SUPREME COURT OF THE UNITED STATES
Obduskey v. McCarthy & Holthus, 139 S. Ct. 1029
McCarthy & Holthus, LLP had the rare opportunity to appear before the Supreme Court of the United States as both attorneys and a party to the action. The unique situation was extra special as the Supreme Court of the United States ruled 9-0 in favor of McCarthy & Holthus! The issue before the Supreme Court of the United States was whether an entity conducting a non-judicial foreclosure of a residential mortgage was a debt collector under the Fair Debt Collection Practices Act. The circuit courts had been split with the 4th, 5th, & 6th Circuits holding that such an entity was a debt collector, while the 9th Circuit held that they were not. Additionally, the Colorado Supreme Court ruled consistently with the 4th, 5th, & 6th Circuits. In the case at hand, while representing itself, McCarthy & Holthus prevailed on a motion to dismiss in the District Court of Colorado and likewise prevailed at the 10th Circuit. On March 20th, 2019 the Supreme Court of the United States ruled unanimously that McCarthy & Holthus’ non-judicial foreclosure activity did not make it a debt collector within the meaning of the Fair Debt Collection Practices Act.
SUPREME COURT OF ARIZONA
Vasquez v. Saxon Mortg., Inc., 228 Ariz 357
Before the Supreme Court of Arizona, McCarthy & Holthus, LLP filed an amicus brief on behalf of the United Trustees Association (“UTA”). The UTA is a national, non-profit public benefit corporation whose members include trustees who act under deeds of trust secured by real property in Arizona and other states where non-judicial foreclosure is authorized by state law. The primary question presented to the Supreme Court was whether an assignment of a deed of trust was required to be recorded prior to the recording of a notice of trustee’s sale under Ariz. Rev. State. § 33-808. The Supreme Court of Arizona, sitting en banc, agreed with McCarthy & Holthus’ position that an assignment is not required by Arizona law.
SUPREME COURT OF IDAHO
Edwards v. Mortgage Electronic Registration Systems, Inc., 300 P.3d 43 (Idaho 2013)
Edwards was the borrower under a deed of trust that named Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary, as nominee for the lender and the lender’s successors and assigns. After defaulting on the loan, Edwards filed suit challenging MERS’ power to act as beneficiary contending the substitution of trustee, which was executed by MERS, failed to give the trustee power to foreclose. McCarthy & Holthus represented the trustee in the action. The Idaho Supreme Court found in favor of McCarthy & Holthus’ client and concluded that the deed of trust naming MERS as nominal beneficiary conformed to the requirements of Idaho law. The Supreme Court further confirmed that MERS, as nominee of the lender, had the authority appoint a successor trustee.
SUPREME COURT OF NEVADA
Markowitz v. Saxon Special Servicing, 310 P.3d 569 (Nev. 2013)
In one of the first decisions to interpret Nevada’s Foreclosure Mediation Program, McCarthy & Holthus represented the respondents in this appeal to the Nevada Supreme Court. The Rules required the deed of trust beneficiary to submit an appraisal and/or broker’s price opinion prepared no more than 60 days before the commencement of the mediation showing the home’s value. The issue on appeal was whether the Rules required strict compliance or only substantial compliance. The Supreme Court adopted the interpretation advanced by McCarthy & Holthus to hold that the Rules required only substantial compliance. Accordingly, the lender’s appraisal prepared 83 days before the commencement of the mediation did not prevent the lender from obtaining a certificate of compliance with the mediation program.
ARIZONA COURT OF APPEALS
Bank of N.Y. Mellon v. Dodev, 433 P.3d 549 (Ariz. App. 2018)
The Arizona Court of Appeals adopted McCarthy & Holthus’ statutory interpretation and confirmed the lower court’s award of attorney fees to McCarthy’s client. McCarthy & Holthus represented the plaintiff in an action for forcible detainer seeking possession of property following a trustee’s sale. Prior to the instant action, there were two previous forcible detainer actions that were voluntarily dismissed by the Plaintiff. Following several challenges to the court’s jurisdiction, attempts to remove the summary proceeding to federal court, and similar obstacles, the trial court granted judgment in favor of Plaintiff. Dodev appealed, arguing that the court should have dismissed the action based on the “two dismissal” rule contained in Rule 41 of the Arizona Rules of Civil Procedure. Rule 41provides that when two prior actions have been voluntarily dismissed, the second dismissal operates as a dismissal on the merits precluding the filing of a third action. McCarthy & Holthus successfully argued that the two dismissal rule did not apply to forcible detainer actions, which instead are governed exclusively by the Arizona Rules of Procedure for Eviction Actions. In doing so, the Court of Appeals upheld the award of McCarthy & Holthus’ attorney fees.
WASHINGTON COURT OF APPEALS
Singh v. Fed. Nat’l Mortg. Ass’n, 428 P.3d 373 (Wash. Ct. App. 2018):
McCarthy & Holthus, LLP won a significant victory interpreting the interplay between federal bankruptcy statutes and the state of Washington’s foreclosure statutes. Singh was the borrower on a residential mortgage and after his default under the terms of the deed of trust, Quality Loan Service Corporation of Washington (“Quality”), as the trustee under the deed of trust, set a non-judicial foreclosure sale date. Prior to the sale date, Singh filed a petition for bankruptcy protection. While Singh’s bankruptcy was active, Quality continued the sale date. After Singh’s bankruptcy protection ended, Quality completed the non-judicial foreclosure and Singh filed a lawsuit against Quality contending the defendant violated Washington’s Deed of Trust Act and Consumer Protection Act. McCarthy & Holthus filed a motion to dismiss on behalf of Quality and the trial court granted the motion. The Court of Appeals likewise ruled for Quality and agreed with McCarthy & Holthus’ arguments that a sale postponement notice which simply specified a new sale date does not violate the automatic bankruptcy stay and the Washington statute providing that a trustee may not set a new trustee’s sale date less than 45 days after the dismissal of a bankruptcy case did not apply where the previously-noticed sale had been properly continued.
WASHINGTON COURT OF APPEALS
In re Estate of Patton, 405 P.3d 205 (Wash. Ct. App. 2017
McCarthy & Holthus, LLP secured a reversal of the trial court regarding the order of priority for disbursement of sale proceeds following a non-judicial foreclosure sale. Patton was the borrower under a deed of trust, secured by residential property at the time of his death. The probate court appointed Patton’s brother as the personal representative of Patton’s Estate. The Estate did not make any payments on the loan secured by the deed of trust, and the lender filed a claim with the probate court for the outstanding balance on the loan. The lender then initiated foreclosure of the deed of trust. The Estate agreed not to oppose the foreclosure but sought an order from the probate court declaring that the foreclosure sale proceeds must first be applied to reimburse the Estate for its administration expenses before the remainder could be distributed to the lender to satisfy the loan secured by the deed of Trust. The probate court ruled in favor of the Estate, and McCarthy & Holthus appealed on behalf of their client. The Court of Appeals reversed the lower court and found in favor of McCarthy’s client holding that under the correct interpretation of the applicable statutes, the lender was entitled to first priority over the proceeds of its foreclosure sale to satisfy the debt.
WASHINGTON COURT OF APPEALS
Patrick v. Wells Fargo Bank, N.A. 385 P.3d 165 (Wash. Ct. App. 2016)
McCarthy & Holthus, LLP used a procedural argument to shield liability for its clients. Following the completion of a trustee’s sale, the borrower filed suit against the lender and trustee claiming violations of Washington’s Consumer Protection Act and Deed of Trust Act based on the lender’s alleged conduct during loan modification discussions and the trustee’s alleged breach of its duty of good faith to the borrower. McCarthy & Holthus represented the trustee in successfully arguing to the trial court and the court of appeals that the borrowers waived their claims by failing to use the restraint procedure the Washington Deed of Trust Act requires and that borrower had failed to present any evidence that either party breached its duties or failed to comply with the applicable foreclosure statutes.
WASHINGTON COURT OF APPEALS
Leahy v. Quality Loan Service Corp. of Wash., 359 P.3d 805 (Wash. Ct. App. 2015):
The Court of Appeals confirms McCarthy & Holthus’ interpretation of what obligations a trustee owes under the Washington Deed of Trust Act. McCarthy & Holthus’ client, Quality Loan Service Corporation of Washington, completed a non-judicial foreclosure sale, to which, the Leahys were borrowers under the deed of trust. The trustee’s sale had been rescheduled several times before it was completed. After the sale, the Leahys filed suit against the trustee contending the sale was invalid because the trustee failed to send out a new notice of default before each new notice of trustee’s sale. McCarthy & Holthus obtained an order granting summary judgment for the trustee, and the Leahys appealed to the Washington Court of Appeals. On appeal, the court agreed with the trustee that the plain language of the Deed of Trust Act does not require a new notice of default to be issued before each new notice of trustee’s sale.
NEW MEXICO COURT OF APPEALS
Nationstar Mortg. LLC v. O’Malley, 415 P.3d 1022 (N.M. Ct. App. 2018)
McCarthy & Holthus filed a judicial foreclosure complaint seeking to foreclose a mortgage executed by Mr. O’Malley. His wife filed a motion for summary judgment contending the mortgage was void because she did not execute it even though she held joint title to the property. The trial court granted summary judgment for her, and McCarthy & Holthus file an appeal on behalf of the lender. The appellant argued the mortgage was not void because the property was separately held by Mr. O’Malley at the time he signed the mortgage, and Mrs. O’Malley signed a sole and separate property agreement confirming that Mr. O’Malley held sole title to the property. As the sole title owner, Mr. O’Malley had the power to encumber the property without Mrs. O’Malley executing the mortgage. The Court of Appeals agreed with the Firm’s argument and reversed the order granting summary judgment for the defendant.
CALIFORNIA COURT OF APPEALS
Jenkins v. JPMorgan Chase Bank, N.A., 216 Cal.App.4th 497 (2013)
In the wake of the great recession, a new theory developed, in which, borrowers alleged that a lender lacked standing to foreclosure because of alleged irregularities with the pooling and servicing agreements. McCarthy & Holthus prevailed for its client as the court ruled that the borrower (Jenkins) was not a third party beneficiary of the investment trust’s pooling and servicing agreement, and therefore she could not sue to enforce its terms. McCarthy & Holthus represented the trustee in the trial court and on appeal where both courts agreed with McCarthy’s arguments.
CALIFORNIA COURT OF APPEALS
Mabry v. Superior Court, 185 Cal.App.4th 208 (2010)
In 2008, the California legislature passed the Perata Mortgage Relief Act (codified as California Civil Code § 2923.5) which added multiple requirements to conduct a non-judicial foreclosure. The statute requires that a notice of default include a declaration of compliance with the statute. McCarthy & Holthus represented the trustee in the action. The Court of Appeals adopted the interpretation advanced by McCarthy & Holthus ruling that Civil Code § 2923.5 does not require a factually detailed declaration be included in each notice of default, but rather the statute requires only an unsworn declaration stating that the lender complied with the requirements of the statute. Moreover, the Court of Appeals ruled that noncompliance with the statute does not provide a basis to set aside a completed foreclosure, and rather the only remedy for violation of the statute is a postponement of the trustee’s sale until the lender complies.
CALIFORNIA COURT OF APPEALS
Pro Value Properties, Inc. v. Quality Loan Service Corp., 170 Cal.App.4th 579 (2009)
McCarthy & Holthus, LLP’s client, the trustee under the deed of trust, was sued by a third party purchaser after McCarthy’s client rescinded a trustee’s sale. Due to the sale being rescinded, the trustee returned the third party purchaser’s bid funds, together with 7 percent interest on the purchase price. The third party purchaser rejected the returned funds and sued. The trial court confirmed that the trustee’s sale was void and the third party purchaser was entitled to return of its purchase funds plus interest, but held that the purchaser was entitled to 10 percent interest on the funds. McCarthy & Holthus, through its client, filed an appeal. The Court of Appeals found in favor of the trustee and held that the proper interest rate was 7 percent per annum from the date of the sale through the date the funds are returned.
CALIFORNIA COURT OF APPEALS
In Re Salazar, 470 B.R. 557 (S.D. Cal. 2012)
McCarthy & Holthus, LLP, on behalf of the purchaser of the property at auction, filed a motion for relief from the automatic stay to allow the purchaser to continue its unlawful detainer action. The bankruptcy court denied the motion ruling that the debtor demonstrated that the foreclosure sale was void. McCarthy & Holthus appealed to the federal district court arguing that the bankruptcy judge abused her discretion, the highest standard possible. The bankruptcy court’s decision was premised upon a belief that Cal. Civil Code § 2932.5 applies to both mortgages and deeds of trust. According to § 2932.5, in order to exercise the power of sale, the assignee of a mortgage must record an assignment. McCarthy & Holthus, LLP convinced the appellate court that § 2932.5 only applies to mortgages and not the deed of trust at issue. As such, the appellate court had to reverse the bankruptcy court as the lower court’s reasoning was based on erroneous conclusions of law.
NINTH CIRCUIT COURT OF APPEALS
Barnes v. Routh Crabtree Olsen PC; Federal National Mortgage Association et. al. D.C. No. 3:15-cv-01001-BR (9th Cir. June 30, 2020)
In an appeal handled by our firm, the Ninth Circuit Court of Appeals affirmed the District Court’s dismissal of claims brought against FNMA, its servicer, the lawyers and law firm that had prosecuted an action in judicial foreclosure. (Barnes v. Routh Crabtree Olsen PC; Federal National Mortgage Association et. al. D.C. No. 3:15-cv-01001-BR (9th Cir. June 30, 2020)).
Barnes argued that the US Supreme Court’s holding in Obduskey v. McCarthy Holthus LLP, 139 S. Ct. 1029 (2019) did not apply to actions in judicial foreclosure and thus, the beneficiary, servicer, lawyers and law firms prosecuting a judicial foreclosure could violate the FDCPA in making alleged inaccurate assertions in the filed complaint and seeking a money judgment.
In affirming dismissal, the court held that if the plaintiff in a judicial foreclosure is simply enforcing a security interest by retaking or forcing a sale of the property, without regard to any additional debt that may be owed, then the FDCPA does not apply. Because the appellant pleaded no conduct by the defendants beyond the filing of a foreclosure complaint and actions to effectuate that proceeding, the district court properly granted defendants’ motion to dismiss.
Industry Impact: This ruling should provide protection against FDCPA claims for servicers and law firms that judicially foreclose without pursuit of a deficiency judgment.
Well-Deserved Accolades: our firm would like to thank Lance Olsen (our firm’s Managing Partner for the Northwest), the FNMA Legal Department, and several other industry members for all of their time and effort resulting in this shared victory for the industry. Favorable results like this prove just how strong collaboration can be toward protecting the integrity of our industry within the legal profession.