Mortgage Law Roundup

Sharp Thinking

No. 143                           Perspectives on Developments in the Law from Sharp-Hundley, P.C.                       March 2017

Dina Overturned On Mortgagee Registration Issue

            First Mortgage Co. v. Dina, 2014 IL App (2d) 130567, holding that the issuance of a home mortgage by an entity that is not registered under the Residential Mortgage License Act (205 ILCS 635) voids the mortgage (see generally Sharp Thinking No. 116 (June 2014)), has been overturned.

            So hold two cases from the Appellate Court last month:  Wells Fargo Bank, N.A. v. Maka, 2017 IL App (1st) 153010; and Nationstar Mortgage LLC v. Missirlian, 2017 IL App (1st) 152730.  Moreover, according to Maka, Dina was never correctly decided.

            Both courts relied upon a legislative amendment, Pub. Act 99-113, which (a) amended the licensing act to provide that a loan brokered, funded, originated, serviced or purchased by an unlicensed party “shall not be held to be invalid solely on the basis of a violation” of the act, and (b) declared that amendment “declarative of existing law.”  Lower courts reaching similar results have included McNeal v. J.P. Morgan Chase Bank, N.A., 2016 WL 6804585 (N.D. Ill. 2016), and In re Jordan, 543 B.R. 878 (Bankr. C.D. Ill. 2016).

            In addition, Maka studied the Supreme Court case upon which Dina principally relied, and found that Dina had incorrectly applied that precedent to the act.  Accordingly, in Maka’s view, Dina was never correctly decided.

MERS Doesn’t Violate Licensing Act

Mortgage Electronic Registration Systems, Inc. (MERS) does not violate the Residential Mortgage License Act (205 ILCS 635) merely by being named as mortgagee and lender’s nominee in a mortgage when the actual lender is registered under that act, a panel of the Appellate Court in Chicago has held.

Reviewing the statutory language defining conduct which is prohibited by that act without registration thereunder, the court said MERS did not commit that conduct and the registered lender did.  U.S. Bank N.A. v. Hartman, 2016 IL App (1st) 151556.

The court thus avoided deciding whether Pub. Act 99-113 was applicable to the case.  As discussed above, that act declares as “existing law” language which overrules First Mortgage Co. v. Dina, 2014 IL App (2d) 130567, which held mortgages issued by unlicensed mortgagees void as against public policy. 

Reinstatement of LLC Status Doesn’t Cure Mortgage Default

            Where a foreclosure has been filed because the debtor limited liability company (LLC) has allowed its continued existence to lapse, the LLC cannot thereafter defeat summary judgment by simply having its existence reinstated, a panel in the Appellate Court’s Fourth District has ruled.

            Rejecting an argument that reinstatement meant there has been no default under the “relation back” doctrine, the court said that doctrine cannot be invoked to impose a legal fiction that belies real world facts.  CF SBC Pledgor 1 2012-1 Trust v. Clark/School, LLC, 2016 IL App (4th) 150568.

No FDCPA Violation In Seeking FHA Deficiency Judgments

            Counsel for mortgagees apparently do not violate the Fair Debt Collection Practices Act (15 U.S.C. § 1692 et seq.) by including in their short-form foreclosure complaints indications that deficiency judgments are being sought against debtors under Federal Housing Administration-guaranteed mortgages.

            Ruling in Heng v. Heavner, Beyers & Mihlar, LLC, __F.3d__, 2017 WL 655433 (7th Cir. 2017), the Seventh Circuit U.S. Court of Appeals last month found implausible claims that such allegations threaten “an action that cannot legally be taken or that is not intended to be taken” in violation of 15 U.S.C. § 1692e.  It therefore affirmed trial court orders dismissing such claims.

            Finding to be out of date documents which suggested FHA had a blanket policy against seeking deficiencies, the court cited more recent agency guidelines which do not prohibit deficiency claims.

FHA Regs Don’t Apply If Debtor Vitiates Mortgage Through Bankruptcy

            A mortgagee on a Federal Housing Administration (FHA) mortgage need not comply with FHA’s regulations on pre-foreclosure steps where the debtors have obtained a bankruptcy discharge without reaffirming the mortgage loan.

            However, in the usual case, the FHA regulations apply to FHA-guaranteed loans and failure to follow them provides a defense to a mortgage foreclosure.

So ruled a panel of the Appellate Court’s Second District early this month.

Ruling in PNC Bank, N.A. v. Wilson, 2017 IL App (2d) 151189, the panel found an exception to the general rule when the debtors had discharged their personal liability upon the mortgage through bankruptcy, thus making the pre-filing steps required by FHA regulation “futile acts.”

The regulations required the mortgagee to attempt a face-to-face meeting with the mortgagors and to offer U.S. Postal Service proof that a required notice had been sent by certified mail.  PNC in Wilson had conferred with one of the two mortgagors and had failed to submit a postal service certificate of the mailing.

However, the panel said denying summary judgment because of the regulations wasn’t required. 

“The Wilsons’ discharge in bankruptcy without reaffirmation means that they are no longer bound by the mortgage contract,” the panel stated.  “To send notice in order to remediate or ameliorate a mortgage contract when the contract has been nullified by the act of the debtor is futile and meaningless. . . . The law does not require futile acts as prerequisites to the filing of legal proceedings.”

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