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Legal Challenges: Education is Key

Michael Woods joined Potestivo & Associates, P.C. in 2006. He is the firm’s EVP and is based in the Rochester, Michigan, office. Woods began as the Supervising Attorney of the Foreclosure and Loss Mitigation Departments and with dedication rose to the AVP—Managing Attorney position. He oversees the day-to-day operations of the firm and works to promote efficiency across all firm departments and processes.

Woods graduated from Central Michigan University with a Bachelor of Science in Political Science supported by a concentration in Public Administration. He then moved to Miami where he earned his law degree from the University Of Miami School Of Law.

Woods is active in several industry and professional associations, including the Michigan Mortgage Lenders Association, the Default Attorney Group, the Legal League 100, the Macomb County Bar Association, and the State Bar of Michigan’s Real Property Law Section. 

Woods spoke to DS News about the impact of the expiration of the QM Patch, cyber security, and challenges facing the legal industry in 2020.

What impact would the expiration of the QM Patch have on the housing industry?

The general arguments in favor of its expiration are that it would provide a more level playing field for lenders and reduce the risks associated with offering loans to borrowers with a DTI in excess of 43%. That said, there seems to be a larger demographic of those in favor of the idea behind the QM patch, which has been about finding ways to give people greater access to the American dream of homeownership and maintaining some balance and leverage between the government and private sector. The most recent statistics show that approximately 20-30% of GSE loans today have a borrower with a DTI over 43%. Those are market numbers that are hard for anyone to ignore, so what I imagine we’ll see is an effort to reform the rules in conjunction with other current housing industry initiatives, especially entering the upcoming election cycle.

What are your thoughts on the Roth vs. Nationstar ruling? And what could be the impacts of it?

It can provide some guidance to mortgage servicers sending informational statements post bankruptcy discharge. I consulted our firm’s Supervising Bankruptcy Attorney, Cheryl Cook, for her specific recommendations as these cases can often provide our industry with some best practices. From an impact standpoint, creditors servicing mortgage debt can do a couple of things. First, they can make sure that they are properly coding their bankruptcy accounts with the current case status and ensuring the inclusion of safe harbor language in their communications. Second, they can review their post-bankruptcy statements—not only for the “safe harbor” language identified in the Roth opinion, but also for placement—some of the factors relied on by the Roth Court turned on where the language appeared on the statements.  In the Roth case, the Court noted that the disclaimer was printed in bold type on the first page—not on the back, not in tiny print at the bottom. The Roth statements also reiterated the bankruptcy protections, and further included the word “voluntary” on the payment coupon itself.  Having counsel review the language proposed for the servicers’ post-bankruptcy communications with debtors could certainly give servicers a bit of comfort in evaluating whether their statements pose a risk in post-bankruptcy servicing. 

These suggestions are made in connection with whether there could be a potential violation of 11 U.S.C §524. In the Roth case, the Court of Appeals does a good job parsing out the different standards applied when a lawsuit is brought under the FDCPA and when a lawsuit is brought under the bankruptcy code. Here, the Court reminds us the standard to be used was not the one cited in the FDCPA—the “least sophisticated consumer” standard—but, instead, the standard set forth in a 2019 Supreme Court case called Taggert v Lorenzen, 139 S. Ct. 1795 (2019), which requires a “no fair ground of doubt” standard before a court can hold a creditor in civil contempt for violation of the discharge injunction. The way the Roth Court explained the standard is, “in order to find that sanctions are appropriate here, we would have to hold that ‘there is no objectively reasonable basis for concluding that [the] conduct might be lawful." Roth at p. 13. Because the Court found that the statements were informational, rather than for purposes of debt collection, the creditor’s conduct demonstrated more than a “fair ground of doubt” as to whether the discharge Order precluded its conduct, and sanctions were not appropriate. Ultimately, the decision provides us with some clarity with respect to informational statements and their treatment under the bankruptcy code. It also serves as a good reminder that this is not a one-size-fits-all industry, and that we must rely on the experience and expertise of our local attorneys to ensure compliance across the board. 

What can be done to better protect consumers from fraud and cybersecurity? 

Education is key. Technology impacts our lives every minute of every day. We all know the benefits that technology brings, and we need to be equally aware of the risks associated with our use of it—and the steps we can take to reduce those risks. Understanding what information you are sharing every time you download an application to your phone, or give access to location data, or use the same login and password for all websites. These are all very common behaviors that can have an impact on consumers leading to unintended consequences. Understanding that most cyber breaches occur by inadvertently letting somebody into your system through emails, attachments, and hyperlink clicks, as opposed to being “hacked” from the outside can be very eye opening. Cybersecurity and fraud education and awareness is a rapidly growing industry sector that can provide a wealth of information and tools to better prepare companies and their employees for these types of threats and encounters. 

What are some challenges facing the legal industry in 2020? What can be done to address them?

The costs and time involved investing in technology and continuing to evolve and improve processes. Trying to become more operationally efficient without giving up your identity. For some, it’s trying to remain competitive, for others it’s creating separation from the competition. It is an interesting time right now, one day the economy is on the verge of a recession, the next day things have never been better. Being ready for whatever situation presents itself is the most difficult, but most rewarding part of our job.

What are some legal trends within housing that you are keeping an eye on in 2020?

The entire industry will be paying particular attention to the Supreme Court’s CFPB leadership constitutionality case. I think it will also be interesting to see how the industry continues to operate and settle-in after last year’s holding in the Obduskey case as well. Being an election year, I’m fairly certain we will get to see a few housing issues start to take center stage and become a focal point of some campaign platforms.

About Author: Seth Welborn

Seth Welborn is a Reporter for DS News and MReport. A graduate of Harding University, he has covered numerous topics across the real estate and default servicing industries. Additionally, he has written B2B marketing copy for Dallas-based companies such as AT&T. An East Texas Native, he also works part-time as a photographer.
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