List of Defenses to Foreclosure

Here are two dozen foreclosure defenses available to those facing foreclosure.  These foreclosure defenses include substantive defenses, technical defenses, and those found in the Rules of Civil Procedure. 

Please share this webpage with others by linking to it!

Foreclosure Defenses with Caselaw

Failure to Mitigate Damages Failure to Join indispensable party Unclean Hands Prior Material Breach Waiver Unconscionability Promissory Estoppel Judicial Estoppel/Collateral estoppel Recoupment/Setoff Bankruptcy Discharge Statute of Limitations Part Payment Fraud on Court Lacks Standing Failure to Attach Contract FHA/VA Guidelines Mortgage Insurance Policy Loan Balance & Fees Wrong Laches Insufficient Process PSA Violations Negotiation Failure Ohio Foreclosure Elements Ohio Debt Collector Elements Unclean Hands Assignment Errors Notarization Errors Prior Breach Failure to State Claim Spousal Dower Cognovit Defenses

Failure to Mitigate Damages

Foreclosure Defense: Failure to Mitigate Damages

What is this foreclosure defense as a general concept?

It is the duty of someone who has been wronged to make reasonable efforts to limit the resulting harm.[1] When a person fails to make loan payments, the loan servicer must work to mitigate their damages. In the case of foreclosure, loan servicers and borrowers must work together to avoid foreclosure, or to minimize loss as much a possible. If there is a failure to mitigate damages, the plaintiff cannot be compensated for the damages that could have been avoided by such efforts.[2]

What is the specific rule for it from the caselaw for the foreclosure defense called Failure to Mitigate Damages?

According to Restatement (Second) of Contracts § 350, “damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.”[3]

How would someone spot Failure to Mitigate Damages in their own situation?

Loan servicers have a duty to mitigate damages by considering application for loan modification.[4] These applications must be presented to borrowers. Additional loss mitigation options include forbearance agreements and repayment plans. If any of these things have not been offered or considered, failure to mitigate damages may be present.

 Additionally, the loan servicer must contact client by phone no later than 36 days after missed payment to discuss loss mitigation options.[5] After 45 days, the servicer must also contact the client in writing about loss mitigation options. If this does not occur, the failure to mitigate damages could be present.

Practice Pointer in applying Failure to Mitigate Damages.

When presenting an offer to the other side, try to keep it as clean as possible and specific to money.  For example, if presenting a short sale to the bank, present the offer you received from the potential buyer and ask the bank to accept it.  Don’t add a request to waive a deficiency or to do anything extra for you.  The buyer could still have financing and appraisal contingencies in the contract with you, but your efforts directly to the bank should be limited and specific to the dollar amount.  In this way, you can go to the court and say, “This sale would have gone through with the buyer meeting all contingencies if the bank just accepted it.”  Your case will be harder to make if the bank could turn around and say, “Yes, but you also wanted a waiver of deficiency and $5,000 to move, so that is why we passed.”

Another thing to keep in mind is that the bank cannot condition its obligations to mitigate its damages by requiring you to do something first.  For example, it cannot require you first complete a loss mitigation application or give it all your financials before it considers your mitigation offer.  The law places no requirement on you to do any of those things. 

The concept of mitigate of damages goes to the plaintiff taking action to limit defendant’s exposure to financial liability.  If you present the bank with an offer for a $95,000 sale on a $100,000 note, whether or not you give the banks financials is irrelevant to the bank’s obligation to accept the mitigation.  It may sue you later for the $5,000, but that is it’s remedy at law – not for you to jump through paperwork hoops.

The bank may refuse to consider your mitigation offer unless you give it financials, but that is the banks problem in front of the judge – not yours.  If anything, the bank’s refusal to mitigate its damages unless you give it financial hardship documentation goes to prove your case.

Finally, if you are set on asking the bank to waive any potential deficiency (a wise move), as the bank for that after you submit your short sale offer.  If the bank refuses the offer, then you have established your mitigation defense.  If the bank accepts your offer, there is no harm in then also asking for a deficiency waiver.

How has it been applied to foreclosures in cases where the consumer successfully used the foreclosure defense called Failure to Mitigate Damages?

In United Central Bank (plaintiff) v. Bhavani Fruit and Vegetable LLC (Bhavani Fruit) (defendant), Bhavani fruit defaulted on two notes, causing United Central Bank to file a complaint for foreclosure. However, during the foreclosure action, it was claimed that the plaintiff failed to use a rent receiver to claim rent owed, which had a monthly value of $18,000. The final judgement in foreclosure was $5,145,464 to the plaintiff, but the judge granted only $195,309, based on the plaintiff’s failure to mitigate damages by not using or trying to appoint a rent receiver to collect rent, among other factors. The plaintiff was not entitled to the money it could have received if it chose to use a rent receiver. The judge’s basis of this decision was there was an obligation of the plaintiff to use a rent receiver, which was provided by a section of an executed assignment of rents and leases for one of the defendant’s properties. However, the appeal court ruled that the judge erred in making this judgement and the assignment made no such obligation of the plaintiff. Additionally, on appeal the judges stated “the record must be more fully developed on the issue of whether plaintiff failed to mitigate its damages by not timely filing suit or for any other reasonable basis.”[6]

Frenchtown Square Partnership v Lemstone, Inc[7] – Frenchtown leased a store space to Lemstone for a 10-year period. 6 months prior to the expiration of the lease Lemstone stopped making rent payments and vacated the property. Lemstone argued that its reasoning for vacating was due to competition that inhibited its ability to make the rent payments under the lease. Frenchtown sued Lemstone for rent due, as well as fees and taxes. Lemstone argued that Frenchtown failed to mitigate its damages by not reletting the property once Lemstone vacated. Initially, the trial court ruled in favor of Frenchtown; however, appeal court determined that Frenchtown did have a duty to mitigate damages. The case then went to Supreme Court of Ohio, which affirmed the appeal court’s decision. It determined that Frenchtown did indeed have a duty to make reasonable efforts to mitigate damages. The court uses Dennis v. Morgan as reasoning, which states “landlords have a duty, as all parties to contracts do, to mitigate their damages caused by a breach…Their efforts to do so must be reasonable, and the reasonableness should be determined at the trial level.” Real property leases adhere to the contract-law principle of mitigation. Unless there is a specific provision in a contract contrary to a mitigation duty, the duty to mitigate damages applies to all leases.

What is the Remedy?

Failure to mitigate damages can be used as an affirmative defense.[8] Additionally, this defense could be used in a motion to dismiss. Furthermore, the bank or loan servicer could be entitled to less due to their failure to mitigate damages.

[1] https://www.investopedia.com/what-are-your-legal-rights-in-a-foreclosure-4846357

[2] https://www.justia.com/trials-litigation/docs/caci/3900/3930/

[3]https://www.cs.xu.edu/~osborn/main/lawSchool/contractsHtml/bottomScreens/Briefs/Restatement%20350.%20Avoidability%20as%20a%20Limitation%20on%20Damages.htm

[4] https://www.nolo.com/legal-encyclopedia/what-does-loss-mitigation-mean.html#:~:text=The%20term%20%E2%80%9Closs%20mitigation%E2%80%9D%20refers,be%20beneficial%20for%20the%20investor.

[5] https://www.investopedia.com/what-are-your-legal-rights-in-a-foreclosure-4846357

[6] https://law.justia.com/cases/new-jersey/appellate-division-unpublished/2016/a0837-14.html

[7] https://cases.justia.com/ohio/supreme-court-of-ohio/2003-ohio-3648.pdf

[8] https://www.lexisnexis.com/legalnewsroom/real-estate/b/real-estate-law-blog/posts/the-duty-to-mitigate-damages-but-i-didn-t-do-anything-wrong#:~:text=The%20duty%20to%20mitigate%20damages%2C%20also%20known%20as%20the%20%22doctrine,of%20a%20breaching%20party's%20actions.

Failure to Join indispensable party

Foreclosure Defense: Failure to Join indispensable party

General Concept of this Foreclosure Defense.

In a lawsuit, all necessary persons are required to be joined, if feasible, according to Rule 19 of the Federal Rules of Civil Procedure.[1] Necessary persons includes those whose “(1) complete relief cannot be afforded to the present parties, (2) the disposition of the action would impair the party's ability to protect its own interest, or (3) any of the present parties would be subject to a substantial risk of multiple or inconsistent obligations.”[2] However, class action lawsuits are an exception to this rule.[3] It is also important to note that John/Jane Doe can be used when identities of parties are unknown.[4]

What is the specific rule for it from the caselaw for this foreclosure defense?

Federal Rules of Civil Procedure, Rule 19 establishes this defense.[5] In Ohio, Ohio Civil Rule 20 established this defense.[6]

How would someone spot this failure in their own situation?

When a lawsuit is filed, all necessary parties should be included. In regards to foreclosure by judicial sale, necessary parties can include “parties who acquired easements, liens, or leases after the mortgage being foreclosed was executed.”[7]

Example of failure in a foreclosure case?

In Lambert v. Dracos, the Lamberts had two mortgages against their home. When they divorced, Mrs. Lambert was given the home and required to make payments on the first mortgage, while her Mr. Lambert was required to make payments on the second mortgage. However, the second mortgage soon came into default. The bank then threatened to foreclose the home, which Mrs. Lambert lived in, so her new husband, Mr. Dracos, purchased the second mortgage from the bank. Mr. Dracos then proceeds with foreclosure action and names only Mr. Lambert as defendant. This caused the Mr. Lambert to file a motion to dismiss the complaint due to the fact that Mr. Dracos had failed to join an indispensable party, Mrs. Lambert; however, the motion was denied. Mr. Lambert then appealed, and the judgement was reversed. The appeal court believed that the motion to dismiss should have been granted due to the failure to join the indispensable party.[8] The court held that is was “improper to allow a foreclosure against appellant’s interest alone.” It is established that co-tenants as co-obligers on a mortgage are indispensable parties.

Citizen Bank & Trust (Bank) v. Brothers Construction and Manufacturing (Brothers)[9] – In this case The Bank was the owner and holder of two mortgages on a property, while Brothers was the lessee of the property. A mechanic’s lien foreclosure was filed against the property and its owners, in which the Bank was made a party to. The Bank then filed a cross-claim and third-party petition to foreclose the mortgages, but did not join Brothers as a party in the lawsuit. Judgement in the foreclosure action favored the bank, the mortgages were foreclosed, a sheriff’s sale was ordered, and the Bank purchased the property. After this, the Bank demanded Brothers to vacate the property, but they refused to do so. The Bank then filed a forcible detainer. The Bank claimed Brothers interest in the property ended with the foreclosure action, while Brothers claimed its interest had not ended because it was not joined in the initial lawsuit. The trial court ruled in favor of Brothers. The court uses Wheat v Brown as precedent, which determined that “a mortgage foreclosure action does not terminate a lease unless the lessee is made party to that action.” Because the Bank knew that Brothers was occupying the premise, the court ruled that it was the Bank’s duty to join Brothers in the lawsuit. This ruling established that a bank must joins all parties it knows has some claim in a foreclosure

Pickett v Comanche Construction, Inc.[10] – In this case, Comanche filed 12 mechanic’s liens on homeowners’ lots for unpaid labor and materials. Tipple, the developer of the subdivision that housed the lots, then sued Comanche, stating that the liens were invalid. Comanche then requested foreclosure of the liens. The judgment was in favor of Comanche and ordered “that all of said lands and premises be sold.” However, the homeowners of the lots were not named as parties in any of action between Tipple and Comanche, and only learned of the lawsuits when their properties were beginning to be foreclosed. The homeowners then filed against Comanche, stating “(1) that they did not have actual notice of the action involving Tipple and Comanche until after judgment was entered…and (3) that the homeowners were necessary parties who had not been joined.” The court agreed with the homeowners in that they were necessary parties that should have been joined. This determined that “an owner of an interest in real property subject to a mechanic's lien when a judicial foreclosure proceeding is commenced is a necessary party.” The court used Parkard Bell Elecs. Corp v Theseus, Inc as justification to its decision as this case determined that a mechanics lien was not valid due to the owner of six lots no being named in foreclosure proceedings.

Remedy?

A motion to dismiss can be presented based on failure to join indispensable parties.

[1] https://www.uscourts.gov/sites/default/files/Rules%20of%20Civil%20Procedure.

[2] https://www.ded.uscourts.gov/sites/ded/files/opinions/15-961.pdf

[3]

[4] https://www.ny-bankruptcy.com/necessary-parties-in-a-foreclosure/

[5] https://www.federalrulesofcivilprocedure.org/frcp/title-iv-parties/rule-19-required-joinder-of-parties/

[6] http://supremecourt.ohio.gov/LegalResources/Rules/civil/CivilProcedure.pdf

[7] https://www.findlaw.com/realestate/foreclosure/foreclosure-by-judicial-sale.html

[8] https://casetext.com/case/lambert-v-dracos

[9] https://law.justia.com/cases/kansas/court-of-appeals/1993/68-924.html

[10] https://law.justia.com/cases/nevada/supreme-court/1992/22246-1.html

Unclean Hands

Unclean Hands

What is this foreclosure defense as a general concept?

The unclean hands doctrine, sometimes referred to as the “dirty hands” doctrine, is normally used when the person being accused of a breach argues that the other party should not be entitled to a remedy because they were also responsible for committing a breach. Under this doctrine, neither party will be liable because both parties are said to have “unclean hands.” In other words, both parties did something wrong to cause a breach so neither should be given relief. https://www.legalmatch.com/law-library/article/breach-of-contract-defenses-unclean-hands.html

It is certainly beyond question that “one who comes into equity must come with clean hands else all relief will be denied him regardless of the merits of his claim. It is not essential that the act be a crime; it is enough that it be condemned by honest and reasonable men.”
Ocean View Towers, Inc. v. First Fid. Sav. & Loan Ass'n, 521 So.2d 325, 326 (Fla. 4th DCA 1988) (quoting Roberts v. Roberts, 84 So.2d 717, 720 (Fla.1956)). Recently, this court found that unclean hands is tantamount to “[u]nscrupulous practices, overreaching, concealment, trickery or other unconscientious conduct.” Congress Park Office Condos II, 105 So.3d at 609 (citation omitted). Shahar v. Green Tree Servicing LLC, 125 So. 3d 251 (Fla. Dist. Ct. App. 2013) https://casetext.com/case/shahar-v-green-tree-servicing-llcWhat is the specific rule for it from the caselaw for this foreclosure defense?

To invoke the doctrine of unclean hands as a defense to a foreclosure action, a defendant is required to prove unfair conduct that is germane to the mortgage transaction.       Leisure Tech.-Ne., Inc. v. Klingbeil Holding Co.,  137 N.J. Super. 353, 358 (App. Div. 1975). In addition, a defendant must plead such a defense with the requisite factual specificity. R. 4:5-4; 4:6-5.

https://law.justia.com/cases/new-jersey/appellate-division-unpublished/2019/a0040-18.html

How would someone spot this foreclosure defense in their own situation?

In foreclosure, an unclean hands defense would have to do with the bank, who is the plaintiff in a foreclosure case, doing something that caused the defendant to default on their mortgage. If it's the bank's fault that you fell into foreclosure in the first place, then they don't have clean hands and aren't entitled to an equitable remedy.

https://blog.amerihopealliance.com/blog/is-unclean-hands-an-effective-defense-against-foreclosure#:~:text=The%20doctrine%20is%20often%20stated,to%20default%20on%20their%20mortgage.

For facts to meet the test for the equitable doctrine of unclean hands, courts almost always require a showing of the mortgagee’s active participation in illegal or fraudulent conduct. https://www.miamidade.gov/business/library/reports/foreclosure-defenses.pdf

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

U.S. BANK NAT. ASSOCIATION v. EICHTEN 196 A.3d 328 (2018) https://www.leagle.com/decision/inctco20180918067

The defendant claims in her fifth special defense that the plaintiff violated the doctrine of unclean hands and should be precluded from proceeding with the foreclosure action because the plaintiff did not offer her a permanent loan modification under the program despite the fact that, pursuant to regulations published by the United States Department of the Treasury, she was entitled to a permanent modification upon the completion of her three trial payments. She argues that instead, the plaintiff placed her into a mortgage forbearance program for which she did not apply. She contends that the plaintiff's internal records indicate that it approved her for a loan modification under the program in March, 2011, months before it mailed her the denial letter. She argues that a number of documents in evidence suggest that the plaintiff approved the defendant for a loan modification in March, 2011, when she had a housing ratio of 31.2 percent. She notes that the plaintiff only appended evidence to its motion for summary judgment that supported its version of the narrative while failing to make any argument or even reference to its own internal processes, evidence of which raises more questions than answers. We agree with the defendant. Because an action to foreclose a mortgage is an equitable proceeding, the doctrine of unclean hands may be applicable. "It is a fundamental principle of equity jurisprudence that for a complainant to show that he is entitled to the benefit of equity he must establish that he comes into court with clean hands.... The clean hands doctrine is applied not for the protection of the parties but for the protection of the court.... It is applied not by way of punishment but on considerations that make for the advancement of right and justice.... The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue.... Unless the plaintiff's conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply." (Citation omitted; internal quotation marks omitted.) Thompson v. Orcutt, 257 Conn. 301, 310, 777 A.2d 670 (2001). "The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in wilful misconduct with regard to the matter in litigation.... The trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the courts' integrity dictate that the clean hands doctrine be invoked." (Internal quotation marks omitted.) Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 407, 867 A.2d 841 (2005).

U.S. BANK NAT. ASSOCIATION v. BLOWERS 172 A.3d 837 (2017) https://www.leagle.com/decision/inctco20171102090

The defendants in the present case have alleged that the plaintiff engaged in dishonest and deceptive practices prior to its having initiated the foreclosure action, including the possibility that the plaintiff failed to honor the terms of a loan modification agreement. Accordingly, unlike in U.S. Bank National Assn., the allegations of preforeclosure conduct by the plaintiff in the present case had a far more obvious and direct connection to the enforcement of the note or mortgage.7 Moreover, the majority's suggestion that the defendants' special defenses could be viable only if the defendants actually had reached a modification agreement would unnecessarily shield mortgagees or their agents from judicial scrutiny of potentially unscrupulous behavior that may have directly resulted in the foreclosure action. Courts have not always strictly applied the making, validity, or enforcement requirement in evaluating the sufficiency of equitable special defenses such as those raised here, particularly if a strict application would offend traditional notions of equity. For example, in Thompson v. Orcutt, 257 Conn. 301, 313, 777 A.2d 670 (2001), our Supreme Court clarified that an equitable defense of unclean hands need not strictly relate to the making, validity, or enforcement of the note or mortgage provided the allegations set forth were "`directly and inseparably connected'" to the foreclosure action. In reversing this court's decision, which narrowly focused upon the making, validity, or enforcement test, the Supreme Court observed "[b]ecause the doctrine of unclean hands exists to safeguard the integrity of the court ... [w]here a plaintiff's claim grows out of or depends upon or is inseparably connected with his own prior fraud, a court of equity will, in general, deny him any relief, and will leave him to whatever remedies and defenses at law he may have." (Citations omitted; internal quotation marks omitted.) Id., at 310, 777 A.2d 670. Here, the court found that the allegations in the pleadings were wholly sufficient to support the special defenses of estoppel and unclean hands, but only failed because they did not directly relate to the making, validity, or enforcement of the note or mortgage. I would conclude, however, that the allegations of deceitful and unfair practices leading to the filing of the foreclosure action were sufficiently related to the enforcement of the note and mortgage, and they were directly and inseparably connected to the foreclosure action.

Remedy

Unclean hands, if sufficiently pled, may be asserted as an affirmative defense to a mortgage foreclosure action. Shahar v. Green Tree Servicing LLC, 125 So. 3d 251 (Fla. Dist. Ct. App. 2013) https://casetext.com/case/shahar-v-green-tree-servicing-llc

 

Prior Material Breach

Prior Material Breach

What is this foreclosure defense as a general concept?

Generally, a defaulting party under a contract cannot maintain a suit for its breach. Ramex Constr. Co. v. Tamcon Servs. Inc., 29 S.W.3d 135, 137 (Tex. App.-Houston [14th Dist.] 2000, no pet.); Joseph v. PPG Indus., 674 S.W.2d 862, 867 (Tex. App.-Austin 1984, writ ref'd n.r.e.) (op. on reh'g); see also Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004) ("It is a fundamental principle of contract law that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from further performance."). But that party may nevertheless sue for breach of the contract if its default was excused by the other party's prior material breach. See Hernandez v. Gulf Grp. Lloyds, 875 S.W.2d 691, 692 (Tex. 1994) ("A fundamental principle of contract law is that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from any obligation to perform."). Whether a party breached an agreement is generally a question of law for the court unless the evidence of the parties' conduct is disputed. See Greater Hous. Radiation Oncology, P.A. v. Sadler Clinic Ass'n, P.A., 384 S.W.3d 875, 888-89 (Tex. App.-Beaumont 2012, pets. denied). Shellnut v. Wells Fargo Bank, N.A., NO. 02-15-00204-CV (Tex. App. Apr. 27, 2017) https://casetext.com/case/shellnut-v-wells-fargo-bank-na

What is the specific rule for it from the caselaw for this foreclosure defense?

This doctrine of first material breach, or prior material breach, is "based on the principle that where performances are to be exchanged under an exchange of promises, each party is entitled to the assurance that he will not be called upon to perform his remaining duties ... if there has already been an uncured material failure of performance by the other party." Restatement (Second) of Contracts § 237b, cmt. b (1981). A later breach "is justified ... by the other party's [prior] failure." 

CHRISTOPHER VILLAGE v. U.S. 360 F.3d 1319 (2004) https://www.leagle.com/decision/20041679360f3d131911538

 

Our law recognizes as an affirmative defense the principle that a party is excused from performing a contract if the other party committed a prior material breach of the contract. Compass Bank v. MFP Financial Services, Inc., 152 S.W.3d 844, 852 (Tex.App.-Dallas 2005, pet. denied).

ALLEN v. AMERICAN GENERAL FINANCE, INC. 251 S.W.3d 676 (2007) https://www.leagle.com/decision/2007927251sw3d6761906

The factors to be considered in determining whether a breach is material are:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;

(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;

(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;

(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;

(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Sananap v. Cyfred, Ltd, 2009 Guam 13, 2009 Guam LEXIS 15 (Guam 2009) https://casetext.com/case/sananap-v-cyfred-ltd-2

How would someone spot this foreclosure defense in their own situation?

A party alleging breach of contract under Virginia law must establish that the defendant owed plaintiff a legally enforceable obligation, the defendant violated that obligation, and the plaintiff suffered injury or damage as a result of the defendant's breach. See Filak v. George, 594 S.E.2d 610, 614 (Va. 2004). Further, "[a] material breach is a failure to do something that is so fundamental to the contract that the failure to perform that obligation defeats an essential purpose of the contract." Countryside Orthopaedics, P.C. v. Peyton, 261 Va. 142, 154 (2001). BELOTE v. BANK OF AMERICA, N.A. Civil Action No. 3:12CV526-JRS https://www.leagle.com/decision/infdco20130123h03

How has it been applied to foreclosures in cases where the consumer successfully used it?

Kim v. Park, 192 Or. App. 365, 86 P.3d 63 (Or. Ct. App. 2004)

https://casetext.com/case/kim-v-park-2#p65

Defendants asserted as an affirmative defense to plaintiff's foreclosure action that his failure to repair the plumbing was a material breach that excused the performance of their obligations under the contract until the breach was remedied. They also counterclaimed for damages for the breach. Their counterclaim was submitted to a jury, which found for defendants and awarded damages to them. Plaintiff's claim for strict foreclosure was tried to the trial court. It concluded that plaintiff's breach was not material and therefore did not excuse defendants' failure to perform. "Generally, a vendor is entitled to strict foreclosure when the vendee fails to comply with the contract terms in paying the purchase price." Vista Management v. Cooper, 81 Or. App. 660, 665726 P.2d 974 (1986) (citing Blondell v. Beam, 243 Or. 293, 299413 P.2d 397 (1966)). However, in some circumstances, an award of strict foreclosure may be inequitable even when the vendee has not complied with the terms of the contract. See, e.g., Staats v. Praegitzer, 67 Or. App. 543, 545679 P.2d 334rev den, 297 Or. 339 (1984) (waiver of contractual rights); Coleman v. Medgin, 52 Or. App. 1049, 1053630 P.2d 404 (1981) (substantial increase in the value of the property). Moreover, a party who seeks to recover damages on a contract must plead and prove its own performance or a valid excuse for its failure to perform. See Wasserburger v. Amer. Sci. Chem., 267 Or. 77, 82514 P.2d 1097 (1973). That principle is consistent with Restatement (Second) of Contracts, section 237 (1981). With regard to those principles, a material breach of a land sale contract by a party will prevent that party from obtaining strict foreclosure of the contract and excuse the other party's obligation to perform. Cf. Reeder v. Kay, 282 Or. 191577 P.2d 925 (1978) (holding that an immaterial breach of a land sale contract did not defeat strict foreclosure). Here, plaintiff is not entitled to strict foreclosure of the contract if his failure to repair the plumbing was an unjustified material breach of the parties' agreement.

Harrison v. U.S. Bank Nat'l Ass'n, Civil Action No. 3:14-cv-686 (E.D. Va. Jun. 5, 2015)

https://casetext.com/case/harrison-v-us-bank-natlassn

After defaulting on the loan, Harrison received a letter from U.S. Bank dated April 2, 2011, stating that he must cure the default by May 2, 2011, or risk acceleration and foreclosure. Although dated April 2, 2011, the letter was mailed on April 7, 2011, giving Harrison only twenty-five days to cure the default. Harrison did not cure, and on July 13, 2011, his home was sold in a foreclosure sale. Harrison also pleads facts sufficient to conclude that U.S. Bank breached its obligation to him. the Supreme Court of Virginia has clearly held that when a deed of trust requires a specific length of notice prior to acceleration, that length of notice serves as a condition precedent to acceleration and foreclosure. Bayview Loan Servicing, LLC v. Simmons, 275 Va. 114, 121, 654 S.E.2d 898, 901 (2008). When the holder of a deed of trust does not fulfill the condition precedent, the holder does not have the right to accelerate payment or to foreclose on the property. Harrison has sufficiently pled that U.S. Bank breached the deed of trust by foreclosing on his home without having acquired the right to do so. Harrison alleges that he received only twenty-five days' notice, which is a breach of U.S. Bank's obligation to provide him with thirty days' notice. By accelerating Harrison's loan and foreclosing on his home without providing the contractually required notice, U.S. Bank failed to do something fundamental to the contract and committed a material breach.

Remedy

Our law recognizes as an affirmative defense the principle that a party is excused from performing a contract if the other party committed a prior material breach of the contract. Compass Bank v. MFP Financial Services, Inc., 152 S.W.3d 844, 852 (Tex.App.-Dallas 2005, pet. denied). ALLEN v. AMERICAN GENERAL FINANCE, INC. 251 S.W.3d 676 (2007) https://www.leagle.com/decision/2007927251sw3d6761906

Waiver

Waiver

What is this foreclosure defense as a general concept?

Waiver requires no more than the voluntary and intentional abandonment of a known right which, but for the waiver, would have been enforceable. Nassau Trust Co v. Montrose, 56 N.Y.2d 175, 451 N.Y.S.2d 663, 436 N.E.2d 1265 (N.Y. 1982) https://casetext.com/case/nassau-trust-co-v-montrose

"Waiver is the intentional relinquishment or abandonment of a known right or privilege . . . [V]arious statutory and contract rights may be waived . . . Waiver is based upon a species of the principle of estoppel and where applicable it will be enforced as the estoppel would be enforced . . . Estoppel has its roots in equity and stems from the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed . . . Waiver does not have to be express, but may consist of acts or conduct from which waiver may be implied . . . In other words, waiver may be inferred from the circumstances if it is reasonable to do so." (Citation omitted; internal quotation marks omitted.) C.R. Klewin Northeast, LLC v. Bridgeport, 282 Conn. 54, 87 (2007).


What is the specific rule for it from the caselaw for this foreclosure defense?

 “The elements of waiver include (1) an existing right, benefit, or advantage held by a party; (2) the party's actual knowledge of its existence; and (3) the party's actual intent to relinquish the right, or intentional conduct inconsistent with the right.” Ulico Cas. Co. v. Allied Pilots Ass'n, 262 S.W.3d 773, 778 (Tex.2008). The central element is intent, which must be unequivocally manifested. Where waiver is claimed by inference rather than express renunciation, “it is the burden of the party who is to benefit ... to produce conclusive evidence that the opposite party unequivocally manifested its intent to no longer assert its claim. Thompson v. Bank of Am. Nat'l Ass'n, 783 F.3d 1022 (5th Cir. 2015) https://casetext.com/case/thompson-v-bank-of-am-natl-assn

The acceptance, before the expiration of the right of redemption and after the commencement of foreclosure proceedings of any mortgage of real property, of anything of value to be applied on or to the mortgage indebtedness by the mortgagee shall constitute a waiver of such foreclosure. Casco Northern Bank, N.A. v. Edwards 640 A.2d 213 (Me. 1994) https://law.justia.com/cases/maine/supreme-court/1994/640-a-2d-213-0.html


How would someone spot this foreclosure defense in their own situation?

In the foreclosure setting, "waiver of any postsale challenge occurs where a party (1) received notice of the right to enjoin the sale, (2) had actual or constructive knowledge of a defense to foreclosure prior to the sale, and (3) failed to bring an action to obtain a court order enjoining the sale." Id. (quoting Plein v. Lackey, 149 Wn.2d 214, 227, (2003)). Reid v. Countrywide Home Loans, Inc. C13-436 TSZ (W.D. Wash. May. 10, 2013) https://casetext.com/case/reid-v-countrywide-home-loans

How has it been applied to foreclosures in cases where the consumer successfully used it?

IN RE BOONE 281 B.R. 51 (2001)

https://www.leagle.com/decision/2001332281br511325

In this case, Conseco knew about the bankruptcy case as evidenced by the notices to Ms. Boone. Therefore, its actions were done with knowledge. The evidence is less clear about Conseco's intentions. It told Ms. Boone to send payments to it according to her plan. The plan, providing for direct payments to Conseco of current payments, and for arrearages through the plan, was confirmed without objection by Conseco. There was no appeal of the confirmation order. The Court concludes that these facts, taken together, establish by a preponderance of the evidence that Conseco intended for the plan to continue, or at least that Ms. Boone had a right to assume that that was Conseco's intent. Ms. Boone knew about the foreclosure, but also knew about the supposed executed extension agreement, the Conseco billings after her bankruptcy filing and about her payments. She was ignorant of the fact that Conseco intended to stand on its foreclosure because its conduct was inconsistent with that. Ms. Boone relied on Conseco's letters and acceptance of money. She continued to send money, sending in two payments before this relief from stay was filed. Ms. Boone's damage is that she paid Conseco and will lose her home if it can stand on its foreclosure. The fact situation in this case is somewhat unique, but under the factors analysis for equitable estoppel, Ms. Boone meets all of the tests. Ms. Boone thought she had done everything required of her. Conseco's correspondence and acceptance of payments gave her cause to believe. If Ms. Boone maintains her chapter 13 payments, she should be able to treat her debt as if the foreclosure had been undone and cure her arrearage. If her case is dismissed, or the stay lifted, Conseco should be able to proceed as if the foreclosure were completed. In essence, Ms. Boone will be on a strict compliance schedule due to Conseco's postforeclosure actions. If she does not live up to her plan obligations in total, then Conseco may treat the property as its own.

Flagler Ctr. Bldg Loan v. Chem Realty, 363 So. 2d 344 (Fla. Dist. Ct. App. 1978) https://casetext.com/case/flagler-ctr-bldg-loan-v-chem-realty#p347

The trial judge's finding of fact that there was an estoppel by waiver of the default in the mortgage is a finding of fact which arrives in this court with a presumption of its correctness. Further, for this court to reverse such a finding of fact, there must be a lack of substantial evidence to support the finding. See Chakford v. Strum, 87 So.2d 419 (Fla. 1956); Manchester Insurance Indemnity Co. v. Novack, 284 So.2d 433 (Fla. 3d DCA 1973). This record reviewed in that light supports the finding of the trial judge in that it shows that in reliance upon the representations of Chemical Realty, the defendant, Flagler Center, critically changed its position by giving up the right and opportunity to complete the building by the deadline. From mid-October to mid-November when Chemical Realty knew that the building was not going to be completed on the due date and the permanent commitment was lost, Chemical Realty paid to the defendant $560,732.54, a sum that would reasonably lead the defendant to believe that the loan was continued in full force and effect. The position of Chemical Realty that the waiver was void because there was no consideration for it, is not in accord with Florida law. In Gilman v. Butzloff, 155 Fla. 888, 22 So.2d 263 (1945), the Supreme Court of Florida found that a waiver without consideration was valid when based upon conduct and when acted upon by the defendant. Cf. New England Mutual Life Insurance Company v. Luxury Home Builders, Inc., 311 So.2d 160 (Fla. 3d DCA 1975). We hold, therefore, that the court's finding of waiver of default in the mortgage is supported by the evidence and must be affirmed.

Remedy

Historically, defenses to a foreclosure action have been limited to payment, discharge, release or satisfaction or, if there had never been a valid lien.  The purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action.   A valid special defense at law to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both. Where the plaintiff's conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles. [O]ur courts have permitted several equitable defenses to a foreclosure action. Liberty Bank v. New London, LP, 2007 Ct. Sup. 5927, 43 CLR 326 (Conn. Super. Ct. 2007) https://casetext.com/case/liberty-bank-v-new-london-lp-no-4005236-may

 

Unconscionability

Unconscionability

What is this foreclosure defense as a general concept?

The purpose of the doctrine of unconscionability is to prevent oppression and unfair surprise. . . . As applied to real estate mortgages, the doctrine of unconscionability draws heavily on its counterpart in the Uniform Commercial Code which, although formally limited to transactions involving personal property, furnishes a useful guide for real property transactions. Monetary v. Pluchino, 87 Conn. App. 401, 867 A.2d 841 (Conn. App. Ct. 2005) https://casetext.com/case/monetary-v-pluchino


What is the specific rule for it from the caselaw for this foreclosure defense?

As Official Comment 1 to § 2-302 of the Uniform Commercial Code suggests, [t]he basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. . . . Unconscionability is determined on a case-by-case basis, taking into account all of the relevant facts and circumstances. Monetary v. Pluchino, 87 Conn. App. 401, 867 A.2d 841 (Conn. App. Ct. 2005) https://casetext.com/case/monetary-v-pluchino

Unconscionable contracts, however—whether relating to arbitration or not—are unenforceable under Texas law In re Poly–America, L. P., 262 S.W.3d 337, 348 (Tex.2008) https://www.courtlistener.com/opinion/895041/in-re-poly-america-lp/

In Wisconsin, contract unconscionability has been codified in Wis. Stat. § 402.302, which states that under the Wisconsin U.C.C., "[i]f the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract...." IN RE FIRST PHOENIX-WESTON, LLC 575 B.R. 828 (2017) https://www.leagle.com/decision/inbco20170816794

 

How would someone spot this foreclosure defense in their own situation?

"Unconscionable" is a term that defies precise definition. Rather, a court must assess the circumstances of each particular case in light of the twofold purpose of the doctrine, prevention of oppression and of unfair surprise. Recognition of these purposes has led to an analysis of unconscionability in terms of "substantive" and "procedural" unconscionability. "Substantive unconscionability" examines the relative fairness of the obligations assumed. "Procedural unconscionability" focuses on the manner in which the contract was negotiated and the circumstances of the parties. Resource Management Co. v. Weston Ranch, 706 P.2d 1028 (Utah 1985) https://casetext.com/case/resource-management-co-v-weston-ranch


How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

HARRIS v. P.S. MORTG. AND INV. CORP. 558 So.2d 430 (1990) https://www.leagle.com/decision/1990988558so2d4301857

We conclude that the settlement agreement was void as being totally unconscionable, both procedurally and substantively. Without going into a detailed analysis of why this is so, suffice it to say that, based on all the circumstances, the plaintiff P.S. Mortgage and Investment Corp., in effect, (1) took advantage of a poor, distraught, uneducated homeowner who had lost her home in a mortgage foreclosure action, and (2) induced her to sign a "settlement" agreement in which she virtually gave up all of her rights, including her house, and got virtually nothing in return. We recognize that the defendant retained a technical right to remain living in the home, but this "right" could be terminated by the plaintiff/mortgagee upon thirty days' notice; moreover, the defendant's right to repurchase her home was also a hollow right because she was penniless, as the plaintiff well knew. Although the plaintiff had advice of counsel on this one-sided, unconscionable agreement, the defendant admittedly did not. 

FEACHER v. HANLEY Case No. 2:13-cv-92-EJF. https://www.leagle.com/decision/infdco20140121a04

The Court finds the Contract both substantively and procedurally unconscionable. The Contract terms—which specifically exclude the service the Feachers sought—favor Preferred Law to an extent it unfairly oppressed, and no doubt surprised, the Feachers. Additionally, Defendants rushed the Feachers into signing the Contract without allowing them a reasonable opportunity to read and understand the Contract or obtain independent legal counsel. Even under Defendants' version of the facts—where a Preferred Law employee e-mailed the Contract to the Feachers two days before their conversation with Mr. Kartchner—the Feachers had an unreasonably short period of time in which to seek and obtain independent counsel, which would have enabled them to make an informed decision. Although the Feachers did not find themselves in as vulnerable a position as the plaintiff in Sosa, the threat of losing their home placed the Feachers in a vulnerable position. The Court also notes Defendants' use of deception in telling the Feachers the Contract represented their discussions with Defendants and contained a guarantee weighs heavily in favor of a finding of procedural unsconsionability.

 

Remedy

The contract can be avoided.  The party raising an unconscionability defense must plead and prove both procedural and substantive unconscionability.  Belanger v. Bac Home Loans Servicing, L.P., 839 F. Supp. 2d 873 (W.D. Tex. 2011) https://casetext.com/case/belanger-v-bac-home-loans-servicing-lp

Promissory Estoppel

Promissory Estoppel

What is this foreclosure defense as a general concept?

"The doctrine of promissory estoppel may be invoked where it is `shown that the defendant made a clear and unambiguous promise upon which the plaintiff reasonably relied to his or her detriment' (Clifford R. Gray, Inc. v LeChase Constr. Servs., 51 A.D.3d 1169, 1170 [2008] [internal quotation marks and citation omitted])" (Kaloyeros v Fort Schuyler Mgt. Corp., 157 A.D.3d 1152, 1154-1155 [3d Dept 2018]) IMRIE v. RATTO 2019 NY Slip Op 50845(U) https://www.leagle.com/decision/innyco20190530464

Generally, the doctrine of promissory estoppel is applicable when a promise has been made, but there is no tangible consideration offered in return; instead, detrimental reliance acts as a substitute for actual consideration. IN RE JPMORGAN CHASE MORTG. MODIFICATION LIT. Case No. 11-md-02290-RGS https://www.leagle.com/decision/inadvfdco130327000116


What is the specific rule for it from the caselaw for this foreclosure defense?

Generally, a claim for promissory estoppel can arise where "a party reasonably relies on a statement of another and materially changes his position in reliance on that statement." Rivermont Inn, 113 S.W.3d at 642. To that effect, the required elements to state a claim for promissory estoppel under Kentucky law are: "(1) a promise; (2) which the promisor should reasonably expect to induce action or forbearance on the part of the promisee; (3) which does induce such action or forbearance; and (4) injustice can be avoided only by enforcement of the promise." Schlenk, 2016 WL 6836945, at *3. See also Bergman v. Baptist Hosp. Sys., Inc., 344 F.Supp.2d 998, 1003 (W.D. Ky. 2004); McCarthy v. Louisville Cartage Co., 796 S.W.2d 10, 11 (Ky. Ct. App. 1990). ARNOLD v. LIBERTY MUT. INS. CO. CIVIL ACTION NO. 17-224-DLB-CJS. https://www.leagle.com/decision/infdco20190529e05

 

How would someone spot it in their own situation

Promissory estoppel is a quasi-contractual theory and "generally serves as a stop-gap where no valid contract exists to enforce a party's promise." Kiss Elec., LLC v. Waterworld Fiberglass Pools, N.E., Inc., No. 14-3281, 2015 U.S. Dist. LEXIS 37547, at *15 (D.N.J. Mar. 25, 2015). Therefore, a promissory estoppel claim "cannot be maintained where a valid contract fully defines the parties' respective rights and obligations." Hillsborough Rare Coins, LLC v. ADT LLC, No. 16-916, 2017 U.S. Dist. LEXIS 67113, at *15 (D.N.J. May 2, 2017) (quotation omitted). So, in order to assert a claim based on a quasi-contractual theory, a party must plead that a contract is either lacking or invalid. MENG v. DU Civil Action No. 19-18118(FLW) https://www.leagle.com/decision/infdco20200812b83

 

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

BUSHELL v. JPMORGAN CHASE BANK, N.A. 220 Cal.App.4th 915 (2013) https://www.leagle.com/decision/incaco20131022033

Plaintiffs allege they detrimentally relied on Chase's promise to permanently modify their loan by repeatedly contacting Chase, by repeatedly preparing documents at Chase's request, by discontinuing efforts to pursue a refinance from other financial institutions or to pursue other means of avoiding foreclosure, and by losing their home and making it unlikely they could purchase another one. Consequently, plaintiffs have adequately alleged detrimental reliance to sustain a promissory estoppel cause of action.

Wade v. Markwell & Co. [Civ. No. 19341. Second Dist., Div. Two. June 10, 1953.]

https://law.justia.com/cases/california/court-of-appeal/2d/118/410.html

 The court goes on to cite the case of Van Syckel v. O'Hearn, 50 N.J.Eq. 173 [24 A. 1024], in which defendant purchased property encumbered with a mortgage lien upon the strength of a promise made by plaintiff mortgagee that he would withhold enforcement for a year. Plaintiff commenced foreclosure within the year. In holding plaintiff to his promise, the court, after conceding that normally a consideration must be shown to support a promise, said: "But a court of equity will sometimes prevent parties from disregarding their promises, even when no consideration has accrued to them upon the making of such a promise. If a party ... waive strict performance of his contract and makes promises to the defendant upon which the latter acted and altered his position, and it should appear to the court to work a hardship on the defendant to allow the complainant to withdraw his waiver, a court of equity always applies the doctrine of estoppel. In such a case, although no consideration or benefit accrues to the person making the promise, he is the author or promoter of the very condition of affairs which stands in his way; and when this plainly appears, it is most equitable that the court should say that they shall so stand. 

Remedy

Promissory estoppel is an equitable remedy to be implemented only when there is no contract; it is not designed to protect parties who do not adequately memorialize their contracts in writing. FIRST COMMONWEALTH BANK v. FRESH HARVEST RIVER, LLC Civil Action No. 3:10-232. https://www.leagle.com/decision/infdco20140304d81

To succeed on a promissory estoppel claim, the plaintiff must further establish that the action he took amounted to a substantial change of position. A claim for estoppel cannot survive when the plaintiff's actions were based on his own will and judgment rather than the defendant's representations. FIRST COMMONWEALTH BANK v. FRESH HARVEST RIVER, LLC Civil Action No. 3:10-232. https://www.leagle.com/decision/infdco20140304d81

Judicial Estoppel/Collateral estoppel

Judicial Estoppel, also known as Collateral estoppel

What is this foreclosure defense as a general concept?

  The doctrine of judicial estoppel generally bars a party from asserting a legal position contrary to an earlier position in the same or related litigation. "Its purpose is to prevent a party from playing fast and loose with the courts and to protect the essential integrity of the judicial process."

St. George Island, Ltd. v. Sun Bank, N.A., 96 B.R. 345 (Bankr. N.D. Fla. 1989) https://casetext.com/case/st-george-island-ltd-v-sun-bank-na#p348

Under the doctrine of collateral estoppel, "the determination of an issue in a prior judicial ... proceeding precludes the relitigation of that issue in a later action, provided the party against whom the estoppel is asserted enjoyed a full and fair opportunity to litigate that issue in the earlier proceeding." Whitacre P'ship v. Biosignia, Inc. , 358 N.C. 1, 15591 S.E.2d 870, 880 (2004). Collateral estoppel "precludes the subsequent adjudication of a previously determined issue, even if the subsequent action is based on an entirely different claim."  Gray v. Fed. Nat'l Mortg. Ass'n, 830 S.E.2d 652 (N.C. Ct. App. 2019) https://casetext.com/case/gray-v-fed-natl-mortg-assn-2


What is the specific rule for it from the caselaw for this foreclosure defense?

Doctrine of judicial estoppel prevents a mortgagor from challenging the "foreclosure of the same property that he surrendered in the Bankruptcy Court in exchange for the discharge of his debts." Souza v. Bank of Am., Nat'l Ass'n, CIVIL NO. 1:13-cv-10181-PBS (D. Mass. Jul. 8, 2013) https://casetext.com/case/souza-v-bank-of-am

The court: (1) recognized an exception to the general rule that there be mutuality of parties between an earlier proceeding and the later one in which judicial estoppel is applied; the court held that mutuality of the parties is not required where "special fairness and policy considerations" compel application of the doctrine; (2) "appears to have dispensed with the Chase & Co. requirement that the ‘party claiming the estoppel must have been misled and have changed his position’ by the other party's conduct in the earlier suit"; and (3) held that a jury verdict met the requirement of successfully maintaining a position in a prior suit, even though no final judgment was entered. Anfriany v. Deutsche Bank Nat'l Trust Co., 232 So. 3d 425 (Fla. Dist. Ct. App. 2017) https://casetext.com/case/anfriany-v-deutsche-bank-natl-trust-co-1

 

How would someone spot this foreclosure defense in their own situation?

Judicial estoppel is an equitable rule which prevents a party from attempting to change the facts of a case to fit whatever theory seems to be most beneficial to it at the time. St. George Island, Ltd. v. Sun Bank, N.A., 96 B.R. 345 (Bankr. N.D. Fla. 1989) https://casetext.com/case/st-george-island-ltd-v-sun-bank-na#p348

 

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Gray v. Fed. Nat'l Mortg. Ass'n, 830 S.E.2d 652 (N.C. Ct. App. 2019) https://casetext.com/case/gray-v-fed-natl-mortg-assn-2

On appeal, our Supreme Court held that the assistant clerk had erred by applying res judicata principles because "[n]on-judicial foreclosure is not a judicial action." Id. at 229, 794 S.E.2d at 507. The Court explained its ruling as follows:

Plaintiffs cite to In re Lucks for the proposition that the doctrines of collateral estoppel and res judicata do not apply to non-judicial foreclosure actions. In that case, however, the North Carolina Supreme Court held that the doctrines do not apply in their "traditional" sense in that once the clerk or trial court denies authorization for a foreclosure sale, a creditor may not seek a non-judicial foreclosure based on the same default. The creditor may nonetheless proceed with foreclosure by judicial action or proceed with foreclosure based upon a different default. Accordingly, contrary to Plaintiff’s assertion, In re Lucks did not hold that res judicata and collateral estoppel do not apply to the circumstances presented in this case.

Anfriany v. Deutsche Bank Nat'l Trust Co., 232 So. 3d 425 (Fla. Dist. Ct. App. 2017) https://casetext.com/case/anfriany-v-deutsche-bank-natl-trust-co-1

We conclude that judicial estoppel does not bar the claim for attorney's fees for two reasons.

First, as stated in Blumberg , "[t]here can be no estoppel where both parties are equally in possession of all the facts pertaining to the matter relied on as an estoppel." 790 So.2d at 1066 (quoting Chase & Co. , 156 So. at 610 ). Here, the Bank was a creditor in the bankruptcy proceeding and was as aware of the fee entitlement order as Anfriany.

Second, Anfriany's asserted inconsistent position of not disclosing the fee entitlement order in the bankruptcy proceeding did not "derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped." Grau , 899 So.2d at 400 n.3 (quoting New Hampshire , 532 U.S. at 751, 121 S.Ct. 1808 ). In other words, the record fails to show any prejudice to the Bank. Anfriany's entitlement to fees had already been fully litigated, and no assertions by Anfriany in the bankruptcy proceeding were inconsistent with the facts justifying the fee entitlement order. The trial court made a specific finding that Anfriany had no motive to conceal the fee entitlement order in the bankruptcy proceeding. If there was no motive to conceal, the facts do not support either a finding or conclusion that "intentional self-contradiction is being used as a means of obtaining an unfair advantage in a forum provided for suitors seeking justice.

Remedy

Judicial estoppel is a remedy that should be used sparingly, only in egregious cases of misrepresentation. See Krystal Cadillac-Oldsmobile GMC Truck, 337 F.3d at 324. Judicial estoppel is appropriately applied only if no sanction established by a relevant statute or the Federal Rules of Civil Procedure can adequately remedy the damage done by a litigant's misconduct. See Montrose, 243 F.3d at 784-85 ("[B]efore utilizing its inherent powers, a district court should consider whether any Rule- or statute-based sanctions are up to the task [of remedying the damage done.]" In re Boates, CIVIL ACTION No. 05-4353 (E.D. Pa. Jan. 23, 2006) https://casetext.com/case/in-re-boates

Recoupment/Setoff

Recoupment/Setoff

What is this foreclosure defense as a general concept?

"[T]he fundamental purpose of recoupment . . . is the examination of a transaction in all its aspects to achieve a just result." Beneficial Fin. Co. of Atlantic City v. Swaggerty86 N.J. 602, 612 (1981). A successful recoupment defense acts to reduce the amount the plaintiff can recover on the claim for the debt when the counterclaim arises from the same transaction. Id. at 611. Further, it has been observed that: any claim of recoupment must arise out of the identical transaction that provided plaintiff with a cause of action, and no affirmative relief may be granted independent of plaintiff's claim. As an equitable concept, judges invented the doctrine of equitable recoupment in order to avoid an unusually harsh or egregious result from a strict application of a statute of limitations. Associates Home Equity Services v. Troup, 343 N.J. Super. 254, 778 A.2d 529 (N.J. Super. 2001) https://casetext.com/case/associates-home-equity-services-v-troup

 

What is the specific rule for it from the caselaw for this foreclosure defense?

The defense of recoupment `is never barred by the statute of limitations so long as the main action itself is timely. Associates Home Equity Services v. Troup, 343 N.J. Super. 254, 778 A.2d 529 (N.J. Super. 2001) https://casetext.com/case/associates-home-equity-services-v-troup

The Pennsylvania Superior Court has held that a mortgagor cannot raise federal Truth in Lending violations seeking damages under 15 U.S.C. § 1640, as a setoff, recoupment or counterclaim, to a mortgage foreclosure action. In re Randall, 358 B.R. 145 (Bankr. E.D. Pa. 2006) https://casetext.com/case/in-re-randall-7

 

How would someone spot this foreclosure defense in their own situation?

It is "a defensive mechanism" that a defendant can raise "at any time" to offset damages sought by the plaintiff. May v. SunTrust Mortg., Inc., 7 N.E.3d 1036, 1043 (Mass. 2014). Recoupment is ordinarily "permitted only to reduce or eliminate damages, not to gain some other relief. Galgana v. Wells Fargo Bank, C.A. No. 17-10924-MLW (D. Mass. Mar. 29, 2018) https://casetext.com/case/galgana-v-wells-fargo-bank-na


How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Associates Home Equity Services v. Troup, 343 N.J. Super. 254, 778 A.2d 529 (N.J. Super. 2001) https://casetext.com/case/associates-home-equity-services-v-troup
As stated, what the Troups seek is a diminishment of the amount due based on Associates' violation of statutory fair housing and civil rights laws. In our view, it would be fundamentally unfair and contrary to the remedial goals expressed by these statutes to preclude the recoupment remedy simply because it is invoked in a foreclosure proceeding. Without the defense, the mortgagee could simply take the mortgaged premises, leaving the borrower without a remedy. We therefore, reverse the summary judgment order dismissing the Troups' claim against Associates, and direct that an appropriate discovery order be entered.

Williams v. Countrywide Home Loans, Inc., 504 F. Supp. 2d 176 (S.D. Tex. 2007) https://casetext.com/case/williams-v-countrywide-home-loans-2 

The plaintiff in Coxson obtained a loan by executing a deed of trust on his property, defaulted on his mortgage payments, and filed for bankruptcy. Id. The bankruptcy court entered an agreed order that conditioned the automatic stay on the debtor's timely mortgage payments. A few months after the order was entered, the defendants sent Coxson notice that he was in default and moved to foreclose. In response to the defendants' foreclosure efforts, Coxson filed an adversary proceeding in the bankruptcy court, claiming that the loan documents violated the TILA. The court held that Coxson's acts were defensive because they were in response to the defendants' proof of claim filed in the bankruptcy court. Id. (citing In re Jones, 122 B.R. at 249) (holding that the recoupment claim was raised defensively in response to the creditor's foreclosure efforts). "[T]he filing of a proof of claim, by its very nature, is an action to collect a debt." In re Jones, 122 B.R. at 250. "The right of a debtor in bankruptcy to invoke the doctrine of recoupment to reduce a secured proof of claim of a mortgage lender by the amount of statutory TILA damages has been recognized again and again in case law." In re Woolaghan, 140 B.R. 377, 383 (Bankr. W.D. Pa. 1992).

 

Remedy

The cases recognize a "recoupment exception" to the limitations bar on TILA actual damages claims. To meet the "recoupment" exception, a party must show that the TILA claim was brought as a recoupment or set-off claim in response to a creditor's "action to collect the debt." 15 U.S.C. § 1640(e). A recoupment or set-off claim will be exempt from the one-year statute of limitations only when the debtor's claim is raised as a defense. Williams v. Countrywide Home Loans, Inc., 504 F. Supp. 2d 176 (S.D. Tex. 2007) https://casetext.com/case/williams-v-countrywide-home-loans-2 

Bankruptcy Discharge

Bankruptcy Discharge

What is this foreclosure defense as a general concept?

When you file for bankruptcy, the court will issue an automatic stay. This order requires creditors to stop trying to collect debts. The order includes a requirement that a mortgage holder cease foreclosure activities. If the lender has already scheduled your home to be sold at auction, the sale will be legally postponed for 3-4 months, unless the creditor successfully brings a motion to lift the stay. Even if a motion to lift the stay is brought successfully, the sale will likely be postponed, which can give you time to make other plans. https://www.justia.com/foreclosure/alternatives-to-foreclosure/filing-for-bankruptcy-to-avoid-foreclosure/

 

What is the specific rule for it from the caselaw for this foreclosure defense?

Although a bankruptcy discharge extinguishes a debtor's personal liability on a mortgage note, it does not impair a creditor's right to assign that note, and an assignee who holds the discharged note and mortgage has standing to bring a foreclosure action and seek payment through the sale of the mortgaged property. Deutsche Bank Trust Co. Ams. v. Vitellas, No. 14695/12, slip op. (N.Y. App. Div. July 1, 2015) https://law.justia.com/cases/new-york/appellate-division-second-department/2015/2013-07197.html

The Chapter 7 bankruptcy will also cancel any debt secured by your home, including the debt of junior mortgages or home equity loans. Filing for Chapter 7 is not a good choice for those who do not want to give up certain property, including in many cases their homes.

For most homeowners who want to keep their homes, Chapter 13 is a better choice because it affords more options. In a Chapter 13 bankruptcy, you can pay off the late payments over the length of the repayment plan, as long as you continue to meet your current mortgage payments as well. If you make timely payments under your Chapter 13 debt repayment plan, you can avoid foreclosure. https://www.justia.com/foreclosure/alternatives-to-foreclosure/filing-for-bankruptcy-to-avoid-foreclosure/


How would someone spot this foreclosure defense in their own situation?

Foreclosure proceedings usually begin because homeowners have fallen behind on their mortgage payments. Usually, a homeowner misses multiple mortgage payments before the mortgage holder starts the legal proceedings to get the house sold at a foreclosure auction in order to get paid. The lender must notify the homeowner, and the foreclosure process can take some time, which allows the homeowner to use alternate measures like renegotiating the loan, organizing a short sale, or crafting a deed in lieu of foreclosure. In some cases, filing for bankruptcy can delay a foreclosure or save a debtor’s home. https://www.justia.com/foreclosure/alternatives-to-foreclosure/filing-for-bankruptcy-to-avoid-foreclosure/

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

In re Gaskin120 B.R. 13 (D.N.J. 1990)

https://law.justia.com/cases/federal/district-courts/BR/120/13/1903039/

Consistent with the policies underlying the Bankruptcy Code and the express language of 7 C.F.R. 1944.34(k)(2), this court affirms the bankruptcy court and holds that the current interest credit agreement reverts back to August 2, 1985 for the purposes of determining FmHA's claim amount. Creditor FmHA loses nothing by this interpretation of the regulation. Debtor's bankruptcy has effectively stopped foreclosure. If she fails to discharge her bankruptcy, FmHA may immediately foreclose for the full contract amount due. If she successfully discharges her bankruptcy, FmHA's foreclosure will be dismissed, requiring FmHA to prepare a renewal agreement with debtor with an effective date as of August 28, 1985. 7 C.F.R. 1944.34(k)(2).

Isaacs v. Dbi-Asg Coinvester Fund III, LLC (In re Isaacs) 569 B.R. 135 (B.A.P. 6th Cir. 2017) https://www.leagle.com/decision/inbco20170703560

The bankruptcy court found that Isaacs' case was fundamentally similar to Hamilton —the debtor obtained a discharge of her debt to the Mortgagee and later a state court re-imposed personal liability upon her by enforcing a mortgage that could have attached only to a discharged debt and therefore was an act to collect on that discharged debt. Thus, the bankruptcy court found that the state court violated and modified Isaacs' discharge because the debt involved was unsecured at the petition date. The Mortgage was ineffective to lien Isaacs' interests in the Property post-petition because the underlying debt had been discharged. The bankruptcy court found that only through the post-discharge foreclosure action did the debt become secured, in violation of § 524(a)(2). Thus, crucial to the bankruptcy court's conclusion that a violation of the discharge injunction had occurred was its determination that the Mortgage did not encumber the Isaacses' interests in the Property at the petition date or when the foreclosure action was commenced.

 

Remedy

The bankruptcy discharge injunction prohibited [Bank] from sending a HLPA notice; "[t]he requirements of HLPA, requiring notice to the debtor prior to foreclosure proceedings conflict with the federal bankruptcy discharge injunction" and, therefore, Bank "could not give the required state HLPA notice while also refraining from the facially impermissible actions with regard to the discharge injunction"; and Section 58-21A-6 is preempted by federal bankruptcy law. N.M. Bank & Tr. v. Lucas, No. A-1-CA-35486 (N.M. Ct. App. Feb. 6, 2019) https://casetext.com/case/new-mexico-bank-v-lucas

Statute of Limitations

Statute of Limitations

What is this foreclosure defense as a general concept?

 A statute of limitations prescribes the time during which an action must be brought. The purposes of statutes of limitation are to promote justice, discourage unnecessary delay, and preclude the prosecution of stale claims. Sulca v. Allstate Ins. Co., 77 P.3d 897, 899 (Colo. App. 2003). GUNDERSON v. WEIDNER HOLDINGS, LLC 463 P.3d 315 (2019) https://www.leagle.com/decision/incoco20191226025

Each state's statute of limitations will be different and examined and applied differently.


What is the specific rule for it from the caselaw for this foreclosure defense?

It is well-established that under Florida law the five year statute of limitations governing foreclosure actions does not otherwise affect the validity or enforceability of a lien created by a mortgage. See Houck Corp., 900 So. 2d at 603 (Fla. Dist. Ct. App. 2005) ("The limitations period provided in section 95.11(2)(c) does not affect the life of the lien or extinguish the debt; it merely precludes an action to collect the debt after five years. The statute of limitations begins to run when a cause of action accrues, and [a] cause of action accrues when the last element constituting the cause of action occurs. However, where, as here, the mortgage contains a clause permitting the mortgage holder to accelerate the amount due, the statute of limitations may commence when the creditor "takes affirmative action and advises the debtor that acceleration option has been exercised. Lubonty v. Barnard, 14-cv-3945 (ADS) (E.D.N.Y. Mar. 21, 2015) https://casetext.com/case/lubonty-v-r-kenneth-barnard-chapter-7-tr-als-hibiscus-llc

 

Except as provided in Section 2-725 of the Uniform Commercial Code, approved July 31, 1961, as amended, and Section 11-13 of The Illinois Public Aid Code, approved April 11, 1967, as amended, actions on unwritten contracts, expressed or implied, or on awards of arbitration, or to recover damages for an injury done to property, real or personal, or to recover the possession of personal property or damages for the detention or conversion thereof, and all civil actions not otherwise provided for, shall be commenced within 5 years next after the cause of action accrued. BORTZ v. BANK OF AMERICA, N.A. Case No. 16-cv-5338. https://www.leagle.com/decision/infdco20161206f50


How would someone spot this foreclosure defense in their own situation?

When the promissory note secured by the mortgage contains an optional acceleration clause,  the foreclosure cause of action accrues, and the statute of limitations begins to run, on the date the acceleration clause is invoked or the stated date of maturity, whichever is earlier. Lubonty v. Barnard, 14-cv-3945 (ADS) (E.D.N.Y. Mar. 21, 2015) https://casetext.com/case/lubonty-v-r-kenneth-barnard-chapter-7-tr-als-hibiscus-llc

 

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

FITZHUGH v. HSBC BANK USA, NAT'L ASSOC. Civil Action No. 19-12394-FDS. https://www.leagle.com/decision/infdco20201209b38

Defendants contend that plaintiff's claim is time-barred. The limitations period for claims brought under Chapter 93A is four years. See Mass. Gen. Laws ch. 260, § 5A; O'Brien v. Deutsche Bank Nat'l Tr. Co., 948 F.3d 31, 35 (1st Cir. 2020). Plaintiff's claim is based on the terms of his mortgage loan, which were apparent to him when he executed that loan. (Compl. ¶ 21). Any potential cause of action based on the mortgage terms thus accrued at that time. See Latson v. Plaza Home Mortg., Inc., 708 F.3d 324, 327 (1st Cir. 2013) (rejecting plaintiff's argument that discovery rule should toll limitations period for Chapter 93A claim based on the terms of mortgage loan). Indeed, the complaint alleges that the mortgage loan violated Chapter 93A from the beginning. (Compl. ¶ 21 (alleging that the mortgage loan violated Chapter 93A "ab initio")). The four-year limitations period therefore began to run on the signing date— August 26, 2005. (Dkt. No. 23 Ex. A at 1). As a result, plaintiff's Chapter 93A claim based on the terms of the mortgage is time-barred. See O'Brien, 948 F.3d at 35 (concluding that plaintiff's Chapter 93A claim based on the mortgage terms accrued at the inception of the loan); Latson, 708 F.3d at 327 (same).

 

HICKS v. WELLS FARGO BANK, N.A. 178 So.3d 957 (2015) https://www.leagle.com/decision/inflco20151113138

The dispositive facts in this appeal are not in dispute. Because the earlier voluntary dismissal was not an adjudication on the merits, Evergrene Partners, Inc. v. Citibank, N.A., 143 So.3d 954, 956 (Fla. 4th DCA 2014) (citing Froman v. Kirland, 753 So.2d 114, 116 (Fla. 4th DCA 1999)), Bank was entitled to bring a later suit to foreclose on the note and mortgage. However, the suit must still be based on an act of default within the five-year statute of limitations period. See id. Here, Bank's complaint was filed in 2013, based on an alleged default occurring on June 1, 2006.3 Because trial counsel for the parties stipulated to the court that the facts were undisputed, with Bank's counsel additionally confirming that the sole determinative issue to resolve at trial was one of law, the court erred when it failed to dismiss the foreclosure complaint with prejudice based on a default that occurred out-side of the five-year statute of limitations period.

 

Remedy?

Dismissal with an inability to refile.  The statute of limitations is an affirmative defense, C.R.C.P. 8(c), that must be pleaded and proved by the defendant. Zertuche v. Montgomery Ward & Co., 706 P.2d 424, 426 (Colo. App. 1985); cf. Drake v. Tyner, 914 P.2d 519, 523 (Colo. App. 1996) (concluding that the defense adequately raised a statute of limitations defense in its summary judgment motion). GUNDERSON v. WEIDNER HOLDINGS, LLC 463 P.3d 315 (2019) https://www.leagle.com/decision/incoco20191226025

Subsequent and separate alleged default create[s] a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action.  HICKS v. WELLS FARGO BANK, N.A. 178 So.3d 957 (2015) https://www.leagle.com/decision/inflco20151113138


Part Payment

Part Payment

What is this foreclosure defense as a general concept?

Except in jurisdictions in which a statute requires a partial payment to be made before the cause of action is barred to toll the statute of limitations, the limitation period may be started anew by a partial payment made either before or after the original obligation has become barred.” (footnote omitted)). However, for a partial payment to revive an action, the partial payment must be voluntary. Joslin, 2003–NMCA–133, ¶ 19, 134 N.M. 527, 80 P.3d 464 (“[O]nly voluntary payments can trigger the revival statute because only voluntary payments represent the debtor's acknowledgment of the debt giving rise to a new promise. Lea Cnty. State Bank v. Markum Ranch P'ship, 344 P.3d 1089, 1093 (N.M. Ct. App. 2015) https://casetext.com/case/lea-cnty-state-bank-v-markum-ranch-pship

 

What is the specific rule for it from the caselaw for this foreclosure defense?

Civil Code section 5710, subdivision (a) states, in plain language, that “[a]ny sale by the trustee ” (italics added) shall be conducted in accordance with the Civil Code sections applicable to the exercise of powers of sale in mortgages and deeds of trust. In this case, HCTA pursued judicial foreclosure. The unintended consequence foretold by HCTA suggests not that the Legislature intended for an association to be able to decline partial payments. Instead, the Legislature intended for section 5655(a), requiring an association to accept partial payments, and section 5720(b), limiting foreclosure, to apply to both judicial and nonjudicial foreclosure and to prevail to the extent of any conflict with Civil Code section 2924c, subdivision (a)(1). Huntington Cont'l Townhouse Ass'n, Inc. v. Miner, 230 Cal.App.4th 590, 179 Cal. Rptr. 3d 47 (Cal. Ct. App. 2014) https://casetext.com/case/huntington-contl-townhouse-assn-inc-v-miner

 

How would someone spot this foreclosure defense in their own situation?

HUD regulations provide that a lender of a federally guaranteed mortgage is obligated to make reasonable efforts to avoid foreclosure, including the acceptance of partial payments on the mortgage. This obligation ceases, though, once the foreclosure proceedings have commenced. 24 C.F.R. § 203.556(d)(4). As discussed, however, supra note 7, Pennsylvania law requires that the mortgage lender provide the mortgage debtor with a minimum of thirty days' notice prior to the commencement of any foreclosure proceedings. In re Smith, 866 F.2d 576 (3d Cir. 1989) https://casetext.com/case/in-re-smith-149

 

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Huntington Cont'l Townhouse Ass'n, Inc. v. Miner, 230 Cal.App.4th 590, 179 Cal. Rptr. 3d 47 (Cal. Ct. App. 2014) https://casetext.com/case/huntington-contl-townhouse-assn-inc-v-miner

 

After considering the language of section 5655(a) and its context within the Davis-Stirling Act, we conclude an association must accept a partial payment made by an owner of a separate interest in a common interest development toward a debt described in section 5650(a) and must apply that payment first to assessments owed. That requirement continues after recordation of a lien pursuant to Civil Code sections 5673 and 5675. Accordingly, in this case, HCTA was required to accept the Trust's check for $3,500 when tendered in December 2011. Had HCTA accepted the check and applied it in the order prescribed by section 5655(a), the amount of delinquent assessments would have been less than $1,800. HCTA does not contend the assessments secured by its lien were more than 12 months delinquent at the time the Trust tendered the $3,500 check. Thus, under section 5720(b), HCTA could not pursue judicial foreclosure of the lien, and the trial court erred by issuing a decree of foreclosure.

In re Smith, 866 F.2d 576, 585 (3d Cir. 1989)

https://casetext.com/case/in-re-smith-149

Here, Smith also may have selected a more favorable resolution of the dispute than suffer foreclosure of the mortgage when the debt had almost been liquidated, had she received proper notice of the intended proceedings. For example, prior notice may have enabled Smith to work out a settlement with Fidelity, or to make partial payment, or Smith may have chosen to sell the property herself. Moreover, if Smith had received notice prior to the initial filing of the complaint, as required by 41 Pa.Stat.Ann. § 403, her options potentially would have been even greater. For example, as the district court implicitly recognized, at that stage the mortgagee would not have incurred substantial attorneys' fees and costs so that Smith's initial offer to pay the debt would have been sufficient to cover the mortgage deficiency.

Remedy?

Section 5720(b) identifies three ways to collect or secure delinquent assessments in an amount less than $1,800 as well as to collect additional fees, collection costs, and interest: (1) “a civil action in small claims court”; (2) “recording a lien on the owner's separate interest”; and (3) “[a]ny other manner provided by law, except for judicial or nonjudicial foreclosure.” (§ 5720(b)(1), (2) & (3).) Although the lien could not be foreclosed until the conditions of section 5720(b)(2) had been met, the lien itself is a powerful coercion mechanism; for instance, the lien would have to be satisfied to permit the sale of the home. Further, an association may foreclose a lien securing assessments in any amount that are more than 12 months delinquent. (Civ.Code, § 5720, subd. (c)(1).) Huntington Cont'l Townhouse Ass'n, Inc. v. Miner, 230 Cal.App.4th 590, 604 (Cal. Ct. App. 2014) https://casetext.com/case/huntington-contl-townhouse-assn-inc-v-miner

Fraud on Court

Fraud on Court

What is this foreclosure defense as a general concept?

Fraud on the court, as opposed to fraud on a litigant, either attempts to or does "defile the court itself' or is "perpetrated by officers of the court" such that "the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases." MAZZEI EX REL. FEE-SPLIT CLASS v. MONEY STORE No. 20 Civ. 3702 (AT). https://www.leagle.com/decision/infdco20210106674

What is the specific rule for it from the caselaw for this foreclosure defense?

Rule 60(d)(3) permits a plaintiff to bring an independent action challenging an earlier judgment as caused by fraud on the court. Fed. R. Civ. P. 60(d)(3). MAZZEI EX REL. FEE-SPLIT CLASS v. MONEY STORE No. 20 Civ. 3702 (AT) https://www.leagle.com/decision/infdco20210106674

 

The type of fraud on the court that can sustain an independent action under Rule 60(d) is "narrower in scope" than fraud on the court claims brought under Rule 60(b), which allows for claims brought during the course of litigation. LinkCo, 367 F. App'x at 182. Rule 60(d) fraud on the court claims are available only where the fraud "seriously affect[s] the integrity of the normal process of adjudication." Id. (internal quotation marks and alterations omitted). In short, independent actions for fraud on the court are available only to "prevent a grave miscarriage of justice." MAZZEI EX REL. FEE-SPLIT CLASS v. MONEY STORE No. 20 Civ. 3702 (AT). https://www.leagle.com/decision/infdco20210106674


How would someone spot this foreclosure defense in their own situation?

To make a valid claim for fraud on the court, a plaintiff must show evidence of "an unconscionable plan or scheme which is designed to improperly influence the court in its decision. A successful claim for "fraud on the court" can succeed only on proof of "the most egregious misconduct. ACORD v. YOUNG AGAIN PRODUCTS, INC. Civil Action No. H-11-3591 https://www.leagle.com/decision/infdco20130228f67

A fraud on the court occurs where it can be demonstrated, clearly and convincingly, that a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate a matter by improperly influencing the trier or unfairly hampering the presentation of the opposing party's claim or defense. PINO v. BANK OF NEW YORK MELLON 57 So.3d 950 (2011) https://www.leagle.com/decision/inflco20110330301


How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Wells Fargo Bank v. Juza, 2019 WI App. 39, 388 Wis. 2d 255, 932 N.W.2d 178 (Wis. Ct. App. 2019) https://casetext.com/case/wells-fargo-bank-na-v-juza

Wells Fargo focuses on the veracity of a single statement in the Rybarczyk affidavit—specifically, Rybarczyk’s statement "that BANA was the current owner and holder of [the Juzas'] mortgage and note." It then argues that any "other issues [with the Rybarczyk affidavit] could not have had any practical effect on the circuit court’s grant of summary judgment." As a result, Wells Fargo never truly joins issue with the court’s rationale for finding that BANA committed fraud on the court—i.e., that BANA knew Rybarczyk did not have personal knowledge of the facts averred to in his affidavit, but it nevertheless submitted his affidavit to the court. Indeed, Wells Fargo does not even assert that Rybarczyk actually had personal knowledge of the facts he averred to in his affidavit. Wells Fargo mistakenly relies on Dekker because this case does not involve a witness who is "believed possibly" to have been guilty of perjury. Rather, it involves a party’s knowing submission of an affidavit in which the circuit court found, as a matter of fact, that the affiant falsely claimed personal knowledge of matters he did not have. As such, the court did not apply an improper legal standard by determining that BANA’s conduct constituted a fraud on the court.

Pino v. Bank of N.Y., 121 So. 3d 23 (Fla. 2013)

https://casetext.com/case/pino-v-bank-of-ny

In a motion for sanctions brought pursuant to section 57.105, Florida Statutes (2009), and dated February 17, 2009, Pino alleged that the unrecorded Assignment of Mortgage in the amended complaint was fraudulently backdated and had been created with the intent to commit fraud on the court. Section 57.105 authorizes sanctions in the form of attorney's fees and other expenses if a trial court determines the party or the party's attorney knew or should have known that at the time a claim or defense was presented that the claim or defense “[w]as not supported by the material facts necessary to establish the claim or defense” or “[w]ould not be supported by the application of then-existing law to those material facts.” § 57.105(1)(a)-(b), Fla. Stat. (2009). The statute also provides for a twenty-one-day safe harbor provision allowing the party to withdraw or correct “the challenged paper, claim, defense, contention, allegation, or denial.” § 57.105(4), Fla. Stat. (2009).To prove these factual allegations, Pino explained that he had initiated discovery and that upon doing so he would move to dismiss the case for fraud on the court. Pino subsequently scheduled depositions of various notaries and witnesses—all employees of BNY Mellon's law firm—to take place on March 12, 2009. However, before the scheduled depositions occurred, and within the twenty-one-day safe harbor period set forth in section 57.105(4), BNY Mellon served a notice of voluntary dismissal dated March 9, 2009, dismissing the foreclosure complaint without prejudice pursuant to Florida Rule of Civil Procedure 1.420(a)(1).

 

Remedy

If a plaintiff believes that a state court judgment was obtained by fraud on the state court, the plaintiff's remedy is by way of a motion for relief from judgment under state law (and before the state court), not by way of a collateral attack on that court's judgment in federal court. Ratkovich v. Chandiramani, Case No. 14 C 6484 (N.D. Ill. Nov. 6, 2014) https://casetext.com/case/ratkovich-v-chandiramani

[I]n cases where courts have exercised the power [to act on a fraud on the court claim] the relief granted has taken several forms: setting aside the judgment to permit a new trial, altering the terms of the judgment, or restraining the beneficiaries of the judgment from taking any benefit whatever from it. MAZZEI EX REL. FEE-SPLIT CLASS v. MONEY STORE No. 20 Civ. 3702 (AT). https://www.leagle.com/decision/infdco20210106674

Lacks Standing

Lacks Standing

What is this foreclosure defense as a general concept?

"The doctrine of standing is designed to preclude persons who have no interest in a controversy from bringing suit" and "assures that issues are raised only by those parties with a real interest in the outcome of the controversy." Glisson v. City of Marion, 188 Ill. 2d 211, 221 (1999). "[S]tanding requires some injury in fact to a legally cognizable interest ***." Glisson, 188 Ill. 2d at 221. Our supreme court has stated that "lack of standing in a civil case is an affirmative defense, which will be waived if not raised in a timely fashion in the trial court." Greer v. Illinois Housing Development Authority, 122 Ill. 2d 462, 508 (1988);Mortgage Electronic Reg. Sys. v. Barnes, 406 Ill. App. 3d 1, 6 (Ill. App. Ct. 2010) https://casetext.com/case/mortgage-electronic-reg-sys-v-barnes


What is the specific rule for it from the caselaw for this foreclosure defense?

“A crucial element in any mortgage foreclosure proceeding is that the party seeking foreclosure must demonstrate that it has standing to foreclose.” McLean v. JP Morgan Chase Bank Nat'l Ass'n, 79 So.3d 170, 173 (Fla. 4th DCA 2012). “[A] party's standing is determined at the time the lawsuit was filed.” Id. Caraccia v. U.S. Bank, 185 So. 3d 1277 (Fla. Dist. Ct. App. 2016) https://casetext.com/case/caraccia-v-us-bank#p1279


How would someone spot this foreclosure defense in their own situation?

Indeed, the prevailing rule is that, barring third-party beneficiary status, a litigant lacks standing to attack an assignment to which he or she is not a party." Bank of America National Ass'n vBassman FBTLLC, 2012 IL App (2d) 110729, ¶ 15. However, an exception exists where the acts at issue are ultra vires of the trustee's authority. Id. at ¶ 16. The Bassman court addressed the apparent inconsistency and concluded that the ultra vires acts are merely voidable, not void. U.S. Bank v. Stibolt, Appeal No. 3-16-0699, 7 (Ill. App. Ct. 2018) https://casetext.com/case/us-bank-na-v-stibolt


How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

3709 N. Flagler Drive Prodigy Land Trust, Mango Homes LLC v. Bank of Am., N.A., 226 So. 3d 1040 (Fla. Dist. Ct. App. 2017)

 https://casetext.com/case/3709-n-flagler-drive-prodigy-land-trust-mango-homes-llc-v-bank-of-am-na-1

Whitburn acquired title to property after a foreclosure complaint and notice of lis pendens was filed. Whitburn then sought to intervene post-judgment to cancel the sale of the property. The trial court denied the motion on the basis that Whitburn had no standing, and the Second District affirmed, first noting that Whitburn was not a party to the foreclosure. In agreeing that Whitburn had no standing, the court relied on the well-established principle "when property is purchased during a pending foreclosure action in which a lis pendens has been filed, the purchaser generally is not entitled to intervene in the pending foreclosure action." 190 So.3d at 1089. (citations omitted). Therefore, because it did not acquire its interest until after the filing of the lis pendens, it had no "sufficient stake in a justiciable controversy, with a legally cognizable interest that would be affected by the outcome of the litigation."

Balance Limited, Inc. v. Short, 35 Md. App. 10, 11 (Md. Ct. Spec. App. 1977) https://casetext.com/case/balance-limited-inc-v-short?

Appellants are general creditors of the mortgagor of a condominium under construction in Ocean City. The mortgage was foreclosed and the property was bought at public sale by the mortgagee for a sum insufficient to discharge the mortgage debt. Appellants excepted to the ratification of that sale and were given a full and exhaustive hearing on a plethora of issues, including the contention that a partnership existed between the mortgagor and mortgagee in fact and by estoppel. Acknowledging (now) their status as general creditors only, appellants contend that they have a right to attack the distribution of the mortgage foreclosure proceeds notwithstanding their lack of interest in the mortgage res. It is hornbook law that a general creditor having no lien upon the property is not a proper party, initially or by intervention, to a foreclosure suit. Jones, Mortgages § 1826 (8th ed. 1928); see So. Maryland Oil v. Kaminetz, 260 Md. 443, 449. It is equally well settled that a claim which has not become an absolute lien upon the property cannot be considered in the disposition of any surplus, however equitable the claim may be. It follows that if a general creditor has no standing to intervene in the mortgage foreclosure, and if he has no standing to demand payment from any surplus, he is certainly not entitled to attack a distribution of funds from a sale after foreclosure.

 

Remedy

The case must be dismissed.

“[T]he plaintiff must prove that it had standing to foreclose when the complaint was filed.” McLean v. JP Morgan Chase Bank Nat'l Ass'n, 79 So.3d 170, 173 (Fla. 4th DCA 2012). Relevant here, “[w]here the plaintiff contends that its standing to foreclose derives from an endorsement of the note, the plaintiff must show that the endorsement occurred prior to the inception of the lawsuit.” Id. at 174. A plaintiff can establish standing through an affidavit of ownership, wherein standing is established “if the body of the affidavit indicates that the plaintiff was the owner of the note and mortgage before suit was filed.” Sosa v. U.S. Bank Nat'l Ass'n, 153 So. 3d 950 (Fla. Dist. Ct. App. 2014) https://casetext.com/case/sosa-v-us-bank-natl-assn#p951

Failure to Attach Contract

Failure to Attach Contract

What is this foreclosure defense as a general concept?

If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference. Miles v. Deutsche Bank Nat'l Trust Co., 186 Cal. Rptr. 3d 625, 236 Cal.App.4th 394 (Cal. Ct. App. 2015) https://casetext.com/case/miles-v-deutsche-bank-natl-trust-co


What is the specific rule for it from the caselaw for this foreclosure defense?

FED. R. BANKR. P. 3001(c)(1). "Section (c)(1) requires that, if the claim is based on a writing, that writing must be attached or the circumstances of its unavailability must be explained." In re Gorman , 495 B.R. 823, 831 (Bankr. E.D. Tenn. 2013). Bankruptcy Rule 3001(d) provides that "[i]f a security interest in property of the debtor is claimed, the proof of claim shall be accompanied by evidence that the security interest has been perfected." FED. R. BANKR. P. 3001(d).  In addition, Item 7 on Official Bankruptcy Form B 10, sets forth the content and format for proofs of claim and instructs creditors as follows: Attach redacted copies of any documents that support the claim, such as promissory notes, purchase orders, invoices, itemized statements of running accounts, contracts, judgments, mortgages, and security agreements. You may also attach a summary. Attach redacted copies of documents providing evidence of perfection of a security interest. You may also attach a summary. In re Benyamin, 587 B.R. 243 (Bankr. S.D.N.Y. 2018) https://casetext.com/case/in-re-benyamin


How would someone spot this foreclosure defense in their own situation?

A mortgage can be assigned in two ways—by delivery of the bond and mortgage by the assignor to the assignee with the intention that all ownership interests thereby transferred, or by a written instrument of assignment. Thus, an assignee can demonstrate standing by attaching the note and the mortgage to a proof of claim; it does not need to attach a written assignment to the proof of claim. Conde–Dedonato , 391 B.R. at 251 Thus, a mortgage and note can be transferred by delivery, and do not have to be evidenced by a written assignment. In re Benyamin, 587 B.R. 243 (Bankr. S.D.N.Y. 2018) https://casetext.com/case/in-re-benyamin


How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Miles v. Deutsche Bank Nat'l Trust Co., 186 Cal. Rptr. 3d 625, 236 Cal.App.4th 394 (Cal. Ct. App. 2015) https://casetext.com/case/miles-v-deutsche-bank-natl-trust-co

 

Defendants' only remaining argument in support of the dismissal of the breach of contract cause of action is that plaintiff failed to attach the contract or to plead its terms verbatim. In support of that argument, defendants cite Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 459, 212 Cal.Rptr. 743 (Otworth ), which stated, “If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference.” The correct rule is that “a plaintiff may plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 199, 126 Cal.Rptr.2d 908, 57 P.3d 372.) Because it is apparent that the Otworth court misread Wise, and because, in any event, we are bound by our Supreme Court, we decline to follow Otworth. Accordingly, plaintiff's failure either to attach or to set out verbatim the terms of the contract was not fatal to his breach of contract cause of action.

Sykes v. RBS Citizens, N.A., 2 F. Supp. 3d 128 (D.N.H. 2014)

https://casetext.com/case/sykes-v-rbs-citizens-1

Sykes alleges that he received a notice of default dated December 8, 2008, and that he received a notice of acceleration and a notice of foreclosure. He alleges, however, that he did not receive these notices until April of 2011, well after the foreclosure auction. Although the notices may have been in compliance with paragraph twenty-two of the mortgage agreement had they been sent on the dates listed on the notices, the court cannot determine for purposes of a futility analysis whether the notices were sent or received on those dates. Therefore, even if the court could consider the documents attached to the mortgage defendants' objection, those documents do not, by themselves, establish that the mortgage defendants complied with the mortgage agreement for purposes of a futility analysis. Accordingly, the amended complaint states a claim for breach of contract against the mortgage defendants. “[E]xtrinsic material is, generally, not properly considered on a motion to amend. As with a motion to dismiss under Fed.R.Civ.P. 12(b)(6), in making futility determinations, the court must limit itself to the allegations in the complaint, as well as to any documents attached to the complaint as exhibits or incorporated by reference.” Max Impact, LLC v. Sherwood Group, Inc., 2012 WL 3831535

Remedy

Dismissal without prejudice.  The proper method to address the failure to attach a document is to file a motion for a more definite statement under Civ.R. 12(E), not to seek dismissal of the complaint. Huntington Nat'l Bank v. Belcher 2012 Ohio 3731 (Ohio Ct. App. 2012) https://law.justia.com/cases/ohio/sixth-district-court-of-appeals/2012/wd-11-055.html

FHA/VA Guidelines

Failure to follow FHA guidelines as a Conditions Precedent

What is this foreclosure defense as a general concept?

It has been held that a term in a mortgage such as one requiring prior notice of a default or acceleration to the mortgagor is not an affirmative defense but rather a condition precedent. LaSalle Bank v. Kelly, Medina App. No. 09CA0067-M, 2010-Ohio-2668, 2010 WL 2347077, ¶ 13, citing First Fin. Bank v. Doellman, Butler App. No. CA2006-02-029, 2007-Ohio-222, 2007 WL 136746, ¶ 20. If a provision is a condition precedent, it is subject to the requirements of Civ. R. 9(C). Civ. R. 9(C) states, "In pleading the performance or occurrence of conditions precedent, it is sufficient to aver generally that all conditions precedent have been performed or have occurred. A denial of performance or occurrence shall be made specifically and with particularity." U.S. Bank, N.A. v. Detweiler, 191 Ohio App. 3d 464, 471 (Ohio Ct. App. 2010) https://casetext.com/case/us-bank-na-v-detweiler#p472


What is the specific rule for it from the caselaw for this foreclosure defense?

Section 203.606(a), Title 24, C.F.R. states, "[B]efore initiating foreclosure, the mortgagee must ensure that all servicing requirements of this subpart have been met. The mortgagee may not commence foreclosure for a monetary default unless at least three full monthly installments due under the mortgage are unpaid after application of any partial payments that may have been accepted but not yet applied to the mortgage account. In addition, prior to initiating any action required by law to foreclose the mortgage, the mortgagee shall notify the mortgagor in a format prescribed by the Secretary that the mortgagor is in default and the mortgagee intends to foreclose unless the mortgagor cures the default." U.S. Bank, N.A. v. Detweiler, 191 Ohio App. 3d 464, 471 (Ohio Ct. App. 2010) https://casetext.com/case/us-bank-na-v-detweiler#p472

A face-to-face meeting is not required if:

(1) The mortgagor does not reside in the mortgaged property,

(2) The mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either,

(3) The mortgagor has clearly indicated that he will not cooperate in the interview,

(4) A repayment plan consistent with the mortgagor's circumstances is entered into to bring the mortgagor's account current thus making a meeting unnecessary, and payments thereunder are current, or

(5) A reasonable effort to arrange a meeting is unsuccessful.

U.S. Bank, N.A. v. Detweiler, 191 Ohio App. 3d 464, 471 (Ohio Ct. App. 2010) https://casetext.com/case/us-bank-na-v-detweiler#p472

A reasonable effort to arrange a face-to-face meeting with the mortgagor shall consist at a minimum of one letter sent to the mortgagor certified by the Postal Service as having been dispatched. Such a reasonable effort to arrange a face-to-face meeting shall also include at least one trip to see the mortgagor at the mortgaged property, unless the mortgaged property is more than 200 miles from the mortgagee, its servicer, or a branch office of either, or it is known that the mortgagor is not residing in the mortgaged property. U.S. Bank, N.A. v. Detweiler, 191 Ohio App. 3d 464, 471 (Ohio Ct. App. 2010) https://casetext.com/case/us-bank-na-v-detweiler#p472


How would someone spot this foreclosure defense in their own situation?

The Federal Housing Administration (FHA) insured the mortgage, HUD regulations were expressly incorporated into the mortgage as a limit on the mortgagee's right to accelerate the loan and foreclose on the property. Paragraph 9(a) of the mortgage provides, “Lender may, except as limited by regulations issued by the [HUD] Secretary in the case of payment defaults, require immediate payment in full....” Additionally, paragraph 9(d) of the mortgage states, “[i]n many circumstances [HUD] regulations ... will limit Lender's rights, in the case of payment defaults, to require immediate payment in full and foreclose if not paid. This Security Instrument does not authorize acceleration or foreclosure if not permitted by [HUD regulations] ” (emphasis supplied). As provided in the HUD regulations themselves, a “mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting,[ ] before three full monthly installments due on the mortgage are unpaid.” 24 C.F.R. § 203.604(b). Wells Fargo Bank, N.A. v. Cook, 31 N.E.3d 1125, 87 Mass. App. Ct. 382 (Mass. App. Ct. 2015) https://casetext.com/case/wells-fargo-bank-na-v-cook-2#p385

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Pfeifer v. Countrywide Home Loans, Inc., 211 Cal.App.4th 1250, 1264 (Cal. Ct. App. 2013)

https://casetext.com/case/pfeifer-v-countrywide-home-loans-2

 

The Pfeifers have a mortgage insured by the FHA, and the terms of their note and mortgage subject the mortgage to the servicing requirements under HUD. In their pleading, the Pfeifers allege that the lenders began foreclosing on their property without adhering to the HUD servicing requirements, as they did not have a face-to-face interview with them as required by the Code of Federal Regulations. “In contract law, ‘a condition precedent is either an act of a party that must be performed or an uncertain event that must happen before the contractual right accrues or the contractual duty arises.’ [Citation.] The existence of a condition precedent normally depends upon the intent of the parties as determined from the words they have employed in the contract. [Citation.]” (Realmuto v. Gagnard (2003) 110 Cal.App.4th 193, 199, 1 Cal.Rptr.3d 569.) Here, the express language of paragraph 9 in the deed of trust states that the mortgagee is not authorized to foreclose on a property “if not permitted by” the HUD regulations. The HUD regulations require face-to-face meetings (24 C.F.R. § 203.604) and, as alleged in the third amended complaint, such meetings did not occur in the present case. Additionally, as set forth above, the HUD regulations also specify that “no mortgagee shall commence foreclosure or acquire title to a property until” these HUD regulations have been followed. (24 C.F.R. § 203.500; see also 24 C.F.R. § 203.606(a).

Wells Fargo Bank, N.A. v. Cook, 31 N.E.3d 1125, 87 Mass. App. Ct. 382 (Mass. App. Ct. 2015) https://casetext.com/case/wells-fargo-bank-na-v-cook-2#p385

Wells Fargo also argues that even if it did not conduct a timely face-to-face meeting with the Cooks, such noncompliance would not as a matter of law render a foreclosure sale void, that a standard of less than strict compliance should be applied, and that summary judgment thus would still be appropriate. We disagree. Pursuant to G.L. c. 183, § 21, a mortgagee may only sell mortgaged premises by public auction after default if it “first compl[ies] with the terms of the mortgage and with the statutes  relating to the foreclosure of mortgages by the exercise of a power of sale” 

 

Remedy

Dismissal without prejudice.  Courts have held that a mortgagee's noncompliance can be asserted as an affirmative defense or an equitable defense to a judicial-foreclosure action. ” Pfeifer v. Countrywide Home Loans, Inc., 211 Cal.App.4th 1250, 1268 (Cal. Ct. App. 2013) https://casetext.com/case/pfeifer-v-countrywide-home-loans-2

Mortgage Insurance Policy

Mortgage Insurance Policy Pays Claim as Offset

What is this foreclosure defense as a general concept?

A standard mortgagee clause in an insurance contract provides a mortgagee with much greater protection than a "simple" loss payee clause which merely designates the mortgagee as an alternative payee under the policy. Under a standard mortgagee clause, a mortgagor's breach of the insurance contract will not bar recovery by the mortgagee. The standard clause constitutes a separate and independent contract between the mortgagee and the insurance company which is "measured by the terms of the mortgage clause itself. Fireman's Fund Mortg. Corp. v. Allstate, 838 P.2d 790, 793 n.5 (Alaska 1992) https://casetext.com/case/firemans-fund-mortg-corp-v-allstate

 

What is the specific rule for it from the caselaw for this foreclosure defense?

Private mortgage insurance carriers are regulated in Texas by Tex.Ins.Code Ann. art. 21.50 (Vernon Supp. 1992) which only authorizes mortgage insurance companies to insure lenders, not borrowers.  PINEDA v. PMI MORTG. INS. CO. (November 19, 1992)
Court of Appeals of Texas, Corpus Christi. No. 13-91-239-CV.
https://www.leagle.com/decision/19921503843sw2d66011404

 

How would someone spot this foreclosure defense in their own situation?

Generally, if the mortgagee recovers under the policy, the monies received by the mortgagee inure to the benefit of the mortgagor. However, if the mortgagor has been denied coverage under the policy, monies received by the mortgagee do not inure to the benefit of the mortgagor and thus, the mortgagor will not be entitled to an offset for monies paid to the mortgagee. The general rule has been stated as follows: [U]nder an insurance policy on mortgaged premises taken out for the benefit of both the mortgagor and mortgagee, the mortgagor is entitled to have payment of any loss credited to the satisfaction of the mortgage debt, yet if the policy has been forfeited as to the mortgagor by reason of the violation of some provision not affecting the mortgagee, the mortgagor is not entitled to the payment of the loss credited on the mortgage debt; rather, the insurer is entitled to be subrogated to all the rights of the mortgagee as against the mortgagor, as stipulated. Auto-Owners Mut. Ins. Co. v. Newman, 851 S.W.2d 22, 26 (Mo. Ct. App. 1993) https://casetext.com/case/auto-owners-mut-ins-co-v-newman

 

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Fireman's Fund Mortg. Corp. v. Allstate, 838 P.2d 790 (Alaska 1992) https://casetext.com/case/firemans-fund-mortg-corp-v-allstate

On the undisputed facts presented, we hold that Fireman's Fund is not precluded by AS 34.20.100 (1990) from satisfying its outstanding debt from available insurance proceeds even though it purchased the fire-damaged property at its own foreclosure sale. However, Fireman's Fund must be held to its offset bid of $75,486.15 which would entitle it to only so much of the insurance proceeds as required to pay off the remaining debt, approximately $18,500 plus interest and foreclosure costs. The remaining proceeds should go to First National and/or the Severance estate as their interests appear. We further hold that Fireman's Fund is entitled to seek reformation of the purchase price in the sales contract.

 

Beasley v. State Farm Fire Casualty Company Case No. 2:08-CV-11091 (E.D. Mich. Feb. 26, 2009)

https://www.casemine.com/judgement/us/591467a5add7b049342b6651

In its motion for reconsideration, State Farm now informs the Court that First Franklin Bank never foreclosed on the insured property through a sheriff's sale which extinguished the mortgage debt. State Farm presents evidence indicating that there in fact has been no sheriff's sale and that Plaintiff continues to hold title to the insured property subject to First Franklin Bank's mortgage. (Doc. 62 Exs. A B.) In response, Plaintiff offers no contrary evidence and does not dispute that there has been neither a sheriff's sale nor transfer of title to the property from Plaintiff to anyone, including the bank. This Court fails to understand why State Farm did not present this evidence initially in response to Plaintiff's suggestion that a sheriff's sale had occurred. In any event, because First Franklin Bank in fact did not purchase the insured property through a foreclosure sale for any amount, the Court must grant State Farm's motion for reconsideration and enter an amended judgment reflecting an offset for the amounts State Farm paid to First Franklin Bank and the City of Detroit.

 

What is the Remedy for Using this Foreclosure Defense?

Reduction in the loan balance. 

A mortgagee may 1) sue on the note itself, 2) judicially foreclose on the property and preserve the right to a deficiency judgment subject to a mortgagor's right of redemption, or 3) nonjudicially foreclose on the property and give up any deficiency judgment but also avoid redemption rights and court costs. See Moening v. Alaska Mutual Bank, 751 P.2d 5, 7-8 (Alaska 1988). First National maintains, based on its reading of the relevant statute, that by choosing the last option, Fireman's Fund's debt was extinguished at the time of the foreclosure sale because it had fully satisfied its debt as a matter of law. Fireman's Fund Mortg. Corp. v. Allstate, 838 P.2d 790, 793 n.5 (Alaska 1992) https://casetext.com/case/firemans-fund-mortg-corp-v-allstate

Loan Balance & Fees Wrong

Loan Balance & Fees Wrong

What is this foreclosure defense as a general concept?

Mortgage contracts generally allow a servicer—the company that handles the loan account—to charge late fees, inspection fees, foreclosure costs, and other default-related fees to your account under certain circumstances, like when you are late on a payment or are in foreclosure. If the servicer charges fee and costs in excessive or incorrect amounts, this will unfairly increase the total balance you owe on your loan. If this happens to you in foreclosure, you can challenge those fees and costs. https://www.nolo.com/legal-encyclopedia/challenging-late-other-fees-foreclosure.html


What is the specific rule for it from the caselaw for this foreclosure defense?

The Michigan Court of Appeals held that permitting a 5% late fee on a maturity payment is reversible error while “agreeing with the Sixth Circuit] ... that standard commercial practice imposes service charges for nonpayment of periodic installments, not in the principal balance owed at maturity.” A voluntarily contracted late charge that attempts to provide for the expected and unexpected costs a secured creditor may incur upon default by a debtor may be allowed as reasonable, provided it is not combined with a claim for default interest. Federal National Mortgage Ass'n v. Royal Manor Apartments, LLC, 39 F. Supp. 3d 907, 915 (E.D. Mich. 2014) https://casetext.com/case/fed-natl-mortg-assn-v-royal-manor-apartments-llc

RESPA provides that when the servicer of a loan changes, the borrower is entitled to notice. 12 U.S.C. § 2605(b)(1), (c)(1), 24 C.F.R. § 3500.21(d)(1)(i). Specifically, the transferor must provide notice not less than fifteen days before the effective transfer of the loan, 12 U.S.C.  § 2605(b)(2)(A), 24 C.F.R. § 3500.21(d)(2)(i)(A), and the transferee must provide notice not more than 15 days after the date of effective transfer. 12 U.S.C. § 2605(c)(2)(A), 24 C.F.R. § 3500.21(d)(2)(i)(B). These provisions further provide that, for a sixty day period beginning on the date of the effective transfer, if a borrower sends their payment to the transferor (instead of the transferee, where the payment should be sent), the borrower will not be charged a late fee. 12 U.S.C. § 2605(d); 24 C.F.R. § 3500.21(d)(5). Martin v. Litton Loan Servicing LP, No. 2:12-cv-970-MCE-EFB PS (E.D. Cal. Mar. 12, 2014) https://casetext.com/case/martin-v-litton-loan-servicing-lp


How would someone spot this foreclosure defense in their own situation?

The servicer assesses a late charge during the grace period. Most mortgage contracts include a “grace period” of around ten or fifteen days. If you make your payment late, but during the grace period, there shouldn’t be a late fee.

The servicer delays posting your payment to your account. If the loan servicer delays posting your payment to your account until after the grace period ends, it can also result in an improper late fee.

The servicer assesses an incorrect late charge amount. Late fees can only be assessed in the amount specifically authorized by the loan contract. The late charge amount is usually found in the promissory note. Even then, state law may limit the amount that can be charged. If the state limit is lower than what the contract allows, it will generally override the loan contract.

The servicer illegally “pyramids” late fees. In some cases, servicers charge borrowers late fees on full payments that were made on time because the borrower didn’t include a payment for a previously unpaid late charge. “Pyramiding” occurs when the loan servicer takes the assessed late fees from the regular payment and leaves part of the scheduled payment overdue, which results in the assessment of another late charge. When the servicer does this, more and more late fees accumulate.

Federal regulations, state law, and mortgage contracts usually prohibit this practice. According to the Federal Trade Commission, pyramiding of late fees is unfair to consumers. Regulation Z, which implements the Truth in Lending Act (TILA), also prohibits the pyramiding of late fees for mortgages covered by TILA. https://www.nolo.com/legal-encyclopedia/challenging-late-other-fees-foreclosure.html

 

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Miles v. Deutsche Bank Nat'l Trust Co., 186 Cal. Rptr. 3d 625, 236 Cal.App.4th 394 (Cal. Ct. App. 2015)  https://casetext.com/case/miles-v-deutsche-bank-natl-trust-co

On April 15, 2008, four days after HomEq received, approved and signed the March 13 agreement, HomEq sent plaintiff a default letter demanding that he pay $39,997.18 or face immediate foreclosure. One week later, HomEq accepted plaintiff's payment of $6,236.78. On April 30, just a little over one week later, HomEq sent another loan modification agreement, this time raising the loan balance to $870,000. HomEq told plaintiff he had to sign the latest loan modification agreement or face foreclosure. Plaintiff claims that, thereafter, HomEq refused any payments under the March 13 agreement. HomEq denies that it refused payments. In any event, it appears no regular payments were made in May 2008. It appears that HomEq believed the balance had been miscalculated on the March 13 agreement and thus refused to honor it (even though management had reviewed it and a vice-president had signed it). Affirming, the court of appeal articulated the nature of a wrongful foreclosure action and the proper measure of damages as follows: “[A] trustee or mortgagee may be liable to the trustor or mortgagor for damages sustained where there has been an illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed of trust. [Citations.] This rule of liability is also applicable in California, we believe, upon the basic principle of tort liability declared in the Civil Code that every person is bound by law not to injure the person or property of another or infringe on any of his rights.

Chase has the burden of establishing its standing. Claim # 2 does not attach evidence establishing Chase's standing as loan servicer or as the holder of the note and mortgage. Whatever its reasons, Chase ignored the written requests from Debtor's counsel for evidence of its standing, and did not respond to the Debtor's Objection to Claim # 2. Therefore, Chase has failed to present evidence necessary to demonstrate that it is either the servicer, note and mortgage holder, or assignee such that it has standing to bring Claim # 2. For the reasons explained below, the Court finds that Chase's failure to attach documentation to its Claim # 2 and respond to the Debtor's information requests is fatal to Claim # 2. Courts, also mostly in the credit card context, disagree whether, and under what circumstances, the failure to attach sufficient documentation to a proof of claim can result in disallowance of a claim on procedural grounds. Bankruptcy Code § 502(b) prescribes nine categories of claims which will be disallowed, including that "(1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured." 11 U.S.C. § 502(b). Section 502(b) does not identify "insufficient documentation" as a basis to disallow a claim. Courts in this Circuit have sustained "insufficient documentation objections" resulting in the disallowance of claims. In re Minbatiwalla, No. 09-15693 (MG), 118-19 (Bankr. S.D.N.Y. 2010) https://casetext.com/case/in-re-minbatiwalla-1

Remedy

Reduction in the loan balance and possible damages.

A tort of wrongful foreclosure satisfies the basic factors for finding a tort duty enunciated in Biakanja v. Irving (1958) 49 Cal.2d 647, 650–651, 320 P.2d 16. The transaction is intended to affect the plaintiff—it is intended to dispossess the plaintiff; it is easily foreseeable that doing so wrongfully will cause serious damage and disruption to the plaintiff's life; the injuries are directly caused by the wrongful foreclosure; the moral blame of foreclosing on someone's home without right supports finding a tort duty; and recognizing a duty will help prevent future harm by discouraging wrongful foreclosures. Miles v. Deutsche Bank Nat'l Trust Co., 186 Cal. Rptr. 3d 625, 635 (Cal. Ct. App. 2015) https://casetext.com/case/miles-v-deutsche-bank-natl-trust-co

Laches

Laches

What is this foreclosure defense as a general concept?

“The defense of laches, if proven, bars a plaintiff from [obtaining] equitable relief in a case in which there has been an inexcusable delay that has prejudiced the defendant” TD Bank, N.A. v. Doran, 162 Conn. App. 460, 466 (Conn. App. Ct. 2016) https://casetext.com/case/td-bank-na-v-doran-1?resultsNav=false


What is the specific rule for it from the caselaw for this foreclosure defense?

In applying the laches doctrine to the belated foreclosure of a mortgage, the Williamson court said: Though recovery on the note is barred by a statute of limitation, the running of such statute on the note does not prevent foreclosure of the mortgage given as security therefor. There is no statute of limitation on the foreclosure of a mortgage. It is only when the mortgage debt has been due after maturity for a time sufficient to raise a presumption that the same has been satisfied that mere delay will furnish a defense to foreclosure. That time is ordinarily twenty years. Barton v. Lumpkin, 277 Ala. 394, 171 So.2d 101 (1965). § 35-10-20, Code of Alabama 1975. Delaney's, Inc. v. Pritchard, 480 So. 2d 1204, 1206 (Ala. 1985) https://casetext.com/case/delaneys-inc-v-pritchard


How would someone spot this foreclosure defense in their own situation?

The application of laches is not dependent upon the passage of such period of time. Laches, as we have previously defined it, is an equitable defense to be applied where from delay, loss of evidence, and death, any judgment would be conjectural and difficult to do justice. It is not necessary that the court be satisfied that the claim is unjust or has been satisfied. Laches may be applied even though the claim is not barred by the statute of limitation nor barred by the twenty-year rule of prescription. McCary v. Robinson, 272 Ala. 123, 130 So.2d 25 (1961); Ussery v. Darrow, 238 Ala. 67, 188 So. 885 (1939). Delaney's, Inc. v. Pritchard, 480 So. 2d 1204, 1206 (Ala. 1985) https://casetext.com/case/delaneys-inc-v-pritchard


How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Wisconsin Brick and Block Corp. v. Vogel 54 Wis. 2d 321 (1972) 195 N.W.2d 664 https://law.justia.com/cases/wisconsin/supreme-court/1972/271-6.html

Wisconsin Brick did no act which was not attributable to its position as a junior mortgagee in the foreclosure actions and specifically it did not sign the stipulation with the other mortgagees agreeing to a sale free and clear of its lien and waiving its right of redemption. True, Wisconsin Brick appeared in court and in a purported consolidation of cases which it agreed to and watched the sale ostensibly free of its lien take place. While this gives no jurisdiction to the court to cut off his mortgage lien contrary to the terms of his mortgage, it is important from the standpoint of laches. The defendants Vogels are in good faith without actual knowledge and are not required to bring a quiet title action; their inaction does not bar the invocation of the doctrine of laches. The delay of Wisconsin Brick in this case amounts to an acquiescence by silence that its mortgage was properly extinguished by the sale free from liens in the ch. 128, Stats., proceeding.

Delaney's, Inc. v. Pritchard, 480 So. 2d 1204 (Ala. 1985)

https://casetext.com/case/delaneys-inc-v-pritchard

Applying the reasoning set forth in Williamson to the facts of the case at hand, we think that the evidence is sufficient to uphold the trial court's application of laches and, therefore, the court did not abuse its discretion. The evidence before the trial court revealed that over 16 years had passed since the execution of the mortgage without a single demand for payment of the debt or the institution of any legal action to enforce the note or foreclose the mortgage. There was no evidence, either way, that directly showed that any portion of the debt had been, or had not been, paid. The loan transaction was between two family members, both of whom are now deceased. There is no person living who has personal knowledge of the transaction when consummated. In addition, there was testimony that Mr. Pritchard performed accounting services for Mr. Delaney and the defendant for many years. The plaintiff has indicated that she has no recollection of executing the note or mortgage, does not have knowledge about the transaction, and has no remembrance about what became of any proceeds from the loan. Any records kept by Mr. Pritchard that would reflect the status of the debt subsequent to its inception were destroyed by either a hurricane or fire. The court could properly find, as it did, that these circumstances present a situation in which any judgment in favor of the defendant would be uncertain and make it difficult to do justice.

Remedy

Dismissal with prejudice.

The party asserting laches has the burden of proving it. Id. To invoke the equitable doctrine of laches, the moving party ordinarily must show (1) an unreasonable delay by the opposing party in asserting its legal or equitable rights and (2) the moving party's good faith and detrimental change in position because of the delay. In re Laibe Corp., 307 S.W.3d 314, 318 (Tex. 2010) (per curiam) (orig. proceeding); Caldwell v. Barnes, 975 S.W.2d 535, 538 (Tex. 1998). "Generally in the absence of some element of estoppel or such extraordinary circumstances as would render inequitable the enforcement of petitioners' right after a delay, laches will not bar a suit short of the period set forth in the limitation statute. Ditech Servicing, LLC v. Perez, NUMBER 13-17-00123-CV, 10 (Tex. App. Aug. 31, 2018) https://casetext.com/case/ditech-servicing-llc-v-perez

Defenses, such as laches, that “could have been raised during the foreclosure proceedings may not be raised in the deficiency hearing. Applying these principles, we conclude that the special defense of laches claimed by the defendants was not relevant to the deficiency judgment hearing. TD Bank, N.A. v. Doran, 162 Conn. App. 460, 466 (Conn. App. Ct. 2016) https://casetext.com/case/td-bank-na-v-doran-1?resultsNav=false

Insufficient Process

Insufficient Process

What is this foreclosure defense as a general concept?

The foreclosure statute provides that “[s]ervice of process on all parties in interest and all proceedings must be in accordance with the Maine Rules of Civil Procedure.” 14 M.R.S.A. § 6321 (Supp. 2001); see also LaFosse v. Champagne, 2000 ME 81, 750 A.2d 1254. The Rules permit service upon a competent adult by leaving a copy of it “at the individual’s dwelling house or usual place of abode with some person of suitable age and discretion then residing therein .... ” M.R. Civ. P. 4(d)(1). Peoples Heritage Savings Bank v. Pease, 797 A.2d 1270, 2002 ME 82 (2002) https://cite.case.law/a2d/797/1270/

 

What is the specific rule for it from the caselaw for this foreclosure defense?

Rule 12(b)(4) concerns the sufficiency of the form of the process, rather than the manner or method by which it is served. Rule 12(b)(5), on the other hand, challenges the mode of delivery or the lack of delivery of the summons and complaint. GARVEY v. SETERUS, INC. Case No. 5:16-cv-00209-RLV.https://www.leagle.com/decision/infdco20170626a16

 

Rule 12(b)(5) permits a party to move to dismiss the complaint for insufficient service of process. Fed. R. Civ. P. 12(b)(5). To resolve a motion to dismiss for insufficiency of process, the court "must look to matters outside the complaint to determine what steps, if any, the plaintiff took to effect service. In doing so, the court considers whether the plaintiff has complied with Rule 4, which governs the content, issuance, and service of a summons. DeLuca v. AccessIT Grp., Inc., 695 F. Supp. 2d 54, 64 (S.D.N.Y. 2010). Moreover, "[o]n a Rule 12(b)(5) motion to dismiss, the plaintiff bears the burden of establishing that service was sufficient. Bell v. Deutsche Bank, 18-CV-01593 (JMA) (GRB), 5 (E.D.N.Y. Sep. 30, 2019) https://casetext.com/case/bell-v-deutsche-bank-1

 

How would someone spot this foreclosure defense in their own situation?

Improper service of process, is subsumed within the second defense listed, lack of personal jurisdiction. Although Rule 12 clearly envisions in subsections (b) and (g) the joining of one or more of these defenses in a single motion or pleading, it does not imply that any one of the listed defenses may be raised or preserved by raising one of the other listed defenses. Federal Home Loan Mortg. v. Dutch Lane Associates, 775 F. Supp. 133 (S.D.N.Y. 1991)https://law.justia.com/cases/federal/district-courts/FSupp/775/133/1555332/

 

How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

VFC Partners argues that the mailed summons was ineffective because it was addressed to the wrong entity and did not contain the acknowledgement of receipt required by New York law. (ECF No. 57-1 at 13-17; ECF No. 62 at 6-7.) However, even if VFC Partners is correct that service by mail was ineffective, they have presented no challenge to the plaintiff's personal service of VFC Partners. The plaintiff submitted two affidavits of service attesting to personal service on VFC Partners at 45 Rockefeller Center; a "Senior Associate" at Trimont told the plaintiff that VFC Partners and Trimont had "merged," and that 45 Rockefeller Center was the firm's address. (ECF No. 40; ECF No. 65; ECF No. 59 ¶¶ 2-4.) As VFC Partners has raised no challenge to personal service, I have no basis to find that such service was defective. See Link Grp. Int'l, L.L.P. v. Toymax (H.K.) Ltd., 127 F.Supp.2d 280, 285 (D. Conn. 2000) ("New York courts have embraced a more flexible approach to personal service upon corporations," allowing service upon a corporate employee who then "redelivers" the summons to a person authorized to accept service); Melkaz Int'l Inc. v. Flavor Innovation Inc., 167 F.R.D. 634, 642 (E.D.N.Y. 1996) (courts have "interpreted the concept of redelivery to support the validity of service upon a corporation's receptionist or secretary") (collecting cases). Accordingly, VFC Partner's motion to dismiss pursuant to Rules 12(b)(4) and 12(b)(5) is denied. OZUZU v. GREENPOINT MORTGAGE FUNDING, CAPITAL ONE (USA), NA https://www.leagle.com/decision/infdco20200924b69

Because Plaintiff's initial summonses did not bear the Court's seal or the Clerk's signature, they were defective under Rule 4(a). And while Plaintiff subsequently cured these defects and served Defendants a second time, this service did not occur until 9 days after the 90-day time limit for service expired (i.e., 99 days after the complaint was filed) (see ECF Nos. 1, 19-22). See Fed. R. Civ. P. 4(m). "[I]f the plaintiff shows good cause" for failing to timely effect service, "the court must extend the time for service for an appropriate period." Fed. R. Civ. P. 4(m). And even if the plaintiff is unable to demonstrate good cause, "the district court must still consider whether a permissive extension of time may be warranted. At that point the district court may in its discretion either dismiss the case without prejudice or extend the time for service." Espinoza v. United States, 52 F.3d 838, 841 (10th Cir. 1995). While Plaintiff does not argue that his failure to timely effect service on Defendants is excusable by good cause, the Court nevertheless concludes that dismissal under Rules 12(b)(4) or (5) would be inappropriate.  GALLAN v. BLOOM BUSINESS JETS, LLC Civil Action No. 19-cv-3050-WJM-SKC https://www.leagle.com/decision/infdco20200821c40

 

What is the Remedy for Using this Foreclosure Defense?

Dismissal without prejudice.  A lawsuit cannot proceed without proper service of process.  A defense of insufficient service of process must be raised in a responsive pleading or by motion or it is not preserved. M.R. Crv. P. 12(b) & (h). Peoples Heritage Savings Bank v. Pease, 797 A.2d 1270, 2002 ME 82 (2002) https://cite.case.law/a2d/797/1270/

PSA Violations

Violation of the Pooling and Servicing Agreement

What is this foreclosure defense as a general concept?

The PSA is the contract that governs the relationship between the various parties in the securitization process and controls what can and can't be done with the trust. The PSA will state (among other things): the exact steps needed to create a trust how bundled mortgage loans are transferred into the trust how securities are issued, and the duties, rights, and obligations of each party. For example, the PSA might describe the servicer’s compensation. Often, the servicer is entitled to retain the late charges, nonsufficient funds (NSF) fees, reconveyance fees, assumption fees, or other fees that it collects. The PSA will likely also carefully describe the loan servicer’s responsibilities pertaining to collecting payments, handling loss mitigation (including the authority to modify loans), and foreclosure. https://www.nolo.com/legal-encyclopedia/what-pooling-servicing-agreement-psa-the-mortgage-industry.html


What is the specific rule for it from the caselaw for this foreclosure defense?

With respect to the interplay between assignments and pooling and servicing agreements, homeowners lack standing to enforce the terms of a pooling and servicing agreement to challenge an underlying assignment because noncompliance with a pooling and servicing agreement does not render an assignment void. Instead, an assignment in contravention of a pooling and servicing agreement is merely voidable. Stanworth v. Bank of Am., N.A. (In re Stanworth), 543 B.R. 760, 776 (Bankr. E.D. Va. 2016) https://casetext.com/case/stanworth-v-bank-of-am-na-in-re-stanworth#p773


How would someone spot this foreclosure defense in their own situation?

Violations of the pooling and servicing agreement would affect only the holders of the promissory note on the one hand and the third-party acquirers of the note on the other. Sepehry-Fard v. Bank of N.Y. Mellon, H039493, 9 (Cal. Ct. App. Feb. 16, 2016) https://casetext.com/case/sepehry-fard-v-bank-of-ny-mellon-4


How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

In 2008, appellee bank filed a foreclosure action and included a count seeking to reestablish a lost note. No copy of the original note was attached to the complaint. The case went to trial in 2014. The endorsements on an allonge to the note were undated and the bank's witness could not testify when the endorsements were placed on the allonge. The bank's reliance on a pooling and servicing agreement was insufficient to establish the bank's standing to bring suit at the time the suit was filed. Lewis v. U.S. Bank Nat'Lass'N, 188 So. 3d 46 (Fla. Dist. Ct. App. 2016)  https://casetext.com/case/lewis-v-us-bank-natlassn

Jarvis v. Deutsche Bank Nat'l Trust Co., 169 So. 3d 194, 195 (Fla. Dist. Ct. App. 2015) https://casetext.com/case/jarvis-v-deutsche-bank-natl-trust-co#p196

At trial, Deutsche Bank relied on a Pooling and Servicing Agreement (“PSA”) to argue that it had standing at the time it filed its complaint. Specifically, one of Deutsche Bank's witnesses testified that it had standing because “[t]he loan was entered into the trust shortly after origination, and we also have business records that show that they were in possession of the note.” Put more simply, the witness stated Deutsche Bank was entitled to enforce the note “through possession.” Homeowner moved for an involuntary dismissal of the action, arguing that Deutsche Bank failed to prove it had standing at the time it filed its complaint. Here, Deutsche Bank failed to establish standing using any of these available methods. The original note contained no blank or special indorsements, and Deutsche Bank did not introduce into evidence an assignment. Further, evidence that the note was physically transferred into a trust prior to Deutsche Bank filing its foreclosure complaint does not, by itself, establish standing.

 

Remedy

Dismissal without prejudice.

Standing must be established as of the time of filing the foreclosure complaint. A plaintiff who is not the original lender may establish standing to foreclose a mortgage loan by submitting a note with a blank or special endorsement, an assignment of the note, or an affidavit otherwise proving the plaintiff's status as the holder of the note. Jarvis v. Deutsche Bank Nat'l Trust Co., 169 So. 3d 194, 195 (Fla. Dist. Ct. App. 2015) https://casetext.com/case/jarvis-v-deutsche-bank-natl-trust-co#p196

Negotiation Failure

Loan Modification Destroys Negotiability

What is this foreclosure defense as a general concept?

Under the proper circumstances, a mortgage loan modification may stand alone and qualify as a negotiable instrument.” Bank of N.Y. Mellon v. Rogers, 407 Ill. Dec. 365, 378 (Ill. App. Ct. 2016) https://casetext.com/case/bank-of-ny-mellon-v-rogers

 

What is the specific rule for it from the caselaw for this foreclosure defense?

The requirements for a negotiable instrument are that it must:

(1) be signed by the maker or drawer; and (2) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized . . .; and (3) be payable on demand or at a definite time; and (4) be payable to order or to bearer. Burns v. Resolution Trust, 880 S.W.2d 149, 153 (Tex. App. 1994) https://casetext.com/case/burns-v-resolution-trust#p153

 

Note not Negotiable

Note is a NOT a Negotiable Instrument Rules

Note Not Negotiable: Takes Only the Rights Seller Has

Contains one of the prohibited items from 1303.05 (see above) Natl. City Bank, Northwest v. Columbian Mut. Life Ins. Co., 282 F.3d 407, 409 (6th Cir.2002) citing Restatement (Second) of Contracts § 336, cmt.b (1981). Note Not Negotiable: Mutual Assent Needed "An assignment of contract rights is, itself, a contract, and thus, in order to establish an assignment, the elements of a contract must be present." Hamrick v. Safe Auto Ins. Co. 10th Dist. No. o8AP-734, 2009-Ohio-1380 ¶15 citing Zenfa Labs, Inc. v. Big Lots Stores, Inc. 10th Dist. No. 02AP-691, 2003-Ohio-628. "Those essential terms include mutual assent and consideration. In addition, a plaintiff alleging the existence of a contract must show that there was a meeting of the minds, and that the contract was definite as to its essential terms." (Citations Omitted) Hamrick at ¶15. Hamrick v. Safe Auto Ins. Co. 10th Dist. No. o8AP-734, 2009-Ohio-1380 ¶15 Note Not Negotiable: Consideration Needed See above Hamrick v. Safe Auto Ins. Co. 10th Dist. No. o8AP-734, 2009-Ohio-1380 ¶15

Plaintiff Does Not Have Rights to Enforce the Note

Plaintiff Must Be a Person Entitled to Enforce the Note: Holder Who Has Possession (21) "Holder" means: (a) The person in possession of a negotiable instrument; that is payable either to bearer or to an identified person that is the person in possession…

Courts have said holding through an agent acceptable (although it shouldn’t be), but if that is the case, you should obtain a copy of the agreement establishing the agency relationship. 1303.31(A)(1); 1301.201(B)(21);

https://law.justia.com/cases/ohio/tenth-district-court-of-appeals/2016/14ap-817.html Non-holder Who Has Possession (B) Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument...(C) Unless otherwise agreed, if an instrument is transferred for value the transferee has a specifically enforceable right to the unqualified indorsement of the transferor…(D) If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur, the transferee of that instrument obtains no rights under this chapter, and the transferee of that instrument has only the rights of a partial assignee. Can be entitled to enforce even if not owner or in wrongful possession. 1303.31(A)(2); 1303.22(B)-(D); 1303.31(B)

Lost Note Must: 1) be person entitled to enforce when lost possession; acquired ownership from person entitled to enforce; 2) loss not a result of prior transfer or lawful seizure; 3) cannot obtain possession bc destroyed, lost, or wrongful possession of another. Requires adequate protection be provided to homeowner. 1303.31(A)(3); 1303.38

Plaintiff is Not Entitled to Enforce the Note/Loan

Plaintiff Must Be a Person Entitled to Enforce the Note (this is a defense option in the PM checkboxes):

Holder Who Has Possession (21) "Holder" means: (a) The person in possession of a negotiable instrument; that is payable either to bearer or to an identified person that is the person in possession…

Courts have said holding through an agent acceptable (although it shouldn’t be), but if that is the case, you should obtain a copy of the agreement establishing the agency relationship. 1303.31(A)(1); 1301.201(B)(21);

https://law.justia.com/cases/ohio/tenth-district-court-of-appeals/2016/14ap-817.html

Non-holder Who Has Possession (B) Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument...(C) Unless otherwise agreed, if an instrument is transferred for value the transferee has a specifically enforceable right to the unqualified indorsement of the transferor…(D) If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur, the transferee of that instrument obtains no rights under this chapter, and the transferee of that instrument has only the rights of a partial assignee. Can be entitled to enforce even if not owner or in wrongful possession. 1303.31(A)(2); 1303.22(B)-(D); 1303.31(B)

Lost Note Must: 1) be person entitled to enforce when lost possession; acquired ownership from person entitled to enforce; 2) loss not a result of prior transfer or lawful seizure; 3) cannot obtain possession bc destroyed, lost, or wrongful possession of another. Requires adequate protection be provided to homeowner. 1303.31(A)(3); 1303.38

 

 

How would someone spot this foreclosure defense in their own situation?

Under the proper circumstances, a mortgage loan modification may stand alone and qualify as a negotiable instrument. However, although the Borrowers note that the Burns court (the same court as in Guniganti ) relied upon a very similar definition of a “negotiable instrument” as that in section 3–104 of the UCC, and that the Burns court held that the modification agreements in that case satisfied the requirements of a negotiable instrument, the Borrowers do not state the terms of those modification agreements so that we can compare them to the terms of the instant Modification Agreement. Bank of N.Y. Mellon v. Rogers, 407 Ill. Dec. 365, 378 (Ill. App. Ct. 2016) https://casetext.com/case/bank-of-ny-mellon-v-rogers


How has this foreclosure defense been applied to foreclosures in cases where the consumer successfully used it?

Bankers Trust (E.D.Va. Delaware) v. 236 Beltway Inv., 865 F. Supp. 1186 (E.D. Va. 1994) https://casetext.com/case/bankers-trust-edva-delaware-v-236-beltway-inv

In several documents prepared after the 1979 refinancing, PSFS, and later Meritor, continued to describe the general partners as being without personal liability. These include several modification agreements entered between the partnership and Meritor in August 1991 and March 1992, which stated that nothing therein should "be construed as establishing any personal liability" on the general partners. Meritor also maintained "Mortgage Premises Index Cards" consistently describing the mortgagor as the "236 Beltway Investment Limited Partnership, a Virginia Limited Partnership with Joseph M. Della Ratta and John C. Webb as general partners without personal liability." The Registration Statement filed by Meritor on December 10, 1987 states repeatedly that all of the loans in the pool are non-recourse. The partners provided an affidavit of F. Douglas Raymond, the attorney who represented Meritor in connection with the pool transaction, stating that the parties intended to place only non-recourse mortgages in the pool, that all of the loans were evaluated on the assumption that they were non-recourse, and that inclusion of any recourse debt in the pool was inadvertent and was ignored because it was not adverse to the interests of the investors who purchased the certificates. From this brief recitation, it appears that record evidence favoring the partners is sufficient to create a triable issue of fact concerning reformation of the Note. Because the partnership's Note is not a negotiable instrument under Virginia law, and because there is a genuine issue of material fact as to whether reformation is warranted, Bankers Trust's motion for summary judgment must be denied.

Ameritrust Co., N.A. v. White, 73 F.3d 1553 (11th Cir. 1996)

https://casetext.com/case/ameritrust-co-na-v-white?resultsNav=false

The district court determined that the note was not a negotiable instrument and, therefore, that Ameritrust was not a holder in due course. The court predicated its decision on the forfeiture clause contained in the note, which provides:

The undersigned agrees that, in the event any payment due pursuant to the terms of this Note be not timely made, the undersigned shall retroactively lose any interest in the Partnership from the date hereof and the Partnership shall have no obligation to account for any payments theretofore made by the undersigned, and that this remedy is in addition to other remedies afforded by the Partnership Agreement.

We agree with the reasoning of the district court in Signet Bank and the district court in this case. To be negotiable, a note must be a courier without luggage; it must move unencumbered. However unlikely the scenario described in the quotation above, this potential created by the forfeiture clause destroys the note's negotiability.

 

Remedy

It was a proper holder in due course when it possessed the original note that was indorsed in blank. Also, it was immaterial that the Modification Agreement was not indorsed in blank and that it was specially indorsed to Washington Mutual, because by its terms the agreement was not a negotiable instrument. Bank of N.Y. Mellon v. Rogers, 407 Ill. Dec. 365, 378 (Ill. App. Ct. 2016) https://casetext.com/case/bank-of-ny-mellon-v-rogers

Ohio Foreclosure Elements

Ohio Foreclosure Elements

A foreclosure action has two counts. The first is a breach of the terms of the note. The second is a breach of the terms of the mortgage, which allows for the sale of real estate to pay off the note.

At its core, these two claims are based in contract law. Thus, a plaintiff needs to prove a breach of contract in order to prevail. These elements in Ohio are:

(1) A binding contract or agreement was formed;

(2) The nonbreaching party performed its contractual obligations

(3) The other party failed to fulfill its contractual obligations without legal excuse; and

(4) The nonbreaching party suffered damages as a result of the breach.

Carbone v. Nueva Constr. Grp., L.L.C., 2017-Ohio-382, ¶ 14, 83 N.E.3d 375, 380 citing Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 115 Ohio App.3d 137, 144, 684 N.E.2d 1261 (9th Dist.1996), citing Garofalo v. Chicago Title Ins. Co., 104 Ohio App.3d 95, 108, 661 N.E.2d 218 (8th Dist.1995).

Foreclosure actions get slightly more complicated because many times (but not always!), the note is considered a negotiable instrument that falls under UCC Article 3. Because of this, courts also require the plaintiff show it has rights to enforce the note in order to prevail under the first count of the foreclosure lawsuit.

In an excellent decision by the 10th District (US Bank v George, http://www.supremecourt.ohio.gov/rod/docs/pdf/10/2015/2015-Ohio-4957.pdf), the court stated the elements to a foreclosure regarding a negotiable instrument as the note this way:

A plaintiff moving for summary judgment in a foreclosure action must submit evidentiary-quality materials establishing: (1) that the plaintiff is the holder of the note and mortgage, or is a party entitled to enforce the instrument; (2) if the plaintiff is not the original mortgagee, the chain of assignments and transfers; (3) that the mortgagor is in default; (4) that all conditions precedent have been met; and (5) the amount of principal and interest due..

Ohio Debt Collector Elements

Debt Collector Elements

Elements to prove an account stated Dept. Stores Natl. Bank v. McGee, 2013–Ohio–894, ¶ 16 (7th Dist.), cited by Citibank v. Hyslop, 2014-Ohio-844, ¶ 10 (10th Dist.); Mercer Health v. Welling, 2014-Ohio-5626, ¶ 18 (3rd Dist.); First Merit Bank v. Wilson, 2007-Ohio-3239 (9th Dist.) are:

1. [T]he existence of an account, this includes: 1) the cardholder agreement terms and conditions that apply to the account, 2) any subsequent revisions to those terms that it seeks to enforce, and 3) it mailed those documents to bind debtor to them. Citibank (S. Dakota), N.A. v. Perz, 2010-Ohio-5890, ¶ 33-34 (6th Dist.).

2. including that the account is in the name of the party charged, Debt collector must also prove any assignments to it. “Appellee could not prevail on the claims assigned by the bank without proving the existence of a valid assignment agreement.” Hudson & Keyse, LLC v. Carson, 2008-Ohio-2570, ¶11 (10th Dist.); Midland Funding LLC v. Coleman, 2019-Ohio-432, ¶ 17. An assignment of a contract requires showing mutual assent and consideration. “An assignment of contract rights is, itself, a contract, and thus, in order to establish an assignment, the elements of a contract must be present.” Hamrick v. Safe Auto Ins. Co., 2009-Ohio-1380, ¶ 15 (10th Dist.). “Those essential terms include mutual assent and consideration.” Id.

3. a beginning balance of zero, or a sum that can qualify as an account stated, or some other provable sum; All allegations made must be true. Taylor v. First Resolution Invest. Corp., 2016-Ohio-3444, ¶ 76, 148 Ohio St. 3d 627, 650, 72 N.E.3d 573, 595 (Ohio S.Ct.)

4. listed items, or an item, dated and identifiable by number or otherwise, representing charges, or debits, and credits; and The law prohibits creditor from representing a copy of billing statements as copies of the original. Hartman v. Great Seneca Fin. Corp., 569 F.3d 606, 613 (6th Cir. 2009). (Asserting a credit-card bill was a copy of the original when it was not.)

5. summarization by means of a running or developing balance, or an arrangement of beginning balance and items that permits the calculation of the amount claimed to be due.

Unclean Hands

Unclean Hands

The unclean hands doctrine is a defense against claims in equity. It requires a showing that the party seeking relief engaged in reprehensible conduct with respect to the subject matter of the action. The doctrine of unclean hands considers whether the party seeking relief has engaged in inequitable conduct that has harmed the party against whom he seeks relief. The doctrine of unclean hands “precludes one who has defrauded his adversary in the subject matter of the action from equitable relief.” In re Dow, 132 B.R. 853, 860 (Bankr.S.D.Ohio 1991) (the doctrine of unclean hands does not apply where there is no allegation that the plaintiffs defrauded the defendant). https://cases.justia.com/ohio/eighth-district-court-of-appeals/2015-102167.pdf?ts=1441293172

 

Assignment Errors

Mortgage Assignment Errors Invalidate Transfer to Plaintiff

Ohio Revised Code § 5301.01, requires four separate acts to properly execute a mortgage: (1) the mortgage shall be signed by the mortgagor; (2) the mortgagor shall acknowledge his signing in front of a notary public, or other qualified official; (3) the official shall certify the acknowledgment; and (4) the official shall subscribe his name to the certificate of acknowledgment. Ohio Rev.Code § 5301.01(A) (2004); see Drown v. GreenPoint Mortgage Funding, Inc. (In re Leahy), 376 B.R. 826, 832 (Bankr.S.D.Ohio 2007) (listing four requirements provided by Ohio Rev.Code. § 5301.01).3 At issue in this case is the third required step and whether the certificate of acknowledgment attached to the MERS mortgage is sufficient under Ohio law. In re Cala, No. 06-13361, 2008 WL 2001761, at *3 (Bankr. N.D. Ohio May 6, 2008) Transfers are obligated to follow the formalities of real estate documents: Ohio RC: 5301.01(A) “A deed, mortgage, land contract …shall be signed by the … mortgagor…[and]…[t]he signing shall be acknowledged…before…a… notary…who shall certify the acknowledgement…” Ohio RC 5301.32 “A mortgage may be assigned…[and then] acknowledged as provided by section 5301.01 of the Revised Code.”

Further, In re Peed, 403 B.R. 525, 531 (Bankr. S.D. Ohio 2009): In addition to the requirements of § 5301.01, the Court also must review Ohio Revised Code §§ 147.53, 147.54 and 147.55, which “clearly require some identification of the person whose signature is being acknowledged.” Geygan v. World Savs. Bank (In re Nolan), 383 B.R. 391, 396 (6th Cir. BAP 2009) (internal quotation marks omitted). Section 147.53 states as follows: The person taking an acknowledgment shall certify that: (A) The person acknowledging appeared before him and acknowledged he executed the instrument; (B) The person acknowledging was known to the person taking the acknowledgment, or that the person taking the acknowledgment had satisfactory evidence that the person acknowledging was the person described in and who executed the instrument. Ohio Rev.Code Ann. § 147.53 (West 2009). See Terlecky v. Countrywide Home Loans, Inc. (In re Baruch), Adv. Pro. No. 08–2069 (Bankr.S.D.Ohio Fed.23, 2009) (Doc. 46) at 13–14 (“[T]he Acknowledgment Clause must identify the ‘person acknowledging’ the acknowledgment.... An acknowledgment clause containing nothing relative to the mortgagor's identity is insufficient; rather, an acknowledgment clause must either identify the mortgagor by name or contain information that permits the mortgagor to be identified by reference to the mortgage.... [The Acknowledgment Clause here] does not indicate that anyone acknowledged the execution of the Mortgage.” (footnote omitted)). The Ohio Revised Code provides an acceptable form certificate of acknowledgment. This form clearly contemplates that the notarial certification is to include the name of the person acknowledging the document. The forms of acknowledgment set forth in this section may be used and are sufficient for their respective purposes under any section of the [Ohio] Revised Code.... The authorization of the forms in this section does not preclude the use of other forms.

(A) “For an individual acting in his own right: State of _____________________ County of ____________________ The foregoing instrument was acknowledged before me this (date) by (name of person acknowledged.) (Signature of person taking acknowledgment) (Title or rank) (Serial number, if any)”.... Ohio Rev.Code Ann. § 147.55(A) (emphasis added). Thus, when an acknowledgment does not recite the name of the mortgagor, “the acknowledgment is defective....” Nolan, 383 B.R. at 396. See also Smith's Lessee v. Hunt, 13 Ohio 260, 269 (1844) (holding that court was unable to infer name of grantor when acknowledgment was blank as to the grantor and, thus, the mortgage was defective and did not convey title); Cala, 2008 WL 2001761 at *6 (“In order to properly certify an acknowledgment, the notary must provide some indication that the party actually appeared.”).

 

Notarization Errors

Mortgage Notarization Error

Transfers are obligated to follow the formalities of real estate documents: Ohio RC: 5301.01(A) “A deed, mortgage, land contract …shall be signed by the … mortgagor…[and]…[t]he signing shall be acknowledged…before…a… notary…who shall certify the acknowledgement…” Ohio RC 5301.32 “A mortgage may be assigned…[and then] acknowledged as provided by section 5301.01 of the Revised Code.”

Courts have found defects in the notarization reason to strike the security instrument. NOTE! If this applies to your case, you need to talk to an attorney about possibly looking at a bankruptcy to wipe out the mortgage and get our client over $130,000 equity free and clear.

In re Peed, 403 B.R. 525 (Bankr. S.D. Ohio 2009) Holdings: The Bankruptcy Court, John E. Hoffman, Jr., J., held that: 1 under Ohio law, acknowledgement clauses' failure to identify the name of the person acknowledging the signing of the mortgages rendered the mortgages defective, even though the notary public and the witness were the same person; 2 the mortgages did not substantially comply with the Ohio statute governing the acknowledgement of deeds and mortgages and were invalid; and 3 these defective mortgages did not take priority over a hypothetical bona fide purchaser such as the trustee.

In re Cala, No. 06-13361, 2008 WL 2001761, at *4 (Bankr. N.D. Ohio May 6, 2008): The court stated “[a] mortgage in which the magistrate's certificate does not show by whom the instrument was acknowledged, vests no legal interest in the mortgage.” Smith's Lessee, 13 Ohio at 260. While the deficiency in Smith's Lessee was apparent on the face of the certificate, the court has also held that latent defects can also render a mortgage ineffective as against subsequent interests. See Denison, 165 Ohio St. at 89, 133 N.E.2d 329. In Denison, the notary public who signed the certificate of acknowledgment to the mortgage at issue did not actually witness one of the joint mortgagors sign the mortgage or acknowledge her signature. Denison, 165 Ohio St. at 93, 133 N.E.2d 329. The court held that a “mortgage by two persons is not properly executed in accordance with the provisions of Section 5301.01 ... where ... the signing by one mortgagor is not in fact acknowledged before a notary public.” Denison, 165 Ohio St. at 89, 133 N.E.2d 329. Therefore, although the defect in execution was not apparent on the face of the instrument, the court nonetheless held that the defect rendered the mortgage “ineffective as against subsequent creditors.” Denison, 165 Ohio St. at 95, 133 N.E.2d 329

Prior Breach

Prior Material Breach

The burden is on the party seeking to enforce a contract to prove, by a preponderance of the evidence, all of the elements for a claim of breach of contract. Cooper & Pachell v. Haslage (2001), 142 Ohio App. 3d 704, 707. These elements are the existence of a contract, performance by the plaintiff, breach by the defendant, and damage or loss to the plaintiff. Doner v. Snapp (1994), 98 Ohio App.3d 597, 600. Even if a valid contract is proven to exist, the defendant may raise an affirmative defense; the burden of proving that affirmative defense is on the defendant. MatchMaker Internat'l., 100 Ohio App.3d at 408. However, when the plaintiff is suing upon a contract and alleges performance that is denied by the defendant, "it is incumbent upon the plaintiff to prove performance, at least substantially." Enterprise Roofing & Sheet Metal Co. v. Howard Investment Corp. (1957), 105 Ohio App. 502, 503 (Citations omitted.). See, also, Steinlage v. Gabria (June 28, 1988), 2d Dist. No. 10747; Casto Property Management, Inc. v. Venetta, (Feb. 14, 1985), 10th Dist. No. 83-AP-799, citing Thomas v. Matthews (1916), 94 Ohio St. 32 http://www.supremecourt.ohio.gov/rod/docs/pdf/6/2006/2006-Ohio-3798.pdf

As to materiality: In determining whether a breach of contract is material, five factors are provided: “(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; “(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; “(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; {“(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; “(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.” https://law.justia.com/cases/ohio/court-of-claims/2005/2004-10230-0.html

Failure to State Claim

Plaintiff Fails to State a Claim under Civ. Rule 12(B)(6)

Failure to state a claim upon which relief can be granted under Ohio Civ R 12(B)(6) A motion to dismiss for failure to state a claim upon which relief can be granted is procedural and tests the sufficiency of the complaint. In order for a trial court to grant a motion to dismiss for failure to state a claim upon which relief may be granted, “it must appear beyond doubt from the complaint that the plaintiff can prove no set of facts entitling him to recovery.” In resolving a Civ.R. 12(B)(6) motion to dismiss, the trial court may consider only the statements and facts contained in the pleadings, and may not consider or rely on evidence outside the complaint. https://law.justia.com/cases/ohio/third-district-court-of-appeals/2015/1-14-42.html

Spousal Dower

Spouse Waived Dower Only

There is a difference between a spouse signing a mortgage to waive dowery versus signing a mortgage to encumber her property interest if on the deed. If a spouse is ½ owner of the real property as a result of being on the deed, then she must sign the mortgage encumbering her entire interest in order for the bank to take the full amount. If she signs only to “waiver dower” then she is releasing only a small amount of her interest in the real estate and is entitle to half of all the foreclosure proceeds, minus her dower interest. This is a decent defense to foreclosure, but subjects the mortgage to reformation. It also creates a spousal conflict.

The 10th District described dowery interests as follows: Pursuant to R.C. 2103.02, “[a] spouse who has not relinquished or been barred from it shall be endowed of an estate for life in one third of the real property of which the consort was seized as an estate of inheritance at any time during the marriage.” Such a dower interest is inchoate and contingent and vests in the surviving spouse only upon the owner-spouse's death. Goodman v. Gerstle (1952), 158 Ohio St. 353, 358, 49 O.O. 235, 109 N.E.2d 489. Despite the contingent, inchoate nature of a dower interest prior to the owner-spouse's death, a judicial sale of the property during the owner-spouse's lifetime does not vitiate the other spouse's dower interest. Rather, in an action involving a judicial sale, a court must determine the present value of the dower interest and award that amount to the spouse from the proceeds of the sale. R.C. 2103.041. 45 {¶ 12} The value of a dower interest is dependent upon the extent of the owner-spouse's interest in the property. In other words, “the dowable interest of the wife or widow must be measured by the beneficial interest of the husband in the real property of which he was seised in his own right * * *.” In re Hays (C.A.6, 1910), 181 F. 674, 679. See, also, Canan v. Heffey (1927), 27 Ohio App. 430, 437, 161 N.E. 235 (“the value of her dower is * * * coextensive with the husband's seisin”).

Cognovit Defenses

Cognovit Defenses

You should review your state's requirements regarding Cognovits to see which apply. Here is a list we have put together for Ohio.  Few states allows these types of judgments.

This is a shortened version:

Classic Bar & Billiards, Inc. v. Fouad Samaan, (10th Dist.) 2008-Ohio-5759, ¶8: “A cognovit note contains provisions designed to cut off defenses available to a debtor in the event of default. * * * The holder of a cognovit note in default obtains a judgment without a trial of possible defenses which the signers of the note might otherwise assert. * * * This is so because, under a cognovit note, the debtor consents in advance to the holder obtaining a judgment without notice or hearing. * * * An attorney, whom the note holder may designate, appears on behalf of the debtor and, pursuant to provisions of the cognovit note, confesses judgment and waives the debtor's right to notice of the proceedings. * * *”

Statutory Authority is found in ORC §§ 2323.12-13

The bulk of issues pertaining to cognovit judgments are contained in ORC 2323.13

ORC 2323.12 provides the authority to issue a judgment by confession (which is akin to a cognovit judgment entry since the judgment is issued after confession by the Defendant) “A person indebted, or against whom a cause of action exists, may personally appear in a court of competent jurisdiction, and, with the assent of the creditor, or person having such cause of action, confess judgment; whereupon judgment shall be entered accordingly. The debt or cause of action shall be briefly stated in the judgment, or in a writing to be filed as pleadings in other actions. Such judgment shall authorize the same proceedings for its enforcement as judgments rendered in actions regularly brought and prosecuted. The confession shall operate as a release of errors.”

 Must contain the following:

 Statement authorizing attorney to confess judgment against obligor

 Statement consenting to creditor bringing action to obtain judgment against obligor based on warrant and attorney’s confession of judgment

 Waiver of prior notice of judgment, right to trial and right to appeal

 Must contain warning from 2323.13(D) to be enforceable:

 "Warning -- By signing this paper you give up your right to notice and court trial. If you do not pay on time a court judgment may be taken against you without your prior knowledge and the powers of a court can be used to collect from you regardless of any claims you may have against the creditor whether for returned goods, faulty goods, failure on his part to comply with the agreement, or any other cause."

 Warning has to appear on promissory note, guaranty, lease (doc that evidences indebtedness) – directly above or below signature of party authorizing cognovit judgment

 Distinct type size, appearing more clearly or conspicuously than anything else in document

• ORC 2323.13(D)

 Warning must be more “clear and conspicuous” than other parts of document

 Has to comply strictly with all requirements of 2323.12(D) – if not, Court does not have jurisdiction to enter cognovit judgment on instrument

 If the amount in controversy is greater than $15K, can file in Court of Common Pleas with territorial jurisdiction over place where ANY obligor under warrant of attorney resides or where ANY obligor signed warrant of attorney (ORC 2323.13(A))

 Obligor cannot waive venue/jurisdiction requirements of 2323.13(A) by signing cognovit instrument with contrary forum selection clause

 Requirements for Complaint (Cognovit Complaint requirements for the most part are not enumerated specifically in the Rules of Civil Procedure/ORC)

 Statement of Plaintiff’s Attorney setting forth Defendant’s Last known address – ORC 2323.13(B)

 Statement that Warrant of Attorney did not arise out of Consumer Transaction/Consumer Loan

 Where Plaintiff is an attorney must include statement that warrant of attorney did not arise out of attorney/client relationship to collect fees

 This is a local rule from Cleveland Municipal Court Local Rule 6.07

 Statement that original instrument containing warrant of attorney accompanies complaint

 Allegation that cognovit instrument is in default and was accelerated by Plaintiff or instrument has matured

 Statement of amount due on instrument and that Defendant has not paid amount to Plaintiff

 Statement that Court has jurisdiction to render cognovit judgment against Defendant based on Defendant’s residency or location where defendant signed the warrant of attorney

 Allegation that instrument contains warrant of attorney and warning set forth in ORC 2323.13(D)

 Other documents/allegations as required by local rule – i.e. demand letter, affidavit from lender containing amount of unpaid principal/interest if these documents are required by local rule

 Common Practice to Submit Original Warrant of Attorney with Complaint

 2323.13(A) – “original or copy of the warrant shall be filed with the clerk”

 Civil Rule 10(D) (1) – Any claim or defense in a pleading is founded on an account or written instrument, the pleader must attach a copy of the account or written instrument to the pleading. If account or written instrument is not attached, the reason for omission must be stated in the pleading.

 In 9th and 10th Districts – Attorney for Plaintiff MUST present original warrant of attorney to judge for examination; examination of copy and judgment based thereon is void!!!!! (important for Columbus and Cincinnati)

 Notice sent to Defendant of Cognovit Judgment

• Upon entering judgment on warrant of attorney, court must notify defendant of entry of judgment by personal service or by letter sent registered/certified US mail to address for defendant in cognovit complaint

 ORC 2323.13(C)

• Cases involving unlimited and continuing personal guaranties:

o Cinemack Corp. 10th Dist. 1979 WL 209409: "an attempted conferring of an unlimited power to confess judgment for an uncertain and unliquidated amount of money is invalid, the warrant of attorney being too indefinite and uncertain to be enforceable." The issue isn't the ultimate enforceability of the guaranty but the enforceability of the warrant of attorney and confession of judgment.

 Follow-up appeal: 1982 WL 4551.

 See also BJ Bldg. Co., v. LBJ Linden Co., L.L.C., Second Dist. No. 21005, 2005 -Ohio- 6825.

• Situations where cognovit judgments have been vacated:

o Cognovit judgment against corporate officer in individual capacity (not against the corporation)

o Transaction underlying cognovit judgment was actually a consumer transaction

o Amount of cognovit judgment exceeded amount due on instrument

o Creditor/agent had told guarantor that guarantor was not personally liable for debt (fraud in inducement)

 

A Decade of Foreclosure Defense

Attorney Troy Doucet “wrote the book” on foreclosure defense and is a lawyer who knows this areas of law. He published 23 Legal Defenses to Foreclosure: How to Beat the Bank in 2008 (watch for our update soon) and he has been helping families facing foreclosure since starting Doucet Gerling Co., LPA. Troy Doucet and Andrew Gerling both graduated at the top of their law school classes and are highly rated foreclosure defense lawyers. Our foreclosure defense lawyers and law firm are dedicated to helping families find the best solution to foreclosure. We are known for our excellent legal work and outstanding results.

Our foreclosure defense lawyers have experience with loan mods, write-offs, write-downs, walk-aways, and more. Damages and fees might also be available. 

NOT Bankruptcy!  Don't delay!  Contact us Now at (888) 200-9824

Results Driven

We have forced mortgage companies to offer loan modifications, wipe out deficiencies, respond to inquiries, refund fees, pay damages, write off balances, pay our fees, and more.

Successful Track Record

We have helped over a thousand families with outstanding results.  Few law firms are able to achieve what we have for our clients.

Lawyer Handled

Our clients work directly with an licensed attorney on their foreclosure case to ensure it is handled appropriately. 

Precedent Setting

Our foreclosure attorneys have set law in the Sixth Circuit and in the region that helps people. We have multiple precedent-setting consumer cases.

Avoid Bankruptcy

Our lawyers aggressively pursue claims and defenses on behalf of our clients.  This helps us get the best deals for our clients.

Leaders in the Field

Our partners have taught over a dozen courses on foreclosure defense and consumer law, including training other lawyers in this area.