July 28, 2016
Americans are increasingly frustrated by federal, state, local and HOA officials making decisions in secret. On the floor of the nominating convention, supporters of Senator Bernie Sanders protested Hillary Clinton’s undisclosed collusion with the Democratic Party leadership during the presidential primary. On the Republican side, Donald Trump continues to refuse to disclose his tax returns. Democracy doesn’t work unless voters, boards and legislators can make informed decisions. Virginia already has “sunshine” laws on the books to safeguard “open government” on the state, local and HOA levels. These laws mandate freedom of information and often have a beneficially deterrent effect. As Katrina and the Waves sang in their 1980’s hit, “I’m walking on sunshine, and don’t it feel good!” Property owners feel good when they can observe, understand and react to decisions that affect them. Many decry the “partly cloudy” forecast for “open government.” Property owners often struggle to resolve impasses with HOAs, land use officials and construction contractors. In many cases owners can use “open government” laws as a tool to seek favorable outcomes. As an attorney, I seek documents and information from whatever sources are available to help clients. Owners “walking on sunshine” make better decisions.
Developments at a July 15, 2016 Loudoun County Board of Supervisors meeting illustrate how confusing and frustrating “open government” rules can be. Harris Teeter Properties, LLC obtained permission to open a grocery store in Aldie, Virginia. Harris Teeter wanted the Board of Supervisors to deny requests for three neighboring restaurants. This would allow them to plant their largest store in one of Loudoun County’s Transition Policy Areas. “Transition Policy Area” is a land use designation “incorporating an innovative blend of rural and suburban development features.” Under the Board’s official policy, Aldie is a border-town of sorts between Northern Virginia and rural areas. These competing retail proposals are for development along this fault-line. If a mega-grocery store comes to Aldie, shoppers will drive there from all over. Aldie folks were mostly fine with getting a regular Harris Teeter. They have to eat. The Board of Supervisor’s Transportation & Land Development Committee considered these controversies. Although he was not on this Committee, Republican Supervisor Tony Buffington took a keen interest because he represents the Aldie district. Many of his constituents fear that an expanded Harris Teeter proposal would create traffic congestion, destroying the hamlet’s rural identity. Some questioned the Board of Supervisor’s commitment to its overall plan for land development. The Loudoun Times quotes Gem Bingol of the Piedmont Environmental Council as saying, “The question I see facing you is, ‘Are you going to support your Transition Policy Area policies?’” Supervisor Buffington’s day job with the U.S. Capitol Police took him on the day of the committee meeting away to the Republican National Convention in Cleveland, Ohio. From the GOP convention, Buffington texted Supervisors at this committee meeting. He was “against everything they [Harris Teeter] are currently proposing.” He shared that the “residents are adamantly opposed to the proposals.” He and a group of other Supervisors carried on a lengthy discussion text message on what to do about the Harris Teeter proposals.
Randall Minchew, the lawyer for Harris Teeter, noticed that the Supervisors were all very active on their cell phones during the Committee hearing. Mr. Minchew asked if Buffington was texting them. The other Supervisors read their texts with Buffington into the official meeting record. Minchew accused the Supervisors of a “blatant” Virginia Freedom of Information Act violation. Mr. Minchew’s appeal to the open government laws at least gave him and the grocery an opportunity to respond to criticisms submitted off the record. However, VFOIA can’t really be used make the Board to give the grocery the decision they want.
Loudoun County Attorney Leo Rogers reviewed these text messages. Rogers, in consultation with the Virginia Coalition for Open Government, reached an opinion that the Buffington-instigated texts did not violate the FVOIA:
First, given that the text messages were exchanged between only two Board members, there was no participation in the meeting itself. A public meeting of the county’s elected body is defined under FOIA as a meeting of three or more Board members.
Second, in order to be an electronic communication under FOIA, there needs to be an audio or visual component, which the text messages did not include. In any event, in order for a FOIA violation to be actionable, it must be done “willfully and knowingly,” and there is no evidence that is the case.
Of course, Mr. Rogers only speaks in his role as an advocate and advisor for the County. Harris Teeter could try to bring a legal action in court to obtain a ruling. However, what Harris Teeter wants is to gain an edge on its competitors in the mega-grocery field. They are more interested in the ultimate decision that the Board will make than a mere FOIA issue. After the incident, Buffington publically expressed regret that his actions may have caused a perception of wrongdoing by the public.
County supervisors and other elected officials reading the opinions of the county attorney and FOIA council are probably breathing a sigh of relief. Undoubtedly, board members everywhere make all sorts of communications with one another that it would be unduly burdensome and unnecessary to put on the record. The Harris Teeter hearing illustrates why it pays to make inquiries to find out what off-the-record communications shape governmental decisions that affect how many people a grocery store will give jobs, serve goods or delay commutes. The same can be said for HOA and condominium board and committee deliberations.
The Transportation & Land Use Committee hearing was broadcasted. Mr. Buffington or any other interested party could stream it on their computer or mobile device. Lawyers represented the interests of Harris Teeter and Loudoun County. Local newspapers quickly covered the scoop for the interest of county voters. At stake is the identity of one of the fastest growing counties in the nation. In this instance, the recording and inquiries allowed the threats to transparency to be quickly addressed.
In many condominiums and homeowners’ associations, these safeguards do not practically exist. HOA board and committee meetings aren’t broadcast on television. Meetings are recorded in brief minutes, if at all. The news media are unlikely to commit personnel and resources to covering HOA controversies unless something juicy erupts. Owners rarely bring legal counsel to HOA hearings. Owners frequently complain that their Board’s ruling clique keeps them in the dark. The Virginia Property Owners Association Act and the Condominium Act contain statutory protections of the integrity of HOA meetings and owners’ rights to review records. Although most Associations would rather simply disclose the requested meeting records than defend an owner’s lawsuit, few owners take advantage of their rights. On a practical level, the association president, board majority, Association lawyer and property manager make many decisions without the “open government” sunshine that many owners want. HOAs present themselves to state and local policymakers as mini-governments that relieve county budgets from service obligations in entire communities. For many people, their neighborhood community is the least transparent “government” making decisions that affect their lives. It should be the other way around.
VFOIA is a useful tool for property owners in construction cases as well. Contractors must obtain county approvals and inspections throughout the construction process. The local government maintains records of all of these applications, permits, inspections, correspondence and other documents. Owners can use VFOIA requests to find useful information for construction disputes with the builder.
Property owners don’t have to be big grocery store chains to protect their rights and get their voices heard before their local elected government officials and HOAs. HOA and local government boards and committees have legal counsel and managers on their team. Owners need to have a “team,” which could consist of like-minded neighbors, sympathetic board members, attorneys, CPAs and others. With help, owners can understand the laws and governing documents. “Walking on sunshine” can help owners protect their rights and make smart decisions.
Selected Virginia Statutes:
July 15, 2016
A disgruntled contractor or supplier may attempt to collect a payment from owners by filing a Memorandum for Mechanics Lien against the real estate. Under Virginia law, claimants (contractors or material suppliers) can interfere with owners’ ability to sell or refinance property by filing a lien in land records without first filing a lawsuit and obtaining a judgment.
A March 2016 opinion by federal Judge Leonie Brinkema shows why purchasers at Virginia foreclosure sales must give care to mechanics liens. In April 2013 and October 2015 Jan-Michael Weinberg filed a Memorandum of Mechanics Lien against a Fairfax County property, then owned by Ann & James High. J.P. Morgan Chase Bank later foreclosed on the High property. In early 2016, Mr. Weinberg brought a lawsuit to enforce the mechanics lien against J.P. Morgan Chase and the property.
If a claimant pursues a Memorandum for Mechanics Lien correctly, the property may be sold to satisfy the secured debt. A Memorandum for Mechanics Lien is a two-page form that anyone can download online for general contractors or subcontractors. The filing fee is a few dollars. By contrast, removal of the lien may require significant time and attention by the owner. Overall, it is best for owners to work with their advisory team to avoid having contractors file mechanics liens in the first place. Sometimes, disputes cannot be easily avoided and owners must deal with recorded liens. A Memorandum for Mechanics Lien differs from a mortgage or a money judgment. Fortunately for the owner, Virginia courts apply strict requirements on contractors pursuing mechanic’s liens. Just because a contractor fills out all the blanks in the form that doesn’t meant it necessarily is valid. This blog post is a brief overview of key owner considerations. The Weinberg case provides a good example because the court found so many problems with that lien.
- Who? The land records system in Virginia index by party names. For this reason, the claimant must correctly list its own name and the name of the true owner of record. The owner’s team will need a title report and the construction contract. Whether the claimant is a general contractor, subcontractor or supplier will determine which form must be used. Mr. Weinberg’s Memorandum for Mechanics Lien claimed a lien of $195,000. Virginia law requires a contractor to have a “Class A” license for projects of $120,000 or more. Judge Brinkema found this Memorandum defective because Weinberg’s claim was not supported by a reference to a Class A license number. In some residential construction jobs, the Virginia Code requires appointment of a “Mechanic’s Lien Agent” to receive certain advance notices of performance of work from claimants that might later become the object of a mechanics lien. This creates an additional hurdle for the contractor, suppliers and subcontractors. In many construction projects, the builder works with the owner’s bank to obtain draws on construction loans. If mechanics lien disputes arise, owners can work with the bank to obtain documents.
- What? The Memorandum for Mechanics Lien must describe the dollar amount claimed and the type of materials or services furnished. The written agreement determines the scope of work, payment obligations and other terms. Generally speaking, only construction, removal, repair or improvement of a permanent structure will support a mechanics lien. Mr. Weinberg claimed that he conducted “grass, shrub, flower care,” “week killer,” “tree removal/cutting,” general property cleanup,” “infrastructure work,” “planting grass,” “site work,” “general household work” and “handy man jobs.” The Court found that this description of work was invalid. The work described was either landscaping or too vaguely connected to actual structures. Where the agreement was for work that could actually be the basis of a mechanics lien, the owner should consider how much of the work the contractor actually performed? Is the work free of defects? Does the Memorandum state the date the claim is due or the date from which interest is claimed?
- When? The contractor or supplier must meet strict timing deadlines for the mechanics lien. Generally speaking, the Memorandum for Mechanics Lien must be filed within 90 days from the last day of the month in which the claimant performed work. Judge Brinkema observed that Mr. Weinberg failed to indicate on the Memoranda the dates he allegedly performed the work. Also, no Memorandum may include sums for labor or materials furnished more than 150 days prior to the last day of work or delivery. Furthermore, the claimant must bring suit to enforce the lien no more than 6 months after recording the Memorandum or 60 days after the project was completed or otherwise terminated. Weinberg’s 2013 Memorandum was untimely because he did not sue to enforce it until 2016. Because Weinberg’s 2015 Memorandum was the same as the 2013 version, they both probably describe the same work on the property.
- Where? The Memorandum for Mechanics Lien must correctly describe the location of the real estate that it seeks to encumber. If it lists the wrong property, the lien may be invalid. Property description problems frequently arise in condominium construction cases because the same builder is doing work in the same building for multiple housing units. The Memorandum must be filed in the land records for the circuit court for the city or county in Virginia where the property is located.
- Why? There is usually a reason why a contractor decides to file a Memorandum for Mechanics Lien instead of pursuing some other means of payment collection. The Highs allegedly didn’t pay Weinberg for his landscaping and handyman services. The Highs’ weren’t able to pay their mortgage either. Weinberg filed for bankruptcy. In order to resolve a mechanics lien dispute with a contractor, an owner should consider how the dispute arose in the first place. Is someone acting out of desperation, confusion, or is the lien a predatory tactic? Could investigation need some other explanation?
- How? The owner must understand how the mechanics lien dispute with the contractor relates to the overall plan for the property. Mr. Weinberg tried to use mechanics liens to collect on debts. At the same time, he went through bankruptcy and the property went through foreclosure. Context cannot be ignored. Few owners can afford to remain completely passive in the face of a dispute with a contractor. The owner may have a construction loan or other debt financing to consider. An unfinished project is difficult to sell at a favorable price. Potential tenants won’t lease unfinished property.
On March 15, 2016, Judge Brinkema denied Mr. Weinberg’s motion to amend his lawsuit and dismissed the case. When a contractor or supplier files a Memorandum of Mechanics Lien against property, the owner must carefully consider whether to pay the contractor directly, deposit a bond into the court in order to release the lien and resolve the dispute with the contractor later, bring suit to invalidate the lien on legal grounds or simply wait 6 months to see if any suit is brought in a timely fashion to enforce the lien. Fortunately for owners, there are strict requirements on contractors for them to take advantage of mechanics lien procedures. A Virginia property owner should consult with qualified legal counsel immediately upon receipt of a Memorandum of Mechanics Lien to protect her legal rights.
Case Citation: Weinberg v. JP Morgan Chase & Co. (E.D. Va. Mar. 15, 2015)
July 7, 2016
This blog post discusses the role of the Summons for Unlawful Detainer in Virginia foreclosures. “Unlawful Detainer” is a legal term for the grounds for eviction from real estate. The foreclosure trustee and new buyer go to a real estate closing a few days after the foreclosure sale. Upon settlement, the title company records the Trustee’s Deed of Foreclosure in the local land records. In most land transfers, the giver and recipient of the ownership of the real estate participate voluntarily. In a foreclosure, the borrower may contest the validity of the foreclosure transaction and the Trustee’s Deed. The Trustee’s Deed is necessary to the new buyer to pursue eviction proceedings against the occupants of the property. The Trustee’s Deed is the buyer’s legal basis for filing the Summons for Unlawful Detainer form. A copy of what this form looks like is available on the website for the Virginia court system.
Post-foreclosure evictions are not the only reason anyone files a Summons for Unlawful Detainer. Unlawful Detainer suits get into court in different situations. The most common is where a tenant fails to pay rent or defaults on the lease. However, it can be used for a variety of situations where an occupant entered onto the property with lawful authorization (such as a deed or lease) but has continued to occupy the premises after his right to do so ended. Every landlord knows that each month that the tenant holds over without paying is rental income that will likely never be collected. The General Assembly enacted legislation to streamline property owner’s rights to evict tenants and other persons unlawfully detaining possession of the real estate. This prevents an unfair result that might occur if a tenant could use lengthy court proceedings to live in the premises rent free when he may not have money to pay a judgment at the end. The buyer of the foreclosure property has made a financial commitment to own the property. Foreclosure investors want to evict the borrower, make any necessary repairs as soon as possible so that the property can be rented out or re-sold. So the summons for unlawful detainer form is a powerful, attractive tool for the new buyer in a foreclosure.
The investor or their attorney typically files the Summons for Unlawful Detainer in the local Virginia General District Court (“GDC”) after receiving the Trustee’s Deed. The GDC is the local court in Virginia most people are familiar with. This is where Virginians go for traffic ticket cases and suits for money under $25,000.00. The GDC has a “Small Claims Division” where parties litigate without lawyers. The Sheriff’s Office serves the Summons for Unlawful Detainer on the borrower and any other occupants. Upon receipt of the Summons for Unlawful Detainer, the borrower faces a “fight or flight” decision. Experienced lenders, trustees and purchasers know that the Trustee’s Deed of Foreclosure can be used as a weapon to try to crush the borrower’s opposition to the foreclosure. The Bank, trustee, and new buyer are can pursue these legal matters without the threat of having being evicted out of their base of operations. The borrower would not be in a foreclosure matter if there wasn’t a difficulty making payments. Once the Deed is in land records and the Summons is filed with the GDC, the borrower also has to mount a legal defense to keep possession of the home. A borrower is well advised to seek qualified legal counsel in his jurisdiction to help deal with these matters.
The Summons for Unlawful Detainer Summons must contain the name, address and point of contact for the new owner seeking to evict him. This will tell the borrower whether the property is now owned by the bank that requested the foreclosure or an unrelated investor. The Summons sets out when and where the borrower or his attorney must appear to contest the eviction proceeding. Every form states, “If you fail to appear and a default judgment is entered against you, a writ of possession may be issued immediately for possession of the premises.” A writ of possession is a document signed by the judge that authorizes the Sheriff’s Office to go out to the house and remove the people and belongings found there and turn it over to the new buyer and their locksmith.
What can a borrower do who has been wrongfully foreclosed upon and received a Summons for Unlawful Detainer? The earlier the borrower engages with legal counsel, the more there is that the attorney can do to help. On June 16, 2016, the Supreme Court of Virginia initiated legal reforms which dramatically shift the balance of power in these post-foreclosure evictions. If properly defended, the borrower may have an opportunity to get the dispute over the validity of the foreclosure decided before ordering eviction. This is good news. Prior legal precedent required many borrowers to defend against a Summons for Unlawful Detainer at the same time he pursued his own wrongful foreclosure claims against the bank and trustee. I discussed this new case in greater detail in my blog post, “The Day the Universe Changed” and in a radio show interview available in the “On the Commons” podcast library. While borrowers will continue to receive these “Summons for Unlawful Detainer” forms, they now have better options.
Unless the borrower does not intend to contest the eviction and foreclosure, borrowers receiving a Summons for Unlawful Retainer from the buyer of the foreclosure property should immediately seek qualified legal counsel in order to explore available options. The Virginia General Assembly is anticipated to enact new legislation in its next session to clarify the jurisdiction of the GDC and the appropriate court procedures when a borrower contests the validity of a foreclosure related to the eviction proceeding. With assistance, borrowers may be able to take advantage of these legal reforms.
July 6, 2016
Bankers and lawyers send many notices, letters and statements to borrowers struggling with their mortgage. The purpose of such paperwork is to collect on the mortgage debt. In Virginia, the Notice of Trustees Sale is very significant. In Virginia, the bank does not have to go to court first in order to obtain a foreclosure sale. The law permits the property to be sold by a trustee in a transaction outside of the direct supervision of a judge. The Foreclosure Trustee cannot conduct a valid foreclosure in Virginia without sending a proper Notice of Trustees Sale. The Trustees Sale is a public auction of the property to the highest bidder, usually on the courthouse steps. In order to protect her rights against abusive foreclosure tactics (examples discussed elsewhere on this blog), the borrower must understand the role this Notice of Trustees Sale plays. Borrowers exploring the possibility of contesting the foreclosure should retain qualified legal counsel when they receive the Notice of Trustees Sale.
When borrowers go to closing on the purchase or refinance of Virginia property, they review and sign a loan document called a Deed of Trust. Virginia judges treat Deeds of Trust as the “contract” between the borrower, lender and trustee regarding any foreclosure. The Deed of Trust imposes specific requirements on the lender if they want to foreclose. The bank is required to follow these requirements regardless as to whether the borrower is in default on the loan or not. Deeds of Trust describe what the Notice of Trustees Sale must include, who it must be sent to, requirements for it to be published in the newspaper, etc. The Virginia Code also has specific requirements about the Notice of Trustees Sale and its newspaper publication. The Notice of Trustees sale is more than a tool to intimidate the borrower or provide a courtesy to someone about to lose their home. The Notice is an essential building block. Absent this, the foreclosure is not valid.
Upon receiving the Notice of Trustees Sale, Borrowers must take seriously the trustee’s stated intention to foreclose on the property at the date written. For various reasons, lenders and trustees will cancel or postpone trustee’s sale, but they won’t do this simply upon request by the borrower. If the lender or trustee indicates that the sale has been temporarily cancelled or postponed, the borrower may request for written confirmation.
The Notice of Trustee’s Sale is an invitation to make an offer to enter into a contract for the property with the purchaser at the sale. The two main documents in a Trustees Sale are the Memorandum of Sale and the Trustee’s Deed of Foreclosure. The Memorandum of Sale is a written contract between the trustee and the new buyer. Some Deeds of Trust require that the trustee and the buyer make their contract on the terms set forth on the Notice of Trustee’s Sale. Sometimes trustees put additional terms into these Memoranda which create other contractual rights which may be of interest to the borrower. The Trustee’s Deed is the document conveying ownership of the property to the new buyer. A borrower investigating the validity of the foreclosure should carefully review the Deed of Trust, Notice of Trustees sale, Memorandum of Sale and Trustee’s Deed to determine whether any of the latter documents breach of the Deed of Trust. If the trustee refuses to provide a copy of the Memorandum of Sale, the borrower should seek the assistance of qualified legal counsel. Both the borrower and any potential purchasers are generally entitled to rely upon the terms of the Notice of Trustees Sale in making informed decisions about it. If the lender and trustee sell the property on terms and methods contrary to the Notice of Trustees Sale, then the Trustee’s Deed may be invalid. The validity of the Foreclosure Trustee’s Deed is an issue of great interest to any victim of wrongful foreclosure.
Many homeowners fighting foreclosure observe many contradictions between their loan documents, mailings received from the bankers and their lawyers, and the things they are told on the phone by the bankers and the banker’s lawyers. The banks have experienced foreclosure attorneys whom they may have instructed to aggressively pursue the foreclosure and eviction. The Notice of Trustees Sale is one of the essential “gears” in the “foreclosure factory” borrowers contend with. Receipt of this document may be the best time to contact qualified legal counsel to discuss your rights and options available for keeping your home.
July 1, 2016
In the classic comedy, Ferris Bueller’s Day Off, Ferris’s mother meets with the assistant principal to discuss his absenteeism. She had no idea he took 9 sick days. The school official bluntly explains: “That’s probably because he wasn’t sick. He was skipping school. Wake up and smell the coffee, Mrs. Bueller. It’s a fool’s paradise. He is just leading you down the primrose path.” Mothers of truant teenage sons aren’t the only ones succumbing to the temptation of wanting to believe that everything is fine when it isn’t. Owners busy with their jobs and families would like for their home to be worry-free. Unfortunately, the Ferris Bueller’s of the world sometimes grow up to service mortgages, manage HOA’s and handle customer service for home builders. The real estate and construction industry has some predators who lead consumers on the “primrose path.” We are not talking here about mere “sales talk” and “puffery” (for example, someone merely says that they will “treat you like family”). Promissory Fraud is when someone makes promises with no intent to follow-through but with every desire for the listener to rely upon it. In the past few years, borrowers have sued mortgage servicers for false promises of loan modifications in fraudulent foreclosure cases. Loan servicers stand in the shoes of the original mortgage lender as far as the borrower is concerned. Servicers send out the loan account statements, collect the payments and make disbursements. These cases allege that the servicers used “primrose path” tactics to conduct foreclosure fraud.
Leading along the primrose path is a powerful ploy because of the psychological roller-coaster the consumer experiences. Financial struggles, default notices and foreclosure letters causes stress and troubles that impact owners’ resources, time and relationships. Promises of time extensions, foreclosure avoidance and loan modifications are spellbinding. They invite the consumer to the much-missed happy place of living their life without threat of catastrophic financial loss. If the servicer says just the right thing, the borrower will very naturally want to let down their guard and forego more arduous tasks of forging a legal and financial solution to the problems. The false sense of security is intoxicating. When the borrower later experiences foreclosure instead of the promised modification, they are left trying to pick up the pieces.
Randolph Morrison vs. Wells Fargo Bank:
Mortgage servicers often get away with this because borrowers don’t always pay close attention to what they are actually being told. When borrower listen and take notes, they protect themselves. In 2014, a federal judge in Norfolk considered a claim for fraud based on telephone misrepresentations that Wells Fargo Bank allegedly made in the foreclosure context. When Virginia Breach homeowner Veola Morrison died in 2009. Her family received a notice that the property would be foreclosed on January 19, 2011. Veola’s son Randolph offered to assume the mortgage and requested an interest rate reduction. On January 12, 2011, a Wells Fargo employee told Randolph that he was approved for a loan modification and that the January 19, 2011 foreclosure would not take place. Wells Fargo sent Randolph a letter dated January 14, 2011 offering him a special forbearance agreement, requiring him to make his first payment on February 1, 2011. A “forbearance” is when the lender agrees to hold off on foreclosure and collection activities for a period of time in anticipation that the borrower will resolve short-term cash flow difficulties. They said that the foreclosure would be suspended so long as Randolph kept to the terms of the agreement. In spite of these representations, Wells Fargo Bank’s substitute trustee conducted the foreclosure sale anyway on January 19, 2011. In his suit, Randolph alleged that he reasonably relied upon a telephone statement by Wells Fargo that the January 19, 2011 foreclosure would not occur. He relied upon the subsequent letter saying when he had to make his next monthly payment. Relying on these representations, Randolph did not take other actions to prevent foreclosure such as hiring an attorney. After he discovered what happened, Randolph sued Wells Fargo. The Court denied Wells Fargo’s initial motion to dismiss the case and allowed Randolph’s claim for promissory fraud to proceed in Court. The case settled before trial.
Alan & Jackie Cook vs. CitiFinancial, Inc.:
Just because a false reassurance is not in writing doesn’t mean that the borrower can’t sue for fraud. Virginia Federal Judge Glen Conrad considered this question in 2014. Jackie & Alan Cook owned a property in Lovington, Virginia. In September 2011, Mr. Cook explained to his lender CitiFinancial, Inc. that he was current on his loan but struggling to make payments. The branch manager suggested that he pursue a loan modification through the Home Affordable Modification Program (“HAMP”). The manager told Mr. Cook that if he stopped paying, the lender would “have to modify the loan” and it would probably be able to cut the interest rate and principal owed. Mr. Cook became leery and asked questions. The manager reiterated that he should just stop making payments and ignore the bank’s letters until he received a notice with a date for the foreclosure sale. The customer services rep told Mr. Cook that once he got the foreclosure notice he could call the number on it and get started. Per the manager’s instructions, Mr. Cook stopped making payments and ignored the servicer’s default letters.
On June 17, 2013, Cook received a notice that on July 17, 2013, foreclosure trustee Atlantic Law Group would sell his Nelson County property in foreclosure. Remembering what CitiFinancial originally said, Cook tried to call the loan servicer 20 times, receiving no answer or he was hung up on. Finally, on July 11, 2013, Mr. Cook got ahold of CitiFinancial who told him what information they needed for a loan modification. When Mr. Cook talked to another employee of the servicer, he was told that his case would remain on “pending/hold status” for 30 days in order for him to obtain the necessary documents, and that the scheduled foreclosure would be postponed during that time. On July 17, 2013, the noticed day of foreclosure, one employee of the servicer told him on the telephone the “great news” that he was awarded a loan modification. Later that day, he talked to another employee of the servicer who told him that the foreclosure would indeed proceed as originally scheduled, because he failed to provide them with necessary documents. When Mr. Cook asked her about the 30-day hold period that he was previously given, she replied that “she had never heard of such a thing” and that there was nothing to be done to stop the foreclosure sale. Notice how the servicer used a new misrepresentation about the 30-day period to keep Mr. Cook on the “primrose path” even after he struggled to communicate with him after defaulting per their instruction. Mr. Cook rushed to an attorney’s office but by the time the trustee received the attorney’s letter the sale had already occurred. Use of the primrose path strategy is particularly damaging because the new buyer can use the foreclosure trustee’s deed to initiate eviction proceedings. Citi bought this property at the trustee’s sale and brought eviction proceedings against Mr. Cook. Cook filed suit, basing fraud claims on the servicer’s false promises. CitiFinancial initially moved for the court to dismiss the lawsuit, arguing that Cook could not have reasonably relied upon the false oral representations because the promissory note and deed of trust provided unambiguous terms for foreclosure in the event of default. Citi seemed to be saying that only things that are in writing are official in the mortgage context. Judge Glen Conrad rejected this argument because the question of whether Cook was justified to rely upon Citi’s oral statements was an evaluation of the credibility of witnesses at trial.
Jackie & Alan Cook’s case settled before trial. An agreed order reversed the foreclosure sale. While a servicer misrepresentation doesn’t have to be in writing to constitute fraud, the dispute may come down to a “he-said she-said” at trial. Few borrowers will take careful notes at the time these discussions take place. While defendants may be required to make document disclosures, homeowners can’t count on getting copies of servicer notes and internal messages during the litigation. Search warrants are not available in civil cases.
The experiences of the Morrisons and Cooks are common amongst different lenders all across the country. It’s best for homeowners struggling with their mortgages avoid the “primrose path” promises made by some servicers, foreclosure trustees and foreclosure rescue scams. If it sounds too good to be true, then it deserves thorough review and consideration. However, there are many situations where relying upon the representations of a lender or trustee is the only reasonable option. Once the foreclosure trustee’s deed is recorded, the borrower may face eviction proceedings. If a trustee or servicer breaches the mortgage documents or makes misrepresentations in conducting a foreclosure, the borrower should contact qualified legal counsel immediately.