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Ethical issues in prosecuting and defending foreclosures and evictions By Christopher Kalla

CLE seminar presented 5/22/13

Disclaimer The information presented here is based on the author’s research and experience in dealing with these issues. This outline is not exhaustive and should not be used to replace your own research and judgment or that of your own attorney. These materials are intended for instructional purposes only. Although the author believes the following information correctly represents the current status, the law is not always settled; it is constantly changing and individual exceptions may exist. The Scenarios are all based on actual cases and are not created hypotheticals.

Scope

This CLE is not intended to be a “how-to” on foreclosures and evictions. It is meant to highlight some areas on these types of cases:

1. that can present ethical dilemmas for attorneys; 2. where attorneys may find themselves committing malpractice; and 3. where attorneys may find themselves exposed to sanctions.

Of course, there may be some overlap and an attorney might easily be facing all three if exceedingly reckless.

This CLE is intended not just for the attorney who is prosecuting foreclosures and evictions, but also the attorney who is defending those types of cases. The intended audience is expected to have a working knowledge of the following Minnesota state statutes: 504B, 580, 581 and 582.

When discussing foreclosures, the reader should assume that judicial foreclosures (chapter 581) and non-judicial foreclosures (chapter 580) are treated the same unless distinguished.

When discussing evictions, assume that post-redemption evictions and lease-based evictions are treated the same unless distinguished. Keep in mind that “unlawful detainer” is antiquated; please use the term “eviction.”

1. Dual Tracking

A. Foreclosure i. Defined

1. Minnesota: "Dual tracking" means a servicer beginning or continuing a mortgage foreclosure under this chapter after the servicer has received a request by the borrower for a loan modification, forbearance, payment deferral, alternate repayment plan, or deed in lieu of foreclosure and has not accepted or rejected that request. H.F. No. 83, Sec. 7: 580.043, Subd. 1 (d)

2. Federal: Dual-tracking is defined as “when the servicer moves forward with

foreclosure while simultaneously working with the borrower to avoid foreclosure.” CFPB rules adopted January 17, 2013.

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ii. New legislation 1. Minnesota

a. H.F. No. 83, Sec. 7: 580.043 (proposed) as of April 30, 2013

b. 580.043 Mortgage Foreclosure Dual Tracking Prohibited

c. Attorneys might be considered a “mortgage servicer” under the new statute – as an enforcer of the mortgage

Subd. 1. Definitions. (f) "Mortgage servicer" means an entity that is responsible for interacting with the borrower, including managing the loan account on a daily basis, such as collecting and crediting periodic loan payments, managing an escrow account, or enforcing the promissory note and mortgage, either as the current owner of the promissory note or as the current owner's authorized agent. Subd. 3. Prohibition; dual tracking; continuation or commencement of foreclosure after receipt of loan modification request. (a) Upon receipt by a mortgage servicer of a request for a loan modification, forbearance, payment deferral, alternate repayment plan, or deed in lieu of foreclosure from a borrower regarding a mortgage loan for which the mortgage servicer is responsible, the mortgage servicer shall not begin a foreclosure for 90 days or, if a foreclosure of the mortgage loan is in progress, must stop the foreclosure process for 90 days or until the mortgage servicer and borrower have agreed upon and entered into a signed agreement, whichever comes first. The mortgage servicer shall not start or continue a foreclosure, even after the 90 days have passed, unless: (1) the mortgage servicer has provided notice to the borrower that the borrower's request has been rejected, including an explanation for why the request was rejected; or (2) the borrower has received a copy of a loan modification, forbearance, payment deferral, alternate repayment plan, or deed in lieu of a foreclosure agreement signed by the servicer. Subd. 4. Civil cause of action; dual tracking. A borrower who is the victim of dual tracking by the borrower's mortgage servicer has a civil cause of action against the mortgage servicer for any damages incurred by the borrower as a result of the dual tracking plus the borrower's reasonable attorney fees and costs. The mortgage servicer is prohibited from adding monetary judgments and awards under this section to a borrower's mortgage. Subd. 5. Injunctive relief. A borrower may bring an action for injunctive relief to stop a foreclosure based on a material violation of this section. The injunction shall remain in place until the court determines that the mortgage service has corrected and remedied the violation or violations giving rise to the action for injunctive relief. Subd. 6. Redemption period. The relief available in this section is available to a borrower during the redemption period under section 580.23. The failure of the mortgage servicer to comply with subdivision 3 shall annul a sheriff sale under this chapter.

d. Effective date: applies to foreclosures commenced on or after August 1, 2013.

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2. Federal – CFPB press release January 17, 2013 http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-rules-establish-strong-protections-for-homeowners-facing-foreclosure/

a. Rules promulgated under Dodd-Frank Act

“Today’s rules originate from the Dodd-Frank Wall Street Reform and Consumer Protection Act, which directed the CFPB to implement reforms for the mortgage servicing industry. The CFPB announced in August that it was considering a number of proposals to implement the Dodd-Frank Act requirements and address systemic problems in the industry. Today’s rules are a result of the public’s feedback on those proposals.” CFPB PRESS RELEASE JANUARY 17, 2013.

b. Effective date: January 10, 2014 per CFPB PRESS RELEASE JANUARY 17, 2013. Final rules not yet available.

• Restricted Dual-Tracking: Under the CFPB’s new rules, dual-tracking – when the servicer moves forward with foreclosure while simultaneously working with the borrower to avoid foreclosure – is restricted. Servicers cannot start a foreclosure proceeding if a borrower has already submitted a complete application for a loan modification or other alternative to foreclosure, and that application is still pending review. To give borrowers reasonable time to submit such applications, servicers cannot make the first notice or filing required for the foreclosure process until a mortgage loan account is more than 120 days delinquent.

• Notification of Foreclosure Alternatives: Servicers must let borrowers know about their “loss mitigation options” to retain their home after borrowers have missed two consecutive payments. They must provide them a written notice that includes examples of options that might be available to them as alternatives to foreclosure and instructions for how to obtain more information.

• Direct and Ongoing Access to Servicing Personnel: Servicers must have policies and

procedures in place to provide delinquent borrowers with direct, easy, ongoing access to employees responsible for helping them. These personnel are responsible for alerting borrowers to any missing information on their applications, telling borrowers about the status of any loss mitigation application, and making sure documents get to the right servicing personnel for processing.

• Fair Review Process: The servicer must consider all foreclosure alternatives available from

the mortgage owners or investors – those with decision-making power over the loan – to help the borrower retain the home. These options can range from deferment of payments to loan modifications. And servicers can no longer steer borrowers to those options that are most financially favorable for the servicer.

• No Foreclosure Sale Until All Other Alternatives Considered: Servicers must consider

and respond to a borrower’s application for a loan modification if it arrives at least 37 days before a scheduled foreclosure sale. If the servicer offers an alternative to foreclosure, they must give the borrower time to accept the offer before moving for foreclosure judgment or conducting a foreclosure sale. Servicers cannot foreclose on a property if the borrower and

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servicer have come to a loss mitigation agreement, unless the borrower fails to perform under that agreement.

c. A 6-page summary of the rules is available at:

http://files.consumerfinance.gov/f/201301_cfpb_servicing-rules_summary.pdf

d. A 5-page fact-sheet about the rules can be found at: http://files.consumerfinance.gov/f/201301_cfpb_servicing-fact-sheet.pdf

e. Criticism of the new federal rules: by the National Consumer Law Center: • The NCLC took issue with the limitation in the new rules requiring homeowners to seek

modification prior to the 37th day before the foreclosure sale is scheduled. “While providing some additional protections to borrowers in judicial foreclosure states, this requirement provides significantly less protection to homeowners facing non-judicial foreclosure procedures. Moreover, because many homeowners will not know the sale date until after the 37-day mark, and will generally face difficulties knowing when the 37th day falls (because many sales are scheduled with less than 37 days’ advance notice), the rules give servicers an opportunity to manipulate the system. All homeowners need protection during the foreclosure process, with rules that recognize the real timelines they face.”

• This criticism is likely to be of little significance in Minnesota where the vast majority of foreclosures are non-judicial. And, should there be a shift towards judicial foreclosures as a result of the recent Minnesota statutory changes, the federal rules will still apply.

f. Potential unconstitutionality of recent federal rules

• On January 25, 2013, the D.C. Circuit held in Noel Canning v. NLRB that President Obama's three recess appointments last year to the NLRB are unconstitutional. The decision casts a shadow over every action taken by the NLRB since those appointments were made on January 4, 2012. Moreover, because Richard Cordray received a recess appointment to head the Consumer Financial Protection Bureau (CFPB) on the same day, the DC Circuit's decision provides grounds for challenging certain CFPB actions.

• The recent (January 25) ruling by the US Court of Appeals for the District of Columbia Circuit invalidating President Obama’s recess appointments to the National Labor Relations Board calls into question the validity of every action taken by the NLRB since January 4, 2012. In addition, because the President also used his recess appointment power to name Richard Cordray as Director of the Consumer Financial Protection Bureau, the court’s decision provides a strong basis for challenging all of Mr. Cordray’s actions in that position. Although the Supreme Court is likely to have the final word on this important constitutional question, a ruling upholding the court of appeals’ determination will have sweeping implications—and companies seeking to challenge actions by these agencies may have to act promptly in order to maximize their chances of prevailing.

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• Petition for Certiorari was filed by Solicitor General in April 2013 at page 30: “If the decision below is allowed to stand, almost any federal officer who received a recess appointment during an intra-session recess, or who was appointed to fill a vacancy that did not first arise during the recess in which the appointment was made, could have his actions challenged in the D.C. Circuit on the ground that his appointment was unconstitutional and his official actions were ultra vires.”

iii. Forbearance agreements

1. Review basic contract law: offer, acceptance, consideration a. Nearly all forbearance agreements are in the form of an “offer” from the bank

– to be accepted by the borrower b. Some forbearance agreements are capable of being “accepted” by the

borrower upon performance by the borrower c. Did the borrower accept an “agreement” by making a payment? d. Has the borrower breached the agreement in any way?

2. Minn. Stat. § 513.33 Credit Agreements

a. Generally – must be in writing to be enforceable. No common law exceptions to this “statute of frauds.”

b. Shield c. Sword d. Exceptions – promissory estoppel and other equitable doctrines

• Borrowers' promissory estoppel claim was barred by Minnesota Credit Agreement Act

provisions requiring credit agreements to be in writing; • Lender was not equitably estopped from invoking Minnesota Credit Agreement Act; • Lender's alleged oral promise was not sufficiently clear and definite to support

promissory estoppel claim; • Borrowers did not change their position in reliance on lender's purported oral promise; • Lender's alleged oral promise to offer permanent loan modification did not amount to

negligent misrepresentation; • Borrowers' alleged reliance on lender's oral promise was unreasonable; and • Lender did not have general fiduciary duty to act fairly and to deal in good faith with

mortgagors when foreclosing. Labrant v. Mortgage Elec. Registration Sys., Inc., 870 F. Supp. 2d 671 (D. Minn. 2012), appeal dismissed (Aug. 30, 2012)

3. Good forbearance agreements – enforceable

a. In writing b. Clear dates c. Clear obligations d. Clear rights

4. Bad forbearance agreements – unenforceable

a. Oral (do not use the word “verbal” to describe an oral contract) See Black’s Law Dictionary

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b. Agreements to agree – illusory promises c. Trial payment plans with no firm commitment by bank d. Ambiguous obligations

5. Ethical Considerations

a. Has your bank client accepted any money after the start of the foreclosure process?

b. Attorneys will need to clearly understand the scope of their representation as it relates to this new legislation.

c. How much guidance will your bank client ask of you as their attorney to develop its procedures for the bank to be compliant with new anti-dual-tracking legislation?

d. How many tasks will your bank client expect you to perform so that the bank is compliant with the new legislation?

e. Has your bank client abided by all the requirements of the new legislation – as you interpret those laws?

f. How much inquiry are you as the attorney making of your bank client on its compliance with the recent legislation?

g. What if you as the attorney believe your bank client’s pre-referral procedures are inadequate?

B. Eviction

i. Cash For Keys Agreements (CFK) – post-foreclosure evictions 1. Commencement of eviction is date and time of filing the complaint 2. CFK prior to eviction renders eviction moot because there is permission to occupy

the premises 3. CFK after eviction commenced is a settlement of the eviction action

ii. Partial payments – lease based evictions

• If the landlord wants to be able to accept a partial payment, and continue with the eviction, the “partial payment” clause must be in the lease. Minn. Stat. § 504B.291, Subd. 1(c). If the tenant tenders a partial payment, the landlord can refuse to accept it and continue with the eviction. The tenant is still responsible for the rent, even if they are evicted.

• Check in with client day before eviction hearing for payment update. If landlord has accepted a partial payment, and there is no “partial payment” clause in the lease, you may have to dismiss.

2. Communicating with represented and unrepresented parties

A. Represented parties – MRPC 4.2 i. Communicate with attorney unless specifically excepted by statute or rule

1. Service of process 2. Service of Notice of Foreclosure 3. Publication

ii. “Right” belongs to the attorney – not the represented party

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1. Communications directly between parties are always permitted – so long as attorney does not “ghost-write” the landlord’s communications to a represented party. Ghost-writing is permissible to unrepresented parties.

2. Do not send a copy of your communications with the attorney also to the party represented by that attorney.

3. If represented party contacts you, tell them you cannot talk with them and then contact their attorney. If repeated, notify the attorney again; thereafter, simply ignore the communication from the party.

4. If represented party says they fired their attorney, contact the former attorney and confirm in writing. THEN communicate with the party.

5. When in doubt, use e-mail. Draft a letter, sign it, scan it, then e-mail it as an attachment. Avoid substantive phone conversations with unrepresented parties. Or, save the post office and send a letter.

6. Multiple cases against the same party a. Party can elect to hire an attorney for only one matter b. On the second matter where the party is unrepresented, communicate only in

writing – do not return phone calls – use e-mail. c. Treat the cases as though they were completely separate d. Do not refer to both cases in a single communication

B. Unrepresented parties – MRPC 4.3

i. You can communicate with unrepresented parties. Your role as an attorney representing the other side likely will require it. Be careful. Assume that the person you are talking to will be recording you without your knowledge.

ii. Phrases to remember and use:

• Do you have an attorney? If so, who is it? • If you have an attorney, I cannot talk with you; I can only talk with your attorney. • I am not your attorney. • I represent the party that is opposing you. • I cannot give you any legal advice. • Do not ask me for legal advice. • I cannot recommend an attorney for you.

C. Foreclosure

i. Judicial foreclosure 1. Standard litigation practices apply

ii. Non-judicial foreclosure

1. All necessary communications to mortgagees are described in statute – permitted regardless if represented

2. Additional communications – send only to attorney if represented

iii. Banks are parties, too. 1. Work-out agreements 2. Loan modifications

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3. If you want to communicate with the bank, and the bank has an attorney – communicate to the attorney.

4. Borrowers can communicate directly with bank – even if the bank is represented. Borrower’s attorney cannot “ghost-write” the borrower’s communications to a represented party.

iv. Things you should never say:

1. Do not tell them what you would do if you were them – even if they ask. 2. Do not tell them what the law requires your client to do. 3. Do not encourage them to get an attorney. 4. Do not discourage them from getting an attorney. 5. Do not tell them not to show up at the sale. 6. Do not tell them to show up at the sale. 7. Do not tell them how much the bank is going to bid – unless your client

authorizes you to do so. Even then, only say “At this time, my client intends to bid $ _________.”

8. Do not disclose to the borrower any problems with the foreclosure that your law firm has discovered. a. Title defects: legal description, recording errors, chain of assignments, etc. b. Problems with service c. Priority issues d. Difficulty in communicating with your client

9. Do not speculate or guess about anything. If the borrower has a question that you cannot answer, and the borrower is entitled to an answer, get the answer and then get back to the borrower.

10. Do not make “promises” to the borrower – they are not your client

v. Things you can say: 1. You can tell them what you are going to do. 2. You can tell them the process that your client is going to follow. 3. You can tell them the sale date

D. Eviction

i. Landlords are parties, too.

ii. Tenants can contact their landlord directly to negotiate settlements.

iii. Sometimes the landlord wants its attorney involved in eviction settlements.

iv. Tenant’s attorney should never contact the landlord without first getting written permission from the landlord’s attorney.

v. Scope of landlord’s representation should be assumed to be everything related to the

tenancy – not just the eviction. 1. If there is a pending eviction, and then there is a new development, such as a slip

& fall – consider the landlord to be a represented party.

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2. There is no harm in contacting the attorney for the landlord first.

E. Quasi-represented parties i. Attorneys who appear for limited purposes

ii. Non-attorneys – MRPC 5.5

iii. Out-of-state attorneys – MRPC 5.5

iv. Martin Cole article – BENCH & BAR, January 2013 at pp. 12-13

F. Attorneys as pro-se litigants – MRPC 4.2

i. Cannot communicate with represented parties. ii. Must communicate with the opposing attorney.

3. Debt Collectors?

A. FDCPA – Fair Debt Collection Practices Act – federal law. Not a discussion of what you can and cannot do, but whether the FDCPA applies to you. i. Read the statute – it’s short

ii. Web address – put it on your “favorites”

http://business.ftc.gov/documents/fair-debt-collection-practices-act

- or - http://www.ftc.gov/os/statutes/fdcpa/fdcpact.shtm

iii. Generally • The term "communication" means the conveying of information regarding a debt directly or

indirectly to any person through any medium. 15 USC 1692a. (FDCPA § 803 (2)).

• The term "consumer" means any natural person obligated or allegedly obligated to pay any debt. 15 USC 1692a. (FDCPA § 803 (3)).

• The term "debt collector" means any person who uses any instrumentality of interstate

commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 808(6), such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. 15 USC 1692a. (FDCPA § 803 (6)).

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1. Mini-Miranda warning 2. Written communications – see 15 USC 1692c. (FDCPA § 805)

a. Use this disclaimer / warning on EVERY written communication to a consumer:

• THIS COMMUNICATION IS FROM A DEBT COLLECTOR ATTEMPTING TO COLLECT A DEBT. ANY INFORMATION WILL BE USED FOR THAT PURPOSE.

• It does not make you a debt collector. Chomilo.

• You really can’t win. I was sued once by somebody because I put the disclaimer in an e-mail that was sent to the consumer at their work e-mail. Even though it was the consumer who initiated the communications from their work e-mail. Consumer claimed that because his work e-mail was not private and that I was, in effect, communicating with his employer and the warning language was casting him in a bad light with his employer.

b. Electronic communication

i. E-mail is ok – consider it written communication – include the disclaimer. Do not send to a work e-mail – even if requested by the consumer.

ii. Social media iii. Don’t text, tweet or use facebook or any other type of electronic

communication

3. Oral communications – see 15 USC 1692c. (FDCPA § 805) a. Consumers calling into the law firm – firm-wide greeting that cannot be by-

passed i. Uniform message

ii. Heard by all callers iii. Less to litigate

b. Leaving voice-mail messages with consumers

• Dangerous. Third parties might overhear. Get written permission from consumer before you leave a voice-mail message of any substance.

• Leave the Mini-Miranda warning when you leave a message in case the consumer decides to call back, or to write back to you.

• This is cumbersome and awkward, and you will not always do it. That is why you want to

limit your communications to written, or to phone calls initiated by the consumer.

• A voice-mail message to consumer: “This is John Johnson returning your phone call, please call me back at (555)234-6789.” is probably not a “communication” within the meaning of the FDCPA because it is not “in connection with the collection of a debt” because the voice-mail does not convey information concerning the debt. Marx v. General Revenue Corp., 668 F.3d 1174, 1177-78 (10th Cir. 2011) (cert. granted to the U.S. Supreme Court on other grounds – currently awaiting decision). The dissent in Marx argued that including GRC’s internal ID number was information concerning the debt.

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B. Foreclosure

i. Generally The focus is: (1) the nature of the debt; and (2) the manner in which the debt is being collected. If it is simply the enforcement of a security interest and the inevitable foreclosure sale, only 1692(f) is implicated. If, however, money is being demanded – or a judgment is being sought, then compliance with the entire FDCPA is required.

ii. Foreclosure by advertisement.

A law firm conducting a non-judicial foreclosure in Minnesota is not subject to the FDCPA except for 15 U.S.C. §1692(f). And, so long as the foreclosing mortgagee has good title to its mortgage interest, the law firm is not violating 1692(f). Section 1692f(6) prohibits the following conduct: Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if- (A) there is no present right to possession of the property claimed as collateral through an enforceable security interest; (B) there is no present intention to take possession of the property; or (C) the property is exempt by law from such dispossession or disablement. Cite: 15 U.S.C. § 1692f(6). Chomilo v. Shapiro, Nordmeyer & Zielke, LLP, CIV. 06-3103 RHK/AJB, 2007 WL 2695795 (D. Minn. Sept. 12, 2007). In Chomilo, the foreclosure firm sent a pre-foreclosure letter to the mortgagor stating that the mortgagor owed $245,258.84 and that the mortgagor must contact the law firm to obtain a payoff quote. This letter was likely the notice required by Minn.Stat. 580.021. These pre-foreclosure letters invariably include the amount of money owed by the mortgagor. The law firm also mailed a copy of the first publication to the mortgagor. In both letters to the mortgagor, the law firm included the following language in all caps: “THIS COMMUNICATION IS FROM A DEBT COLLECTOR ATTEMPTING TO COLLECT A DEBT. ANY INFORMATION WILL BE USED FOR THAT PURPOSE.” So long as these letters communicate to the mortgagor only those things expressly required or authorized by Chapter 580, the letters will likely triggers only 1692(f) because the letters are limited to enforcing a security interest. However, if the mortgagor responds and interacts with the law firm in an effort to actually pay off the debt, at that point, the law firm should proceed as though the full scope of the FDCPA is applicable.

iii. Foreclosure by action An action whereby a deficiency judgment is possible is likely to trigger the full FDCPA. An action on the Note resulting in a judgment is sure to trigger the full FDCPA. An action on the Mortgage, where no deficiency is possible may trigger only section 1692(f).

iv. Demand letters

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1. From the bank – not covered by FDCPA because the bank is the creditor, unless the bank is using a different name to collect the debt.

2. From the foreclosure law firm – not expressly addressed by Chomilo. In Owens, the law firm sent a demand letter to collect delinquent homeowner-association dues. The letter made no reference to the fact that the delinquency created a lien under Minnesota law. Nor did the letter refer to the association's right to foreclose that lien, or in any way threaten foreclosure in the absence of payment. In sum, the letter was concerned only with the underlying debt, and not the security interest created thereby. Under these facts, law firm’s actions cannot fairly be construed as “enforcement” of the security interest created by the statutory lien – so the FDCPA applied to the law firm’s actions. Law firm was held to have violated the FDCPA because the language of the demand letter regarding timing of payment over-shadowed the 30-day statutory protections.

Owens v. Hellmuth & Johnson, PLLC, 550 F. Supp. 2d 1060, 1066 (D. Minn. 2008)

C. Eviction i. Eviction is a summary proceeding

1. Not for collection of a debt 2. Litigation exception 3. FDCPA does not apply

ii. Demand letters

1. From the landlord – FDCPA does not apply 2. From the eviction law firm – FDCPA applies 3. Distinguish from pre-eviction “notice” letters where the letter does not make a

demand for rent

iii. Actions for back rent 1. Combo cases (possession and back rent) – no longer permitted 2. Conciliation court – litigation exception – FDCPA does not apply

4. Competence

A. MRPC 1.1 B. Educate your client

i. You are their attorney ii. You should know more about the law than they do

iii. They may be working in more than one state and get confused iv. They may not be aware of recent legislative changes or trends in case-law v. They may be receiving conflicting advice from other attorneys

vi. They may be trying to get you to give them legal “cover” for something they know they should not be doing

C. Foreclosure

i. Get the Summary Guide – essential

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ii. Current statutes (state and federal) iii. Case law updates

D. Eviction

i. Current statutes (state and federal) ii. Case law updates

E. Print out the statutes and carry them with you to court

i. Easy to cite authority to judge ii. You look like you know what you are doing

iii. The other side does not have the statutes with them 1. they try to cite from memory 2. they will be wrong and you can prove it on the spot

F. Read the entire annotated statute start to finish

5. Client goals and candor towards the tribunal A. MRPC 3.3 B. The client is not always right C. Attorney has a duty to the court that sometimes supersedes the duty to the client D. Foreclosure

i. Judicial foreclosure ii. Non-judicial foreclosure

1. Statutory conditions precedent 580.02 a. Make sure there is a default. If in doubt, request the loan history from your

client. If you do not understand how to read it, don’t guess. 580.02(1) b. Make sure your mortgage has a “power of sale” clause. Not all mortgages do.

Many mortgage forms are designed for use in a particular state. Check the footer of the mortgage to see if it is for your state. If not, then you may have a problem – especially if the mortgage is designed for use in a state that does not have non-judicial foreclosures. 580.02(1)

c. Make sure that there are no judgments already on the mortgage debt. 580.02(2)

Scenario 5.1: Bank started non-judicial foreclosure against Owner of apartment building and Owner brought a TRO and halted after the first publication, but halfway through service on his tenants. The case was settled with Owner signing a confession of judgment that would be satisfied if Owner was able to sell the building within a certain time period and repay the arrearages. Bank stymied the sale and Owner brought motion to rescind the settlement agreement based on misconduct of Bank. Trial court denied motion, and Court of Appeals affirmed the trial court. Bank docketed the judgment but never made an attempt to collect it. Bank then commenced non-judicial

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foreclosure for the full debt amount without deducting the amount of the judgment already docketed against the Owner. The Bank used the same attorney for all the proceedings. • Attorney should have first vacated the judgment or at least made an attempt to collect and

had the writ of execution be returned as unsatisfied. • Attorney committed malpractice by initiating a void foreclosure.

d. Make sure that there is a clear chain of title from the original mortgagee to

your client. 580.02(3) i. If there is a break in the chain, fix it before you start.

ii. If you find a break in the chain after you have started, stop and fix it, and then start over.

In Mutua v. DBNTC, a foreclosure challenge case removed to federal court from Hennepin County, Defendants brought a 12(b)(6) motion to dismiss. The federal court held that “plaintiffs pleaded no facts whatsoever in support of their assertion that the chain of title to Plaintiffs' Mortgages is broken.” However, the Defendants supplemented the record with the publicly recorded mortgage documents including the assignments, and the court reviewed those documents. The court held that there were multiple defects apparent in one of the mortgages and described the chain of title as “a mess.” The court went on to note that, because the defendant law firm drafted several of the assignments in the messy chain of title, the Plaintiff’s claims on that mortgage challenge survived the 12(b)(6) motion. Finding a lack of diversity, the court then remanded the entire case back to state court where it was eventually dismissed under Rule 12.02(e). Mutua v. Deutsche Bank Nat. Trust Co., 11-CV-3761 PJS/AJB, 2012 WL 1517241 (D. Minn. Apr. 30, 2012)

E. Eviction i. Changed circumstances

ii. Settlement agreements iii. Right of re-entry

1. Statutory for non-payment 2. Need in lease for material breach

F. Attorney has a right to rely on the factual statements of its client G. A client has a right to expect that its attorney will vigorously represent the client’s

interests H. So long as there is a legal basis for the client to pursue its interests based on the law and

the facts known to the attorney, the attorney should not face any ethical challenges.

6. Defending A. Foreclosure challenges (mortgagor initiated litigation)

i. Proper advice to clients

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1. Strategic defaults 2. Suing the correct parties 3. Deficiency judgments 4. Proper causes of action 5. Frivolous litigation

ii. Delay as a goal – unethical B. Torrens property (mortgagee initiated litigation)

i. Proceeding Subsequent to initial registration (PS) ii. Minn. Stat. § 508

iii. Not necessary to divest ownership of foreclosed mortgagor iv. Only necessary for issuance of a new certificate of title v. Collateral estoppel and res judicata

1. No defendants, per se – but served and have an opportunity to litigate 2. mortgagor is served with an order to show cause 3. occupant is served with an order to show cause 4. ruling is binding as to subsequent eviction actions 5. ruling is binding as to subsequent foreclosure challenges

Scenario 6.1: Bank forecloses on torrens property. After redemption period expires, Bank files a PS and serves all occupants with Order to Show Cause. Affidavits of service are filed with court. After new certificate is issued, Bank starts eviction case. Eviction defendants (foreclosed homeowners) file a collateral action challenging the foreclosure with intention of filing TRO in eviction court. Bank’s attorney shows defendants’ attorney PS filings and affidavits of service upon the homeowners. Homeowners dismiss collateral action and enter into settlement on eviction.

• When defending post-foreclosure eviction on torrens property, need to investigate whether

there was a PS on the property. Pull the tax sheet from the county’s web site and determine if property is torrens.

• TIP: torrens PS actions are not indexed in MNCIS under the homeowners’ name as a party to the proceeding. C. Eviction defense

i. Know how to appeal – 504B.371 1. Court of Appeals – ten days to appeal a judgment to Court of Appeals 2. Judicial review of referee decision (Hennepin and Ramsey only)

a. Same rules – different procedures b. Contact the court to verify what is required; Hennepin timeline is typically

faster than Ramsey c. Request a hearing – or waive it d. Ten days to request judicial review

ii. Delay as a goal – unethical iii. Summary judgment is available in evictions iv. Res Judicata and Collateral Estoppel

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1. Generally no impact from evictions on matters outside of possession 2. Facts necessarily decided in order to reach the legal conclusion that one side is

entitled to possession are res judicata and collateral estoppel in subsequent actions 3. So, be careful what you choose to litigate

a. As a plaintiff, don’t bite off more than you need to chew b. As a defendant, don’t introduce unnecessary affirmative defenses unless you

are prepared to lose them and be stuck with the ruling in subsequent cases D. TRO litigation

i. Collateral actions 1. State action 2. Federal action

ii. Timing 1. Bjorkland Trucking 2. Race to the court-house

iii. Proper court 1. Federal collateral action

a. Rooker-Feldman doctrine b. Anti-Injunction Act

2. State collateral action a. Jurisdiction b. Judicial Comity

iv. Bond amount 1. Rule 65 – Rules of Civil Procedure 2. Rule 108 – Rules of Civil Appellate Procedure

v. Appellate process comparison 1. A collateral case is an improper collateral attack on the eviction 2. Strict 10 day compliance on judge review 3. Strict 10 day compliance on appeal

a. Post-trial motions i. Not toll appellate time-line in evictions

ii. Civil cases – comparison b. It takes an attorney to screw this up c. Malpractice

7. Robo-Signing

A. Notarized signatures i. Acknowledgments

ii. Affidavits 1. An affidavit is a sworn statement that the representations made are made with

direct knowledge and are true to the best information available to the signer iii. Attestations

B. Follow proper notarization procedures

i. Notarization log ii. Know the signer

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C. Foreclosure

i. Read the documents that you sign ii. Accurately date signatures and notarizations

iii. Do not alter notarized documents iv. Do not alter originals v. Do not record an altered document

vi. Do not commit a felony (or three) 609.65 FALSE CERTIFICATION BY NOTARY PUBLIC. Whoever, when acting or purporting to act as a notary public or other public officer, certifies falsely that an instrument has been acknowledged or that any other act was performed by a party appearing before the actor or that as such notary public or other public officer the actor performed any other official act may be sentenced as follows: (1) if the actor so certifies with intent to injure or defraud, to imprisonment for not more than three years or to payment of a fine of not more than $5,000, or both; or (2) in any other case, to imprisonment for not more than 90 days or to payment of a fine of not more than $1,000, or both. 609.625 AGGRAVATED FORGERY. Subdivision 1. Making or altering writing or object. Whoever, with intent to defraud, falsely makes or alters a writing or object of any of the following kinds so that it purports to have been made by another or by the maker or alterer under an assumed or fictitious name, or at another time, or with different provisions, or by authority of one who did not give such authority, is guilty of aggravated forgery and may be sentenced to imprisonment for not more than ten years or to payment of a fine of not more than $20,000, or both: (1) a writing or object whereby, when genuine, legal rights, privileges, or obligations are created, terminated, transferred, or evidenced, or any writing normally relied upon as evidence of debt or property rights, other than a check as defined in section 609.631 or a financial transaction card as defined in section 609.821; or 609.64 RECORDING, FILING OF FORGED INSTRUMENT. Whoever intentionally presents for filing, registering, or recording, or files, registers, or records a false or forged instrument relating to or affecting real or personal property in a public office entitled to file, register, or record such instrument when genuine may be sentenced to imprisonment for not more than three years or to payment of a fine of not more than $5,000, or both.

D. Eviction – think and read before you draft i. Confirm client’s standing as a proper plaintiff

1. Landlord-Tenant eviction a. Read the lease b. Lessor c. Owner d. Property Manager

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e. Read 504B.181 notice 2. Post-Foreclosure eviction

a. Run title work b. Read the Sheriff’s Certificate of Sale c. Verify redemption period has expired d. Fee owner e. Verify no mortgagor redemption f. Verify no junior redemption

ii. Confirm occupancy – evictions are summary proceedings designed only to resolve

the issue of who is entitled to occupy the premises 1. Post-redemption 2. Get name of person who reported to you that the premises are occupied.

iii. Do not name as defendants people who do not occupy the premises 1. Landlord-Tenant (even if they are on the lease)

a. Former room-mates b. Lessees who no longer occupy c. Divorced people – former spouses d. Decedents

2. Post-Foreclosure (even if they are on the deed or the mortgage) a. If property was subject to a 5-weeker, should be a personal property eviction

only i. Do not name mortgagors

ii. Res Judicata that property is vacant and abandoned b. Do not name decedents – name “estate of”

iv. Dismiss and expunge as to named defendants who do not occupy the premises

v. Personal property evictions

1. Household goods or trash 2. Abandoned property statute 3. Consider doing a John Doe / Occupant eviction 4. Decrease amount of needless expungement litigation

Scenario 7.1: Client sends to you an eviction complaint already drafted and signed. Client asks you, the attorney, to notarize the client’s signature and file the complaint. Scenario 7.2: Client asks attorney to “pre-sign” several complaints so that client can fill them out on their own. • Do not sell your signature.

8. Conflicts of Interest

A. MRPC 1.7, 1.8 – current clients

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B. MRPC 1.9 – former clients C. Who is your client?

i. The party who has the legal interest in the action that you are representing 1. not who is paying you 2. not who has hired you 3. not your client’s agents 4. sometimes your client does not understand this 5. Often, your client’s agents do not understand this

ii. Practice tips

1. Make sure the client understand that it is the client a. Verify who has authority to give you direction regarding client matter b. Verify who does not have authority to give you direction

2. Be careful of who you give advice to a. When in doubt, ask the Client b. You don’t want to create an attorney-client relationship with a party who

might have an interest adverse to your intended client c. Be aware of when your client’s agents have done things that compromise your

client’s interests 3. Be careful of who you disclose confidences to

a. When in doubt, ask the Client b. Public information is not confidential

4. Make sure non-clients understand that they are not clients 5. Sometimes clients are represented by more than one law firm

a. Example: you are retained to evict a foreclosed homeowner while at the same time your client is being defended in federal court on a foreclosure challenge lawsuit.

b. Confirm with the Client what level of cooperation is expected c. Confirm with the Client which law firm calls the shots in case of a

disagreement

iii. Foreclosure 1. Non-judicial

a. Mortgagee is the client b. Not the servicer c. Not the investor d. Not the note-holder e. Not the mortgagee’s agents

2. Judicial a. Action on the mortgage – see above (non-judicial foreclosure) b. Action on the note – note holder is the client

iv. Eviction

1. Landlord/Tenant – lease based eviction

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a. Against tenants b. Non-payment of rent c. Material breach of the lease d. Owner or landlord or agent – but only one

2. Post-foreclosure – against former owner a. Fee owner is the client

i. Check the title work ii. Holder of Sheriff’s Certificate

iii. Verify no junior redemptions b. Rule 17.01 – Real Party in Interest

i. Do not let case get dismissed ii. Contact client immediately

iii. Easy fix

D. Foreclosures i. Represent multiple lien holders

1. Client A is the foreclosing party 2. Client B has an interest in the property (junior or senior)

ii. Title defects – potential priority dispute

1. If another lien holder is a client 2. Same result regardless of which client has priority, A or B

a. Withdraw from representation of Client A on this property b. Do not inform Client A of reason for withdrawal c. Do not inform Client B of title defect d. Do not represent Client B on that property

iii. Bid amount

1. Problem if Client B has a junior interest 2. Less of a problem if Client B has a senior interest 3. Full debt

a. Advise client against “over-bidding” the full debt i. Absolutely no benefit to client to over-bid

ii. Only creates a surplus and that creates problems b. Verify that bid is not too high – double check the math

4. Specified bid a. Check to see if bid is unreasonably low – compared to full debt b. Mortgagee cannot demand a full-debt redemption on a specified bid

5. Do not advise client on how much they should bid a. That is a business decision b. If asked, always advise to do a full-debt bid

6. Redemption a. Client A can always accept a lower amount at redemption b. Client A cannot increase the redemption amount until after the redemption

period has expired – and then it is a “sale” – not a redemption c. Promptly record any affidavits of additional costs

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d. Client A can unilaterally enlarge redemption period only by including the longer redemption period in the foreclosure documents

e. Client A cannot unilaterally extend the redemption period to the detriment of junior lien-holders beyond the redemption period in the foreclosure documents

E. Evictions

i. Tenants who ask for legal advice ii. Disputes as between co-tenants

Scenario 8.1: Post-foreclosure eviction: mortgagor had conveyed his interest to an attorney as payment for legal services. So, even though mortgagor was foreclosed, his attorney was the fee owner of the property. This attorney did not redeem as a junior lien holder. This attorney then rented out the building to his nephew. It became clear that the attorney did not make the distressed property disclosures to his nephew before renting the building. At the end of the redemption period, Bank starts eviction – naming former mortgagor as defendant. After service of the eviction complaint, attorney calls Bank’s lawyer and says he represents the occupants of the building who are tenants and tries to negotiate a settlement. He dances around the fact that the attorney became the fee owner and rented to his nephew – but eventually comes clean admitting that he collected rent from nephew during the redemption period and even after the expiration of the redemption period. At this point, Bank’s lawyer states that he intends to amend the complaint to name the nephew and the attorney as defendants. Nephew has zero legal interest to remain in the property, and attorney tries to play the “Do you know who I am?” line with the Bank’s lawyer stating “I am good friend of your boss.” After the attorney contacts the boss, the Bank’s lawyer is directed to negotiate a very generous offer to the nephew. • Attorney for nephew has clear conflict of interest with nephew. • Boss for Bank’s lawyer is letting his personal connection with the attorney affect his

representation of the Bank’s interest.

Scenario 8.2: Post-foreclosure eviction, attorney represents homeowners who – unbeknownst to Bank and Bank’s lawyer – have rented out the building. Attorney removes eviction from housing court to a judge and defends the eviction and loses. Tenants are not represented at the eviction hearing, and are not present. After service of the Writ by the Sheriff, tenants file a pro se appeal to the Court of Appeals and a motion to quash the writ with the eviction judge. This is the first time Bank’s lawyer learns of the presence of the tenants. Bank’s lawyer contacts tenants and learns that homeowners’ attorney knew of the tenants and told the tenants not to worry about the eviction hearing, because he would take care of it. Homeowners’ attorney never informed the eviction judge or the Bank’s lawyer of the existence of the tenants. • Homeowners’ attorney violated duty of candor towards the tribunal by not informing the

court of the tenants’ occupancy. • Homeowners’ attorney violated Rule 11 by maintaining a defense based on homeowners’

occupancy of the building when he knew that the homeowners did not occupy the property.

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• Homeowners’ attorney failed committed malpractice when he failed to argue that the eviction should be dismissed against his clients because his clients no longer occupied the property. Homeowners now have an eviction in their name.

• Homeowners’ attorney may have formed an attorney-client relationship with the tenants by giving them legal advice that they relied upon.

• Homeowners’ attorney had a conflict of interest in that he was giving legal advice to the tenants knowing that he would not represent them at the eviction hearing.

F. Don’t foreclose or evict current or former:

i. Clients ii. Employees

iii. Family members iv. Friends and neighbors v. Adversary – OK, but be careful to not use confidential information of a former client

– MRPC 1.9

9. Bankruptcy A. Automatic stay

i. Timely Motion for Relief (MFR) 1. Chapter 7

a. Typically discharge in 90 days if uncontested b. Not typically needed for foreclosure

2. Chapter 13 a. Read the Plan b. Object if necessary c. Distinguish between “pre-petition” payments in the plan and “post-petition”

payments which may require the MFR

ii. Foreclosure 1. Is the mortgage susceptible of being discharged or “stripped”

a. Unsecured – Lack of equity – file the MFR b. Unsecured – Title defect = unperfected – do not file MFR (don’t commit

malpractice by advertising to the Trustee that your mortgage is unsecured)

iii. Eviction 1. Stay the eviction pending discharge of stay, or dismissal of bankruptcy case

a. Stay is indefinite b. Case gets “re-calendared” upon notice by Plaintiff

2. Do not let eviction get dismissed and be forced to “refile”

B. Dischargeability of underlying debt obligation

10. Rule 11 – Minnesota and Federal use the same language A. Generally

i. Only available in litigation ii. Not available for discovery – only pleadings and motions

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iii. Party initiated – by motion iv. Judge initiated – sua sponte

B. Foreclosure

i. Non-judicial – inapplicable ii. Judicial – applicable

C. Foreclosure defense litigation

i. Definitely applicable D. Eviction E. Appeals