Documents

USFN Report: North Carolina Update

BY RYAN SRNIK, ESQ. 
BROCK & SCOTT, PLLC∗   
USFN MEMBER (CT, NC, RI, AL, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN, VT, VA)

As published in the Summer 2024 USFN Report

North Carolina General Statute § 45-91: A Small Statute with Big Implications

A seldom mentioned, oft important, unique statute in North Carolina establishes certain noticing procedures for mortgage servicers, regardless of whether the loan is in default or bankruptcy. Originally enacted in 2007, North Carolina General Statute § 45-91 provides, in pertinent part, that any fee incurred by the servicer shall be assessed within 45 days from the date the fee was incurred, and then, within 30 days of assessment, clearly and conspicuously notice the fee to the borrower in a statement at their last known address.

Borrowers who have been injured by a servicer’s noncompliance with N.C. Gen. Stat. § 45-91 may bring an action for recovery of actual damages, including attorneys’ fees. N.C. Gen. Stat. § 45-94. Prior to bringing an action against the servicer, the borrower shall, at least 30 days before instituting the action, notify the servicer of any alleged violations in writing at the address listed for servicer on any correspondence sent to borrower by servicer. Id.

Servicers can avoid liability for a violation of N.C. Gen. Stat. § 45-91 by (1) showing that the violation was not intentional or as a result of bad faith, and (2) within 30 days of being notified of the violations, and before the borrower instituted an action, correct the error and compensate the borrower for fees or charges incurred by the borrower as a result of the violation. N.C. Gen. Stat. § 45-94(1)-(2).

Rarely do courts handle litigation related to N.C. Gen. Stat. §45-91, as N.C. Gen. Stat § 45-94 provides an avenue for a resolution prior to the dispute entering the court’s purview. The lack of litigation can lead to servicers and borrowers unable to ascertain what a “fee” is and leave the parties with conflicting interpretations on whether a servicer has “clearly and conspicuously” noticed the borrower.

One important instance where a Court provided some guidance is In re Paylor. The United States Bankruptcy Court for the Middle District of North Carolina denied the borrower’s objection to the servicer’s post-petition fee notice, holding that the servicer’s force-placed hazard insurance on the property did not constitute a “fee” under N.C. Gen. Stat. § 45-91. In re Paylor, 604 B.R. 222 (M.D.N.C. 2019).

The Court reasoned that in the absence of legislative guidance and state law, the terms of a statute are afforded their natural and ordinary meaning. Id. at 227. Since the requirement to provide hazard insurance is not a cost related to labor or another personal service, the hazard insurance cost was not a “fee” that required the notice N.C. Gen Stat. § 45-91 demands. Id. at 232.

Another example of guidance for servicers and borrowers comes from In re Saeed. The United States Bankruptcy Court for the Middle District of North Carolina determined, in pertinent part, that “explanatory notes contained in the proof of claim neither clearly nor conspicuously explain the fees assessed.” In re Saeed, No. 10-10303, 2010 WL 3745641 (Bankr. M.D.N.C. Sept. 17, 2010). Although the Debtor received notice of the fees from the servicer’s proof of claim, the Court ultimately sustained the borrower’s objection to the servicer’s proof of claim, holding that the failure to mail a statement that clearly and conspicuously explained the fees, did not provide sufficient notice to the borrower. Id. at ∗3.

With minimal guidance and stringent deadlines, servicers should discuss any concerns with counsel to ensure that the servicer is in full compliance with unique state law statutes, such as North Carolina General Statute § 45-91.

USFN Report: Maryland Update

BY MATT COHEN, ESQ.
BWW LAW GROUP, LLC∗   
USFN MEMBER (MD, DC, VA)

As published in the Summer 2024 USFN Report

New Licensing Requirements for Certain Loans in Maryland

On April 29, 2024, Maryland’s intermediate appellate court issued a reported decision in Estate of H. Gregory Brown v. Ward. (Click here for a copy of the decision). Brown involved a loan where the original lender had made a written election in the promissory note for the loan to be governed by a specific Maryland statutory scheme, i.e., Subtitle 9 of Title 12 of Maryland’s Commercial Code (the Credit Grantor Revolving Credit Provisions “OPEC”).

The Brown Court affirmed the lower state court’s decision that a prior, uncollected judgment on the promissory note did not prevent a future foreclosure action on the deed of trust and that the judgment did not need to be assigned for that foreclosure to occur. The Brown Court also reiterated that the statute of limitations does not apply to foreclosures in Maryland, and also clarified that a promissory note for an open-ended line of credit, which may not qualify as a negotiable instrument, can be enforced through Maryland’s foreclosure process when an assignment of the associated deed of trust has been recorded in the land records. Additionally, the Brown Court held that the lower court’s denial of the borrower’s motion to stay and dismiss the foreclosure proceeding without having first held a motions hearing did not violate the borrower’s right to procedural due process.

The Brown Court did, however, vacate the lower court’s ruling regarding the need for the mortgage loan’s assignee to have certain licenses to be able to enforce it through a foreclosure filed in the state court. Specifically, the Court held that the assignee was required to be licensed under both the Maryland Mortgage Lender Law and as an installment lender, unless they were exempt from those requirements.

Relevant exemptions from these licensing requirements include FNMA, FHLMC, banking institutions, savings and loan associations, credit unions, and mortgage servicers with a mortgage lending license. The Court used common law principles to apply these licensing requirements to the assignee, despite the statute’s clear wording that they were only required for lenders “making a loan or extension of credit.” By extension, this opinion also applies to loans that were made under Subtitle 10 of Title 12 of Maryland’s Commercial Code (the Credit Grantor Closed End Credit Provision “CLEC”), which contains identical licensing requirements to those found in OPEC.

The Brown Court found that the “lack of licensure is not a permanent impediment to a foreclosure pursuant to the deed of trust, by a properly licensed party or a party that is exempt from the licensing requirement.” Instead, as OPEC provided no remedy for a failure to be licensed, the Court remanded the case back to the state court for further proceedings.

The Brown decision only applies to loans where the original lender has made a written election on the promissory note for the loan to be governed by either OPEC or CLEC. It does not apply to other loans where no such election has been made. The Brown lender’s outside counsel, who handled the appeal, is considering whether to appeal the opinion to Maryland’s highest appellate court moving forward.

USFN Report: Virginia Legislative Update

BY KATHRYN KELLAM, ESQ.
BWW LAW GROUP, LLC∗ 
USFN MEMBER (MD, DC, VA)

As published in the Summer 2024 USFN Report

New Requirements for Foreclosing Subordinate Mortgages in Virginia

Virginia – also known as the “Old Dominion” – is not historically recognized for innovating new consumer protections. Indeed, the non-judicial foreclosure process in Virginia has remained largely unchanged for many decades. Surprisingly, in its 2024 legislative session, and for the second time in four years, the General Assembly enacted substantial changes to the procedures governing foreclosure sales in the Commonwealth.

This year’s enactments focus on foreclosure sales pursuant to “subordinate mortgages,” are nested in Virginia Code Section 55.1-321, and require the holders of subordinate deeds of trust to jump through additional hoops to foreclose on defaulted subordinate deeds of trust. The impetus for the bill was concern over junior deeds of trust on which borrowers had not made payments in many years. While the bill was met with some opposition in Virginia’s Senate, it was eventually passed, and Virginia’s governor signed the bill which went into effect on July 1, 2024.

The new additions to the statute will require subordinate lienholders to submit an affidavit confirming whether monthly periodic statements were sent to the property owner for each period that any interest, fees, or other charges were assessed towards the loan balance. If periodic statements were not sent, the lienholder is required to identify the exemption upon which they have relied to justify not having sent periodic statements. If the lienholder cannot identify such an exemption, the newly constituted statute seems to envision waiving the interest, fees, and other charges accrued during periods in which statements were not sent. The affidavit is also required to provide an itemized list of the current amount owed and identify any periods of time for which interest, fees, and other charges have been waived.

In addition, a copy of the affidavit must be sent to the borrowers, via certified mail, return receipt requested, with a written notice that after 60 days, the lender will request that the trustee under the deed of trust proceed with scheduling a foreclosure sale. This creates a 60-day delay in foreclosure timelines for deeds of trust that fit within the parameters of the statute. The statute also provides consumers with a mechanism for petitioning the Circuit Court to determine the proper balance secured by the subordinate mortgage and allows for recovery of their attorney’s fees and costs if the courts determine that interest, fees, and costs were charged towards the loan improperly pursuant to the statute.

Fortunately, there are several exemptions. For example, the affidavit and notice requirement does not apply to subordinate lienholders who are the original creditor or a mortgage servicer acting on the original creditor’s behalf. In addition, federal or state-chartered banks and credit unions are exempt.

The statute also requires a Trustee to obtain certification from any purchaser of property at foreclosure sale that any superior security instruments will be paid in full within 90 days of the recordation of the foreclosure deed. This applies to sales where the property reverts to the investor (REO) as well as sales to third-party purchasers. Put another way, if the written one-price bid submitted by the lender is the winning bid at the sale, the junior lienholder has 90 days (from recordation of the Trustee’s Deed) to pay off the senior deed of trust. If the purchaser does not comply, then the borrower has the right to again petition the Circuit Court for the applicable jurisdiction for recovery of any payments that the borrower made towards the senior instrument post-foreclosure sale. In practice, this enforcement mechanism will be rarely triggered. It is a rare case where a foreclosed borrower continues to make monthly payments towards their senior deed of trust post-sale. This portion of the statute is not likely to be enforced on a regular basis.

These new statutory provisions certainly should be taken into account when formulating strategies for moving forward with foreclosure of defaulted junior deeds of trust in Virginia, especially those on which payments have not been made for long periods of time. In addition, lenders and servicers should pay careful attention to the requirements for sending periodic statements moving forward.