In a ruling that can only be described as common sense, the state's top court recently ruled that a foreclosure notice must identify all the secured parties; however, there are circumstances when the failure to identify a secured party is not fatal to a foreclosure action.
In Camille C. Shepherd v. John S. Burson, et al., the Court of Appeals also said that a failure to identify all secured parties in a foreclosure notice does not require dismissal of the foreclosure when the notice identifies one of the secured parties, the notice provides other legally-required required information that allows the borrow to pursue a loan modification, the identity of the other secured parties is disclosed to the borrower well in advance of the foreclosure sale and the borrower does not move to dismiss the foreclosure proceeding on the basis of a defective notice for more than a year after such disclosure.
The court's ruling stemmed from a lender's attempt to foreclose on a Greenbelt, Md. home. Camille Shepherd obtained a $416,900 loan from IndyMac in 2007 secured by a deed of trust on the home. She defaulted on the loan in 2008 after having obtained a loan modification that lowered the interest rate and, as a result, lowered her monthly payment. IndyMac transferred its assets to OneWest Bank FSB in 2009 after IndyMac went under in 2007.
On June 5, 2009, the trustees on behalf of OneWest, sent Shepherd a Notice of Intent to Foreclose. The notice listed the borrower, the mortgage loan number, the dates of the most recent loan payment and of the default and the extent to which the loan payments were past due. It identified the "secured party" on the loan as OneWest and provided the name and phone number of a person with authority to modify the terms of the loan.
Shepherd declared Chapter 7 bankruptcy on June 26, 2009, which automatically stayed - stopped -- the foreclosure. When a person declares bankruptcy, whether Chapter 7 or Chapter 13, all collection activities must stop. However, in some instances, secured creditors ask the court to remove the "stay," so they can retrieve the property securing the debt. The bankruptcy court lifted the stay as to OneWest on August 4, allowing the lender to resume the foreclosure. Shepherd received a Chapter 7 discharge from her debts in October 2009.
Although OneWest was previously identified as the secured party, the Federal Home Loan Mortgage Corporation (Freddie Mac) was listed as the owner of the loan and OneWest was listed as the holder the note secured by a deed of trust in the documents filed after Shepherd received her Chapter 7 discharge. This was the first time that Freddie Mac's involvement was revealed to Shepherd, according to the court's opinion.
The day before sale, Shepherd filed a Chapter 13 bankruptcy, which, once again stayed the foreclosure. The Chapter 13 bankruptcy was dismissed in June 2010. The foreclosure was then re-scheduled. However, Shepherd filed a second Chapter 13. That petition was also dismissed and the foreclosure was scheduled for January 2011. One month before, in December 2010, Shepherd moved to dismiss the foreclosure, alleging irregularities in the foreclosure notice. She contended that the failure to identify Freddie Mac as the secured party in the original foreclosure notice violated state law. The circuit court cancelled the foreclosure to review her motion. The court denied her motion and noted that state law did not provide a remedy for the alleged violation and indicated that it would exercise its discretion under the Maryland Rules to decide upon a remedy. Reasoning that any deficiency had not harmed Shepherd or infringed upon her rights, the trial court concluded that the foreclosure action should not be dismissed. The foreclosure was held on March 8, 2011. Freddie Mac purchased the house for $237,276.
After filing objections to the sale, Shepherd filed an appeal with the Court of Special Appeals, but also asked the state's top court to review the case. The Court of Appeals granted her request for review before the case could be heard in the intermediate appellate court - an unusual but not unheard of move by the state's top court.
In this case, the court observed, it had to decide whether a foreclosing party is obligated to identify all secured parties in the advance written notice to the borrower and the consequences if the notice fails to do so.
Shepherd argued that the secured party is the owner of the loan and that a mortgage servicer cannot also be a secured party. A secured party is a party that will benefit from the sale. She also argued that the failure to identify Freddie Mac in the notice meant that the notice was "deceptive," "misleading" and "unfair." The court said the notice was better described as "incomplete."
The court also pointed out that there were two secured parties in the transaction, OneWest and Freddie Mac. But, the failure to identify Freddie Mac as a secured party was not fatal to proceeding with the foreclosure.
The notice requirement was designed to provide homeowner/borrowers at risk of foreclosure with additional time and information to avoid foreclosure, the court explained. A clear identification of a party with whom the homeowner could negotiate a possible alternative to foreclosure was a "preeminent purpose," the court said. Providing the borrow with advance notice and information so that the borrower can seek a loan modification or to negotiate some other alternative to foreclosure is best served by identifying all secured parties in the foreclosure notice, the court said.
In this instance, the court noted, Shepherd received the foreclosure notice more than four months before the first scheduled foreclosure sale and nearly 18 months before the foreclosure sale that actually took place. The written notice included enough details to allow her to seek a loan modification, including the name and phone number of a specific individual that she could contact so to negotiate a loan modification - something she had done prior to defaulting on the loan. The court also pointed out that she filed the motion to dismiss the foreclosure based on the failure to identify Freddie Mac as a secured party more than a year after Freddie Mac's ownership of the loan was disclosed to her.
A foreclosing party should identify in the "Notice of Intent to Foreclose" each entity that is a "secured party" with respect to the deed of trust, the court said. However, a failure to disclose every secured party is not a basis for dismissing a foreclosure action when the notice identifies a secured party, the notice contains the other information required by the statute that allows the borrower to purse a loan modification, the identity of the other secured party is elsewhere disclosed to the borrower well in advance of the foreclosure sale and the borrower does not move to dismiss the foreclosure action on the grounds of defective notice for more than a year after such disclosure.
As a result, the Court of Appeals affirmed the decision of the trial court.
The case was released August 20, 2012.
Belsky, Weinberg & Horowitz has represented consumers in mortgage, bankruptcy and debt collection cases for many years. Although foreclosures are difficult to stop once they are started, our attorneys have represented individuals facing foreclosure for more than 20 years and have achieved a very high success rate in stopping foreclosure sales, reorganizing client finances and helping with unpaid income tax problems through the use of the Chapter 13 bankruptcy process.
In Chapter 13, the foreclosure, repossession, garnishment, seizure or legal action is "stayed" or placed on hold and a court-approved reorganization plan is put into place which pays the creditors an amount to satisfy their claims. Clients obtain a fresh start without the burden of long-standing past due debt. This process saves the clients' home, stops interest from accumulating and offers a great deal of emotional relief from pressing creditor action to collect debts.
Call our bankruptcy attorneys at 410-234-0100 or email us for a free consultation and let us help you to resolve your credit and debt problems through prompt and professional action that will make what otherwise would appear to be an impossible situation a very manageable one for you and your family!