By Deborah Goonan, Independent American Communities
This month: Important SCOTUS ruling on FDCPA; Due process in HOAs; Business Judgment Rule not absolute protection for co-op board; FL condo association can revive its expired covenants
U.S. Supreme Court decision: a law firm that engages in nonjudicial foreclosure is not a debt collector
In the case cited below, the SCOTUS ruled that a homeowner cannot use the Fair Debt Collection Practices Act as a defense in a nonjudicial foreclosure.
Depending on state law, a foreclosure can be judicial or nonjudicial. A judicial foreclosure requires a court process, where a judge must first approve a foreclosure before the property is sold at auction. A nonjudicial foreclosure does not require court intervention prior to selling the property to collect an unpaid loan, taxes, or homeowners’ association fees.
Normally, FDCPA applies only to debt collectors as defined by federal law. The law gives a debtor the right to force a debt collector to verify the actual amount of a debt owed. But the court unanimously agreed that a business fulfilling legal notice requirements of a nonjudicial foreclosure does not meet the narrow definition of a debt collector. Therefore, it need not meet requirements of FDCPA to cease its activities or verify the debt.
The ruling helps mortgage lenders and servicers, as well as HOA attorneys in nonjudicial foreclosure states, because it reduces the likelihood a costly and time consuming lawsuit. (See this CoreLogic map of nonjudicial foreclosure states)
Notably, the SCOTUS acknowledges the potential for abuse by creditors and their agents (for example HOAs and foreclosure attorneys working on their behalf), and states that Congress can extend FDCPA consumer protections to prevent such abuse.
The question is: will Congress act to strengthen consumer protections under FDCPA?
No. 17–1307. Argued January 7, 2019—Decided March 20, 2019
Law firm McCarthy & Holthus LLP was hired to carry out a nonjudicialforeclosure on a Colorado home owned by petitioner Dennis Obduskey. McCarthy sent Obduskey correspondence related to the foreclosure. Obduskey responded with a letter invoking a federal Fair Debt Collection Practices Act (FDCPA or Act) provision, 15 U. S. C.§1692g(b), which provides that if a consumer disputes the amount of a debt, a “debt collector” must “cease collection” until it “obtains verification of the debt” and mails a copy to the debtor. Instead, McCarthy initiated a nonjudicial foreclosure action. Obduskey sued, alleging that McCarthy failed to comply with the FDCPA’s verification procedure. The District Court dismissed on the ground that McCarthy was not a “debt collector” within the meaning of the FDCPA, andthe Tenth Circuit affirmed.
Held: A business engaged in no more than nonjudicial foreclosure proceedings is not a “debt collector” under the FDCPA, except for the limited purpose of §1692f(6).
Obduskey fears that this Court’s decision will permit creditors and their agents to engage in a host of abusive practices forbidden by the Act. But the Court must enforce the statute that Congress enacted, and Congress is free expand the FDCPA’s reach if it wishes.
Supreme Court makes it harder for borrowers to fight foreclosures in non-judicial states
May invalidate “thousands” of current lawsuits where homeowners are fighting foreclosure March 20, 2019 Jacob Gaffney, Housing Wire
Due process in HOA-ville, Golf Country Clubs need not be neutral or impartial
A North Carolina Appeals court recently ruled that private, “voluntary” associations do not need to provide substantive due process, as applies to governments under the U.S. Constitution.
As long as the HOA or private country club follows a reasonable procedure of giving notice and a right to be heard, that is all that is required. The court recognizes no fundamental rights of the association member, and does not second guess the rules or the motives of the board or its grievance committee.
by Husch Blackwell LLP
Re: Master v. Country Club of Landfall, — S.E.2d — (2018)
Issue: Does due process require a hearing before an impartial tribunal (Board)? NO!!!
Business Judgement Rule cannot protect the board against evidence of self-dealing or retaliation
In Graham v 420 E. 72nd Tenants Corp., the New York Supreme Court ruled that the Co-op Association could not dismiss Graham’s lawsuit, using the protections of the “business judgment rule.”
Graham was a shareholder in the cooperative, who alleged that the association prevented the sale of the Plaintiff’s unit, because the co-op wanted to use the space for a community gym.
The co-op had approached Graham with a lowball offer for the unit, which Graham rejected. But when a third party later offered a fair market price for the unit, the co-op board rejected it, and demanded an even higher price from the buyer, interfering with the sale.
Under those circumstances, despite the Defense’s claims of comparable sales to support a higher sale price for Graham’s unit, the Court ruled in favor of Graham, allowing the case to move forward.
Ira Brad Matetsky in Board Operations on February 28, 2019, New York City
Does Florida- MRTA apply to condos?
A condo association asked an Appeals Court to decide whether it could revive its expired covenants, using procedures outlined under Florida’s Marketable Record Title to Real Property Act (MRTA).
Up until the Appeals Court’s recent ruling, it was assumed that revival of covenants only applied to homeowners associations governing planned communities. However, the MRTA statute also allows for revival of expired covenants for homeowners associations that are not governed by Statute 720.
The majority of the Court of Appeal, 2nd District, ruled that
…in order for the Association to seek revival of Eastwood Shores’ declaration of covenants and restrictions, the Association must be comprise of owners of residential real property which is subject to exclusive ownership.”
However, the dissenting opinion states that:
“The majority ignores the hybrid nature of the condominium parcel. Rather, the majority’s cabined analysis rests on the unit owners having exclusive ownership of their respective units. Section 712.11 applies to associations of owners who own real property “subject to exclusive ownership.” See § 712.01(4), (5). I cannot agree that section 712.01 extends to an association whose members own an indivisible and hybrid property interest in the units and the common elements. See § 718.103(12), (28); Rogers & Ford Constr. Corp., 626 So. 2d at 1352.”
Author’s note: As a non-attorney, I tend to agree with the dissenting opinion. It is my understanding that the intent of Statute 712 was to include non-mandatory membership HOAs, as well as deed-restricted homes in neighborhoods with no HOA. Regardless of the presence of an HOA, compliance with the CC&Rs is “mandatory,” in that any neighboring property owner can enforce the covenants in local and state court.