“I’m strong to the fin-ich. Cause I eats me spin-ach. I’m Popeye the . . . debt collector man?”

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

PopeyeFor lawyers, debt collection can be a trap for the unwary. The Fair Debt Collection Practices Act ("FDCPA") governs debt collection by both attorneys and non-attorneys. It generally prohibits debt collectors from using deceptive, abusive, or unfair practices to collect debts. While that sounds straightforward, it is often difficult to figure out whether you are even a debt collector governed by the FDCPA, much less whether what you are trying to collect is a debt under the FDCPA and whether what you are doing to collect that debt is deceptive. And the consequences for running afoul of the FDCPA — statutory damages and attorney's fees — can be significant.

A recent decision from the U.S. Court of Appeals for the Third Circuit, Tepper v. Amos Financial, LLC, offered a good primer on one of these tricky issues — whether a party that buys debt and seeks to collect that debt for its own account qualifies as a debt collector under the FDCPA — but the more interesting aspect of the opinion is the court's frequent references to Popeye (the sailor man, not the fast food restaurant).

The opinion began: "Many would gladly pay Tuesday for a hamburger today." This, of course, is a reference to Wimpy's famous tag-line in Popeye. The court then described the basic purpose of the FDCPA and introduced the issue in the case as follows:

The Act does not apply . . . to all entities who collect debts; only those whose principal purpose is the collection of any debts, and those who regularly collect debts owed another are subject to its proscriptions. Those entities whose principal place business is to collect the defaulted debts they purchase seek to avoid the Act's reach. We believe such an entity is what it is – a debt collector. [Emphasis added.] If so, the Act applies.

Understandably, the court was not willing to go so far as have the defendant declare "I yam what I yam, and that's all that i yam," but you get the point. Popeye references continued throughout the opinion, so keep reading. 

Continue reading ““I’m strong to the fin-ich. Cause I eats me spin-ach. I’m Popeye the . . . debt collector man?””

Winning Bidder At Sheriff’s Sale Entitled To Recoup Some, But Not All, Of His Deposit After Sale Is Vacated

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Auction (pd)A recent decision from the Appellate Division drives home (1) the duty of sellers at sheriff's sales to announce all material information about the property being sold at the sale, (2) the duty of bidders at sheriff's sales to perform independent due diligence about the property notwithstanding that announcement, and (3) the flexibility of Chancery Division courts to fashion remedies when both fail to fully satisfy their obligations.

In Wells Fargo Bank Bank, N.A. v. Torney, plaintiff foreclosed on property owned by defendant, obtained final judgment against defendant, and proceeded to sheriff's sale. In advance of the sheriff's sale, plaintiff submitted its "sheriff's sale package" to the Camden County Sheriff. Included in the package was a short form property description (required under N.J.S.A. 2A:61-1), which, among other things, disclosed that the property was subject to a $94,000 first mortgage. The existence of this prior mortgage was also disclosed in the conditions of sale attached to the short form property description, and in the Affidavit of Consideration submitted by plaintiff in connection with the foreclosure. Finally, the short form property description also contained the following disclaimer: "all interested parties are to conduct and rely upon their own independent investigation to ascertain whether or not any outstanding interest remain[s] of record and/or have priority over the lien being foreclosed and, if so[,] the correct amount due thereon."

Edward Shuman, who would eventually be the winning bidder at the sheriff' sale,  learned about the sale through the sheriff's website, which did not mention the prior mortgage. Also, at the sheriff's sale, plaintiff did not announce, as part of its "general announcements," that the property was subject to a prior mortgage. And, on the "printed condition of sale, the box next to 'subject to a first mortgage' was not checked." Shuman claims that he did not know about the prior mortgage when he placed his winning bid on the property, and did not learn about it until later that day when he inquired about the existence of any tax liens on the property. Once he learned about the mortgage, he contacted plaintiff and requested that the sale be vacated and his deposit returned. When plaintiff refused, Shuman filed a motion seeking the same relief. 

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Good News: That Tenant You May Not Have Known You Had Is Not A Cloud On Title

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

AuctionIf you have ever been to a sheriff's sale in New Jersey then you are familiar with the litany of announcements that precede each sale — "This sale is made subject to easements of record," "The property is being sold on an 'as is' basis," etc. Sellers make these announcements because, under New Jersey law, they are required to disclose "any substantial defect in or cloud upon the title of the real estate sold, which would render such title unmarketable." If a seller intentionally or negligently fails to disclose any substantial defects or clouds on title, then a court may vacate the winning bid and return the winning bidder's deposit. For example, if a seller fails to reveal the amount of unpaid taxes on a property before a sheriff's sale, the sale can be vacated if the winning bidder discovers the amount and is unwilling to pay it.

Usually included in these announcements is something making clear that the property is being sold subject to the rights of tenants and occupants, if any. But what happens when, after the sale, the winning bidder visits the property and discovers a tenant, or at least someone claiming to be a tenant, occupying the property? Does that entitle the winning bidder to vacate the sale and get its deposit back?

This is exactly what happened in PHH Mortgage Corporation v. Alleyne. In that case, the winning bidder at a sheriff's sale moved to set aside its successful bid and compel a refund of the amount it tendered to the sheriff at the sale (winning bidders are generally required to put 20% of the bid price down at the sale and pay the balance within 30 days). The winning bidder argued that, after the sheriff's sale, it sent a representative to the property and he discovered an individual who "refused to give his name but asserted rights to possession of the property as a tenant." The winning bidder argued that (1) this tenancy was a cloud on title, therefore it should have been disclosed at the sale, and (2) the seller has an independent duty to inspect for tenants on the property before the sale. The trial court rejected these arguments and the Appellate Division affirmed.

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Failure To Launch! Bride’s Post-Wedding Cold Feet = Equitable Fraud = Annulment

Divorce(2)
In a case involving facts that could have been the plot of a soap opera episode or Lifetime Original Movie, a New Jersey court recently held that a husband could annul his marriage due to his wife's equitable, not actual, fraud.

In Easton v. Mercer (names were changed by the court to protect the innocent), plaintiff began dating defendant and, two years later, proposed to her. Defendant's parents objected because they "disapproved of [plaintiff] as a suitable husband for their daughter." True love, however, would not be denied. Without telling defendant's parents, plaintiff and defendant scheduled a small wedding to take place three weeks after plaintiff's proposal. Prior to the wedding, they applied for a marriage license, which was issued seven days later. They then got married in a small ceremony, administered by a reverend, and attended by approximately 15 guests. All of the guests were invited by plaintiff. Defendant did not invite any guests, including her parents, with whom she still lived and who were still unaware that the wedding was taking place. This, as they say, is when the plot thickens.

 

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“Get Your Priorities Straight!” Refinanced First Mortgage Maintains Priority Over Junior Liens

by:  Peter J. Gallagher (@pjsgallagher)

New Jersey is a "race-notice" jurisdiction when it comes to mortgage priority. What this means, in its simplest terms, is that if Party A obtains a mortgage on a piece of property before Party B does, but Party B records its mortgage first (i.e., it wins the "race" to the clerk's office), then Party B's mortgage has priority unless Party B had "actual knowledge" of Party A's previously-acquired interest. But what happens when a first mortgage is refinanced? The original mortgage is technically paid off and replaced with the refinanced mortgage. Does this "newly-recorded," refinanced mortgage maintain the first priority status of the original mortgage or does it go to the back of the line? The answer to this question — as discussed in a recent decision from the Law Division, Wells Fargo Bank, NA v. Kim — is that the refinanced mortgage generally takes the original mortgage's first priority position.

In Kim, defendant borrowed $328,000 from Washington Mutual Bank, FA ("WaMu") to buy a home and secured repayment of this loan with a purchase money mortgage on the home. Later, defendant obtained a home equity loan from Plaintiff, Wells Fargo Bank, N.A. ("Wells Fargo") that was also secured by a mortgage on defendant's home. Defendant then refinanced her original, purchase money mortgage with WaMu. Defendant used the entire amount of the refinance loan, which was secured by a mortgage on defendant's home, to pay off the original purchase money mortgage (i.e., she did not borrow and more money through the refinance) and the purchase money mortgage was discharged of record. WaMu did not obtain a subordination of the Wells Fargo mortgage in connection with the refinance.

Approximately three years after the refinancing, defendant defaulted on the Wells Fargo home equity loan, and Wells Fargo moved to foreclose. Defendant did not file a contesting answer and the court entered default against her. However, U.S. Bank Trust, N.A. ("U.S. Bank"), the successor to WaMu's interest in the refinance loan and mortgage, filed a contesting answer claiming that its mortgage stood in first priority position ahead of  Wells Fargo's mortgage.

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No, You Cannot Enforce A Mortgage That Has Already Been Paid In Full

by: Peter J. Gallagher (@pjsgallagher)

The Appellate Division recently dealt with an unusual situation involving a borrower trying to enforce a mortgage, which had been satisfied years earlier, against a lender that was foreclosing on a different loan. While disputes occasionally arise between lenders regarding which loans have priority over others for the purpose of foreclosure, it is highly unusual for a borrower to attempt to enforce a mortgage, much less one that had been fully satisfied. Nonetheless, this was precisely what the Appellate Division faced in Valley National Bank v. Meier.

The facts of Meier were not disputed. In 1999, the Meiers obtained a loan from Community Bank of Bergen County for $168,000, which was secured by a purchase money mortgage. At the time, Mr. Meier was the president, CEO, and chairman of the board of Community Bank, which later merged with Valley. Six years later, the Meiers obtained a home equity loan from Community Bank that was also secured by a mortgage on the same property. Two years after that, Mr. Meier paid off the original mortgage, allegedly using pre-martial assets to do so. At some point prior to paying off the mortgage, the Meiers divorced. Instead of getting a discharge of the mortgage after paying off the note, Mr. Meier received a written assignment of the mortgage which he subsequently recorded.

 

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Lender Allowed To Foreclose But Punished By Court For Violating Consumer Fraud Act

by: Peter J. Gallagher

A New Jersey trial court issued an interesting opinion last week, allowing a lender to foreclose but imposing significant limitations on the lender because the court concluded that the lender had violated the Consumer Fraud Act.

In Freedom Mortgage Corporation v. Mamie E. Major, borrower wanted to refinance the mortgage on her home to lower the 5 5/8 interest rate and take out additional money to help pay for her grandson’s college tuition. Defendant was 70 years old, earned approximately $30,000 per year and owed $341,500 on her existing mortgage. At the time of the refinance her home had a market value of $365,000, but she eventually abandoned her plan to obtain more equity from the home and instead refinanced just to lower the interest rate.

Her existing home loan was an FHA-insured loan and was current, so Freedom Mortgage Company treated the refinance as an FHA “Streamline loan,” which required little or no new or extra documentation and did not require a new appraisal. According to Freedom, FHA guidelines allowed it to rely on the underwriting performed by the prior lender. Nonetheless, before approving the refinance, Freedom used a “net benefit” test to determine whether it was justified, and concluded that it was because both the interest rate and the monthly payment would be lower under the new loan.

At the closing, borrower signed a HUD-1A Settlement Statement that showed a new loan of $354,005, which included the payoff of the prior loan, the payoff of open tax balances, and $11,479.65 in settlement charges, payable to Freedom, for, among other things, a loan discount fee, commitment fee, application fee, and courier fee.

After making six payments on the new loan, borrower defaulted. Freedom filed a foreclosure complaint, which borrower answered. Freedom then moved to strike the answer and proceed with the foreclosure as uncontested. The court granted this motion, but found that there was a factual issue as to whether Freedom violated the New Jersey Consumer Fraud Act (“CFA”) in connection with the refinance. After trial on this issue, the court concluded that Freedom had, in fact, violated the CFA.

 

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