Brigham J. Lundberg is the Managing Attorney and a shareholder of Lundberg & Associates, PC in Salt Lake City, Utah. His practice includes real estate litigation, title issues, matters related to judicial and nonjudicial foreclosures, appellate practice, collections, and unlawful detainer actions. He is a frequent panelist and lecturer at industry conferences and client-attorney summits on various topics, including foreclosure, creditors’ rights, regulatory compliance, evictions, and property preservation. Lundberg is licensed to practice in Utah, Wyoming, Idaho, and Montana.
There are a number of decisions regarding the Fair Debt Collections Practice Act (FDCPA) being issued this year. What can law firms expect to learn from the decisions in these cases? The recent proliferation of FDCPA-related litigation and corresponding appellate decisions reflect a continued push by consumer advocacy attorneys to piggyback, so to speak, on the efforts of the Consumer Financial Protection Bureau (CFPB) and other state and federal regulators to ensure that default law firms conduct foreclosure and collection actions in full compliance with all applicable laws and regulations.
When originally enacted, the FDCPA exempted attorneys from its provisions; later, it was clarified that attorneys were subject to the FDCPA. Yet attorneys continue to opine that they should not be subject to the FDCPA’s requirements, while nonetheless complying with the act’s notice requirements out of an abundance of caution. Recent cases like Henson v. Santander; Ho v. Recontrust, NA; and Dowers v. Nationstar Mortgage, LLC explore the definition of “debt collector” and its applicability to attorneys in the context of collections and nonjudicial foreclosure, respectively.
While these decisions have each helped exclude attorneys in certain circumstances from the ambit of the FDCPA, they have also left questions unanswered as to the FDCPA’s applicability to attorneys as “debt collectors” in slightly different circumstances. Firms will want to keep a close eye on future FDCPA decisions that will undoubtedly further refine the definition of “debt collector” as it applies to attorneys.
Other recent major FDCPA cases have explored the issues surrounding the collection of time-barred debt (Midland Funding, LLC v. Johnson) and the inclusion of estimated fees and costs in reinstatement quotes (Prescott v. Seterus, Inc.). It will be interesting to see what effect these decisions have on legal precedent, because the decisions issued were dependent on the specific fact patterns, which may or may not be mimicked in future cases.
More importantly, it seems, is the effect these decisions have had on the industry at large and on the way mortgage servicers conduct business. Clearly, one case like Prescott can drastically change policies and procedures of the servicers and their attorneys, as they seek to avoid any possibility of running afoul of the FDCPA.
What can firms do to prepare for the developments that CFPB has made in servicing policy? With amendments to the CFPB regulations regarding successors in interest and periodic statements for borrowers in bankruptcy on the horizon, firms would be well advised to take action now to be prepared for the April 2018 effective date.
Firms should have well-defined policies to identify and verify successors in interest on a mortgage loan, and clear procedures regarding additional measures to be taken to properly notify successors in interest of any rights they may have with respect to their predecessor’s loan. Likewise, law firms would do well to prepare for the impact of the bankruptcy periodic statements requirements, which may impact the manner in which firms invoice their clients.
The periodic statements requirements will likely require monthly or more frequent invoicing to ensure that servicers are up-to-date on outstanding attorney fees and costs to accurately represent those in periodic statements. More frequent invoicing may also require a financial commitment by the firms in the form of increased staffing and/or electronic invoicing costs, for which firms need to be prepared.
What associated challenges come with nonjudicial foreclosures? Anytime you take an action like foreclosure and remove its judicial oversight by utilizing a nonjudicial foreclosure process, you run the risk of potential post-foreclosure judicial challenges to the validity of the foreclosure, either in the form of separate judicial litigation or a challenge to judicial eviction proceedings.
Most of those challenges will focus on technicalities in the nonjudicial process, which in most states requires strict compliance. Thankfully, we’ve seen a few recent court decisions requiring borrowers to make some affirmative challenge to the foreclosure proceedings prior to foreclosure sale in order to protect their rights. If the borrowers fail to do so, courts are less inclined to unwind a foreclosure, as the borrowers have “slept on their rights.”
Another continuing challenge is the concept of milestone billing of attorney fees for nonjudicial foreclosures and its tension with servicers’ desire to repeatedly offer loss mitigation to borrowers. This challenge is particularly acute in two-step nonjudicial foreclosure states like Utah and California, where law firms often lack any control over the ability to reach the next milestone. Further, firms are often subjected to wholly unrealistic milestone percentages that bear no logical association to the amount of work undertaken by the law firm.
What should law firms be doing to ensure that their business is stable and able to adapt to the ever changing foreclosure volumes?
There is no substitute for doing good, quality work and maintaining excellent client relationships. Communication and accountability still go a long way in today’s legal environment. Additionally, it is absolutely critical to adapt to the major changes our industry has experienced over the past 10 years by making the necessary investment in compliance, especially in technology and security.
Everyone in our industry is feeling the same pain in the form of increased compliance costs. Servicers and lenders are looking to partner with law firms that clearly demonstrate that they have the policies and procedures necessary to meet the ever-increasing security and tech requirements. Also, as foreclosure volumes continue to fluctuate, flexibility is key. Leveraging technological advances may enable firms to expand or contract as necessary to manage a variable workload.
As an attorney who primarily practices in Utah, what litigation developments are impacting your state? After years of not having really any appellate decisions interpreting the statute of limitations in the nonjudicial foreclosure context, Utah courts have recently provided us with some guidance in that area. A state appellate court decision, Goldenwest v. Kenworthy, clarified the fact that the statute of limitations on an installment contract like a mortgage loan begins to run upon acceleration, or, in its absence, maturity, of the debt, a concept long ago accepted in other states.
However, due to some muddled statutory language, borrowers had continued to contest this point prior to this decision. Additionally, a federal court decision in Koyle v. Sand Canyon Corp., later affirmed by the 10th Circuit Court of Appeals, provided additional clarification regarding the importance of acceleration and deacceleration in determining the running of the statute of limitations.
These decisions, combined with some 2016 legislative changes to Utah’s nonjudicial foreclosure statute regarding statute of limitations, have aided in reducing the concern of statute of limitations problems for a large portion of aged loans in Utah.
The Utah Supreme Court has also weighed in on borrowers’ challenges to nonjudicial foreclosure proceedings both prior to and after the trustee’s sale in Bank of America v. Adamson. The Adamson court emphasized the importance of challenging irregularities in foreclosure proceedings prior to the sale and the recording of the trustee’s deed, as the borrower will face a much higher burden in challenging foreclosure proceeding after the sale has occurred. In particular, borrowers must prove fraud, unfair dealing, or prejudice from a defect in the foreclosure proceedings to set aside a sale, and that may only occur if a bona fide purchaser has not purchased the property.
Essentially, the courts are taking a position that minor errors in compliance by the trustee will not be fatal to a foreclosure unless such errors are prejudicial to the borrower. This may have always been the sentiment of judges in analyzing challenges to foreclosures, but having it published and treated as precedent is a positive development for servicers and default law firms in Utah.