Default Litigation Case Law Update For OH, IN, KY, and MI

As we finish ringing in the New Year, Default Litigation remains a large part of the appellate dockets in Ohio, Indiana, Kentucky and Michigan. The items I wrote about in November; Authenticating Business Records of a prior servicer, Capacity to initiate a civil action in Ohio and Standing / Elements of a successful foreclosure were at the forefront again. This update will focus on the following legal issues: RESPA/QWR, challenges when moving for judgment in a foreclosure, and capacity is not the same as standing.

RESPA / QWR

The Appellate Courts in Ohio and Indiana recently issued a few decisions relating to the FDCPA, RESPA, and QWR(s). Those cases are cited as follows: Fed. Natl. Mtge. Assn. v. Brown, 2017-Ohio-9237; Perron v. JP Morgan Chase, 845 F.3d 852 (7th Cir. 2017); In summary, these cases address the following key points.
In the Brown, case, the court noted that while foreclosure does constitute debt collection under the FDCPA, a party is not a debt collector if the debt was not in default at the time it was obtained by the party. When a borrower brings RESPA claims for a servicer’s failure to adequately respond to a QWR, the borrower must present evidence of actual damages or the RESPA claims must fail.
In the Perron v. JP Morgan Chase decision, it’s important to note that the court proceeded under the context that the mortgage servicer owed the consumer a Duty of Good Faith and Fair Dealing and determined that the mortgage servicer did not breach this duty. In addition, the court summarized that RESPA provides the following requirements to a servicer when faced with a QWR:
A. “RESPA requires mortgage servicers to correct account errors and disclose account information when a borrower sends a written request for information.”
B. RESPA provides “borrowers a cause of action against a servicer for actual damages suffered as a result of the servicer’s failure to comply with the duties.” This includes “Statutory damages of up to $2,000… if the borrower proves that the servicer engaged in a pattern or practice of noncompliance with its RESPA duties.” In addition; Successful plaintiffs may also recover costs and attorney’s fees.
C. The statutory duty to respond does not arise in all inquiries or complaints. Rather, the statute only covers written requests alleging an accounting error or seeking information relating to loan servicing. Thus, this limits the scope of a loan servicer’s duty to respond to only these instances.
D. Once a loan servicer receives a valid QWR, RESPA requires it to take the following actions but only “if applicable”: (A) make appropriate corrections in the account of the borrower; (B) after investigating the account, “provide the borrower with a written explanation or clarification explaining why the account is correct; or (C) provide the borrower with the information requested by the borrower or explain why it is unavailable. Finally, the statute also requires the servicer to provide the contact information of an employee who can provide further assistance.
While many of these concepts are very technical, the FDCPA, RESPA, and QWR(s) are common issues addressed in default litigation. Failure to handle these appropriately can result in actual and statutory damages.

THE ESSENTIAL ELEMENTS OF A SUCCESSFUL SUMMARY JUDGMENT IN A FORECLOSURE CONTINUE TO BE CHALLENGED

In order to obtain a judgment upon a motion in a judicial foreclosure, the plaintiff must either proceed by motion for default judgment or by motion for summary judgment. The difference being that a motion for summary judgment is required when the consumer or another party has answered and challenged the position of the plaintiff. The consumer bar continues to have success opposing summary judgments when the plaintiff fails to meet their burden of setting forth the facts necessary to demonstrate they are entitled to summary judgment.
When moving for a judgment in Ohio on a foreclosure action, the plaintiff must establish by evidentiary quality materials which establish the following:
1. The Plaintiff is the Holder of the note and mortgage or is a party entitled to enforce the instrument, this can include:
a. The Holder,
b. A Non-Holder in possession who has the rights of a Holder,
c. A person not in possession but who is entitled to enforce the instrument pursuant to § 1303.38 (Lost or Destroyed Instruments)
2. That the chain of assignments, transfers, endorsements is correct,
3. That the account is in default pursuant to the terms of the instrument(s),
4. That all conditions precedent have been met, and
5. Verify to the court the amount of principal and interest that is due.

Affidavits in support of summary judgment shall be made on personal knowledge, which is defined as knowledge gained through firsthand observation or experience, as distinguished from a belief based on what someone else has said. However, records custodians can present business records kept in the regular course of business, if they have personal knowledge of the company’s records as this is an exception to hearsay exclusions. Finally, when relying on a review of the business records to establish personal knowledge, those records must be attached to the affidavit and the affiant must affirm that the records are tried and accurate copies. When the affiant expressly relies on documents but the affidavit fails to attach those documents. Then, upon a challenge, those portions of the affidavit must be stricken.
In HSBC Bank USA, Natl. Assn. v. Webb, 2017-Ohio-9285, not only did the lender’s affidavit fail to attach the necessary documents, which were relied upon by the affiant, the affidavit failed to assert that the documents which were attached were accurate reproductions of the originals. As such, those portions of the affidavit were stricken and the plaintiff failed to meet their burden, which results in the motion for summary judgment being denied.

CAPACITY TO SUE IS NOT THE SAME LEGAL CONCEPT AS STANDING

In HSBC Bank USA v. Naploszek, 2017-Ohio-9301; The 9th District Court of Appeals in Ohio recently affirmed judgment for HSBC Bank where the consumer alleged that HSBC lacked Standing to file the suit because it had not registered with the Ohio Secretary of State. This distinction is an important one for several reasons, not the least of which is that Standing is Jurisdictional and Capacity is an affirmative defense which must be raised or is waived.
In this action, the parties stipulated that HSBC was the holder of both the note and mortgage, thus, any challenge to Standing must fail. Therefore, the dispute centered on the issue of Capacity, which is an affirmative defense and as such, must be set forth affirmatively in the responsive pleading. Because the consumer failed to raise the affirmative defense of lack of capacity in their answer to HSBC’s complaint, the consumer forfeited the defense.

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    Daniel A. Cox

    Daniel Cox is a partner and manages the Default Litigation Practice Area which handles accounts in Ohio, Indiana, Michigan, and Kentucky. The majority of his practice focuses on assisting clients to manage their commercial and residential Default Litigation and Default related matters including Foreclosure, Bankruptcy, Forfeiture, Evictions, Appeals, Code Violations, Lender Liability Litigation, Loss Mitigation, Mediations, Best Practices and Risk Management.  He focuses on providing consultation and risk analysis which reduces costs per account while minimizing risk and protects his client’s interests.

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