral-principles approach. See Presbytery of Hudson River of Presbyt. Church (USA) v. Trs. of First Presbyterian Church & Congreg. of Ridgeberry, 895 N.Y.S.2d 417 (App. Div. 2010). Texas courts weigh both approaches. See Mastern v. Diocese of Nw. Tex., 335 S.W.3d 880, 886 (Tex. App. 2011).
May 22, 2012
Steve Friedman, Senior Attorney, National Legal Research Group
Although the economy is hopefully on the rebound, the deluge of foreclosures continues. And as the foreclosures continue, so too do the various legal battles associated with them. A recent case in the U.S. District Court for the District of Maryland addresses an interesting and somewhat "murky" area of civil procedure in the context of a foreclosure action. Cohn v. Charles, Civ. No. PJM 11-2013, 2012 WL 273751, at *4 (D. Md. Jan. 30, 2012).
I. Section 1441 Removal
"Removal" is defined as "the transfer of an action from state to federal court." Black's Law Dictionary "removal" (9th ed. 2009).
Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.
28 U.S.C. § 1441(a). Furthermore, "a claim arising under" federal law may be removed even if coupled with a related state law claim, provided that both the federal and state claims are asserted against the same defendant or defendants. See id. § 1441(c)(1).
Based on the above-stated portions of the removal statute, it has long been well established that "[o]nly a defendant to an action—neither a counter‑defendant nor a third‑party defendant—may remove a case under § 1441(a)." Cohn, 2012 WL 273751, at *1 (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 107-09 (1941); Palisades Collections LLC v. Shorts, 552 F.3d 327, 332 (4th Cir. 2008)).
In determining whether an action "arises under federal law" within the meaning of § 1441(c)(1), courts employ the so-called "well-pleaded complaint rule," whereby the court looks to "'the face of the plaintiff's properly pleaded complaint.'" Id. at *2 (quoting Verizon Md., Inc. v. Global NAPS, Inc., 377 F.3d 355, 363 (4th Cir. 2004) (citing Caterpillar v. Williams, 482 U.S. 386, 392 (1987))).
Accordingly, "[t]o determine whether [a particular] action was properly removed, the Court must first identify which party 'brought' the case in state court," which in turn "will determine which party was the 'defendant' in that court, hence able to initiate removal, and what constituted the 'complaint' for the purposes of the well‑pleaded complaint rule." Id.
II. The Cohn Case
In Cohn, the trustees for a deed of trust (the "Trustees") initiated a foreclosure action in the Circuit Court for Prince George's County, Maryland, regarding a certain parcel of Maryland real estate owned by Yanel Charles ("Charles"). See 2012 WL 273751, at *1. Thereafter, Charles timely filed a counterclaim against the Trustees as well as a third-party complaint against the successor mortgagee, Nationstar Mortgage, LLC ("Nationstar"), alleging violations of the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., and the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2601 et seq. In response, the Trustees and Nationstar timely removed the counterclaim and third-party complaint to federal district court pursuant to 28 U.S.C. § 1441(a). Charles then moved to remand the matter back to state court.
A. Removal Not Authorized
Initially, the federal district court held that the counterclaim and third-party complaint had been filed within an already existing state court proceeding and, thus, neither Nationstar nor the Trustees were "defendants" who could remove the action to federal court. See Cohn, 2012 WL 273751, at *2. Alternatively, even if Nationstar and the Trustees were "defendants" within the meaning of § 1441, given that the federal question (TILA and RESPA) arose solely from the counterclaim and third-party complaint rather than the initiation of foreclosure proceedings, the federal district court lacked jurisdiction under the well‑pleaded-complaint rule. See id. at *3. Accordingly, regardless of whether the initiation of foreclosure proceedings under Maryland law was a "complaint," Nationstar and the Trustees lacked the "authority to unilaterally sever the Counterclaim and Third Party Complaint from the foreclosure proceeding and remove just that portion of the case to federal court." Id.
B. Attorney's Fees Not Warranted
Lastly, the Cohn court considered Charles's request for attorney's fees and costs pursuant to 28 U.S.C. § 1447(c). "Absent unusual circumstances, courts may award attorney's fees under § 1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal. Conversely, when an objectively reasonable basis exists, fees should be denied." Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). Denying Charles's request, the court reasoned:
Although the Court has found that removal was improper, it does not find that the removal was objectively unreasonable. The . . . problematic nature of adjudicating a foreclosure governed by state law together with a mortgagor's federally‑based counterclaims against a mortgagee . . . at a minimum makes the state of remand law murky.
, 2012 WL 273751, at *4.
The Lawletter Vol 36 No 11
Matt McDavitt, Senior Attorney, National Legal Research Group
While a person's entry upon the land of another without consent ordinarily constitutes tortious trespass, there are exceptions to the rule, including privileged entry based on necessity. Factually, privileged entry might occur in a circumstance where a person's property or dependents (i.e., an animal or a child) enters or wanders onto the property of another and necessity dictates that for the parent or owner to retrieve his or her property or offspring, he or she must enter the lands of another. This so-called "privileged entry" exception appears in the Restatement (Second) of Torts:
(1) One is privileged to enter land in the possession of another, at a reasonable time and in a reasonable manner, for the purpose of removing a chattel to the immediate possession of which the actor is entitled, and which has come upon the land otherwise than with the actor's consent or by his tortious conduct or contributory negligence.
(2) The actor is subject to liability for any harm done in the exercise of the privilege stated in Subsection (1) to any legally protected interest of the possessor in the land or connected with it, except where the chattel is on the land through the tortious conduct or contributory negligence of the possessor.
Restatement (Second) of Torts § 198 (1965). Note that to invoke this privilege, (1) the owner's entry must be reasonable in time and manner, and (2) the property or dependent must not have come onto the land through the owner's tort, consent, or negligence. The official commentary to this Restatement section supplies the further guidance that, ordinarily, the owner must first seek permission to enter from the landowner, and only if this permission cannot be obtained, or asking proves futile (i.e., refusal), may the property owner enter under the privileged-entry exception. This Restatement formulation of the privileged-entry rule has been followed in several jurisdictions. See, e.g., State v. Oldack, 283 So. 2d 73 (Fla. Dist. Ct. App. 1973); State v. Logsdon, 160 Ohio App. 3d 517, 2005-Ohio-1875, 827 N.E.2d 869; Hartsock v. Bandhauer, 158 Ariz. 591, 764 P.2d 352 (Ct. App. 1988).
In Hoblyn v. Johnson, 2002 WY 152, 55 P.3d 1219 (Wyo. 2002), for instance, a teenage daughter was sent to live with her grandparents out of state while her father was being investigated for alleged physical abuse. The daughter wanted her horse, which was titled in her name, to accompany her to Nebraska, but her parents refused to release the animal from their possession in Wyoming. After involving the authorities to help her, the daughter employed an agent to enter her parents' land, identify her horse, and remove it to her possession. The parents sued, claiming, in part, trespass. The Wyoming Supreme Court, having quoted Restatement § 198, held that
once the parents refused the daughter's request for the return of her horse, she was privileged to enter their real property at a reasonable time and in a reasonable manner to take the horse. No reason exists why she could not accomplish the same through an agent.
Id. ¶ 33, 55 P.3d at 1229-30. Thus, the privileged-entry exception is also exercisable through an owner's agent.
February 7, 2012
Steve Friedman, Senior Attorney, National Legal Research Group
The Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1692–1692p, is a federal consumer protection statute intended "to promote consumers' 'informed use of credit' by requiring 'meaningful disclosure of credit terms[.]'" Chase Bank USA v. McCoy, 131 S. Ct. 871, 874 (2011) (quoting 15 U.S.C. § 1601(a)). Pursuant to its authority under TILA, the Board of Governors of the Federal Reserve System has promulgated Regulation Z, codified as 12 C.F.R. part 226, "which requires credit card issuers to disclose certain information to consumers." Id. Among other things, TILA and its implementing Regulation Z give the consumer-borrower a remorse period in which to rescind a transaction.
Significantly, when the TILA notice is provided in writing, as opposed to electronically, Regulation Z requires that lenders "deliver two copies of the notice" and that such notice include "[t]he date the rescission period expires." 12 C.F.R. § 226.23(b)(1). Ordinarily, the rescission period is three business days, see 15 U.S.C. § 1635(a), but that period is extended to three years if the requisite notice of the right to cancel is not delivered to the borrower, see 12 C.F.R. § 226.23(a); see also 15 U.S.C. § 1635(f). This distinction proved critical in a recent case from the U.S. Court of Appeals for the Ninth Circuit.
In Balderas v. Countrywide Bank, No. 10-55064, 2011 WL 6824977 (9th Cir. filed Dec. 29, 2011), a Spanish-speaking couple alleged that they had been pressured by a bank and its representatives to enter into a mortgage loan that the bank knew they could not afford and on terms they did not agree to. Among other theories, the plaintiffs sought to rescind the entire transaction, alleging that they had been given defective copies of TILA's notice of right to cancel in that the notice did not include the date on which their right to rescind expired. However, the district court granted the bank's Rule 12(b)(6) motion to dismiss, because the court determined that the plaintiffs had been entitled under TILA to only a three-day rescission period, which had elapsed prior to the filing of their lawsuit. The court's decision was based upon a copy of a nondefective notice-of-right-to-cancel letter bearing the plaintiffs' signatures, attached as Exhibit 14 to the complaint, that included an acknowledgment that the plaintiffs had received two copies of said notice. Upon the plaintiffs' appeal, the Ninth Circuit reversed and remanded.
Initially, the appellate court recognized that the plaintiffs' signatures on the disclosure statement did not conclusively prove that it had been delivered to them as required by TILA. "[P]roviding someone a document long enough to sign it does not comply with 12 C.F.R. § 226.23(b)(1), which requires the lender to 'deliver' copies of the Notice of the Right to Rescind to the consumer." Id. at *3. By using the word "deliver," Regulation Z undoubtedly commands that the consumer be allowed to keep the notice. See also 12 C.F.R. § 226.17(a)(1) (the requisite written disclosures must be provided "in a form that the consumer may keep"). The court drove this point home by relating a couple of common-sense analogies: "When you have pizza delivered, you don't sign for it and let the deliveryman take it back to the restaurant. And when a newspaper boy delivers a paper, he doesn't show you the headlines and then return it to the printer." 2011 WL 6824977, at *3.
Furthermore, the appellate court noted that the plaintiffs' signed acknowledgment of receipt of the requisite notice was merely prima facie evidence of delivery. "Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this subchapter by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof." 15 U.S.C. § 1635(c). Admittedly, the presumption will certainly be helpful to the bank when the trier of fact is called upon to decide whether the plaintiffs received proper TILA notice, e.g., upon a motion for summary judgment. But such presumptions are inappropriate in the context of a Rule 12(b)(6) motion, wherein the plaintiffs' factual allegations must be accepted as true. And in this case, the plaintiffs sufficiently stated facts to support their plausible assertion that they had not received a properly prepared notice of right to cancel as required by TILA.
In sum, there are three important lessons to be learned from the Balderas case. First, on a substantive point, Regulation Z's "delivery" mandate means that the consumer-borrower must be allowed to keep a copy of the requisite notice of right to cancel; a mere visual inspection by the consumer is not sufficient. Second, a practical and strategic tip for plaintiff's counsel is that "it's unwise to use a complaint as an ersatz document production." 2011 WL 6824977, at *2. Absent Exhibit 14 attached to the complaint, the Balderases' written acknowledgment of the TILA disclosures would not have been in issue upon the bank's motion to dismiss. This last statement dovetails nicely into the third lesson learned from Balderas: While it is by no means a lesson introducing a groundbreaking legal principle, counsel must recognize the distinct standards of review applicable to motions to dismiss versus those for summary judgment, and that such differences are often dispositive.
But see 15 U.S.C. § 1641(b) ("Except as provided in section 1635(c) of this title, in any action or proceeding by or against any subsequent assignee of the original creditor without knowledge to the contrary by the assignee when he acquires the obligation, written acknowledgment of receipt by a person to whom a statement is required to be given pursuant to this subchapter shall be conclusive proof of the delivery thereof[.]").
The Lawletter Vol 36 No 6
Alistair Edwards, Senior Attorney, National Legal Research Group
For obvious reasons, one's decision to purchase or not to purchase a home may be impacted by the knowledge that there was a previous murder or suicide (or a combination of both) at the home. Does the seller have a duty to disclose this sort of information to a potential purchaser? Does the failure to disclose this information before the sale is accomplished amount to an actionable fraud or a negligent misrepresentation on the part of the seller?
Recently, in Milliken v. Jacono, 2011 PA Super 254, 2011 WL 5936768, a Pennsylvania court suggested that a home seller may be required to disclose to a potential purchaser that the house had been the site of a murder-suicide involving the home's prior owners. First, the court considered whether there was a duty to disclose this information under Pennsylvania's Real Estate Seller Disclosure Law ("RESDL"), 68 Pa. Cons. Stat. §§ 7301–7315. The RESDL requires that a seller of residential real estate disclose to a buyer any material defect with the property. See 68 Pa. Cons. Stat. § 7303. The court indicated that the murder-suicide history would constitute a material defect under the RESDL if it were to have a significant adverse impact on the value of the property. The court went on to hold that there was a genuine issue of material fact on the issue of a material defect under the RESDL, thereby precluding the defendant seller's and real estate agents' motion for summary judgment on the purchaser's claim for a RESDL violation.
Likewise, the court also held that there were genuine issues of material fact as to the purchaser's claims for fraud and negligent misrepresentation (as well as the Unfair Trade Practices and Consumer Protection Law claim). As with the RESDL claim, the court held that there were factual disputes concerning whether the murder‑suicide incident was a material defect. With respect to the fraud claim, the court commented:
Whether a fact is material in the context of a fraud claim hinges on whether the transaction would have been consummated if the other party knew of the fact. See Skurnowicz v. Lucci, 798 A.2d 788, 793 (Pa.Super.2002). Here, Buyer has alleged that had she known of the murder suicide, she would not have purchased the property. R. at 268a. Based on the foregoing, we conclude that whether Sellers and Agents failed to disclose a material fact was a question for the jury. See Alloway v. Martin, 434 Pa.Super. 518, 644 A.2d 201, 204 (Pa.Super.1994) (stating that "fraud is a question of fact for the trier‑of‑fact to decide"). Accordingly, we conclude that the trial court erred in granting Sellers and Agents summary judgment on Buyer's fraud claim.
2011 WL 5936768, at *6.
It is important to consider that the above decision was based purely on Pennsylvania law. Other state courts have also had an opportunity to consider the issue of a seller's (or real estate agent's) duty to disclose the type of information involved in Milliken
. See, e.g.
, Reed v. King
, 145 Cal. App. 3d 261, 193 Cal. Rptr. 130 (1983) (purchaser stated a cause of action against vendor and real estate agent for vendor's failure to disclose that house was site of a multiple murder). Moreover, other States may have enacted disclosure laws that expressly require a seller to disclose this type of information.