CFPB Proposed Rule to Help Homeowners Avoid Foreclosure

On July 10, 2024, the Consumer Financial Protection Bureau (“CFPB”) proposed a new rule that will place additional burdens on mortgage services dealing with delinquent residential mortgage loans. The CFPB’s goal for this rule is to “require servicers to help homeowners before foreclosing, give servicers more flexibility by reducing paperwork requirements, and improve communication with homeowners.”

If the proposed rule becomes a final rule, it will amend the mortgage servicing rules that took effect in 2014. Highlights of the proposed rule include: stopping “dual tracking,” limiting fees charged, streamlining loss mitigation procedures, changing notice and communication requirements, and requiring specific notices to be sent in both English and Spanish. The proposed rule would not apply to small servicers.

“Dual tracking” is attempting to work with the borrower while advancing a pending foreclosure or moving forward with a foreclosure. Under the proposed rule, once a borrower requests loss mitigation assistance, the servicer may not begin or advance the foreclosure process until the loss mitigation cycle ends. The loss mitigation cycle ends when either (1) the servicer reviews the borrower for all available loss mitigation options and no available options remain for the borrower or (2) the borrower becomes and remains unresponsive for a specified period of time.

Streamlining loss mitigation procedures would do away with the requirement that a borrower submit a complete loss mitigation application before a servicer was required to assess loss mitigation options. Under the proposed rule, a servicer would be able to make a loss mitigation determination based on available information and would be able to review a borrower for loss mitigation options sequentially rather than simultaneously.

Finally, the proposed rule seeks to change some notice requirements. Servicers would be required to provide additional information in written early intervention notices, including the name of the owner of the mortgage loan, a description of each type of loss mitigation option that is generally available, and a reference to a website where the borrower can access a list of all loss mitigation options that may be available. When it comes to loss mitigation determination notices, the proposed rule would require that servicers provide a written response that includes key “borrower-provided inputs” that served as a basis for the determination, a list of other loss mitigation options that are still available, and the next steps that the borrower must take to be reviewed for these options. The notice must inform the borrower if the borrower has been reviewed for all available options and that no options remain. Additionally, specific notices must be provided in Spanish.

Please note that this is a proposed rule, and it is subject to change. When a final rule is released, we will send out a more detailed analysis of the final rule. In the meantime, should you have questions or concerns, please do not hesitate to contact an attorney at Sorenson Van Leuven..

Garnishments on Joint Accounts and the Tenancy by the Entirety Exemption

As any Credit Union Collections Department knows, sometimes getting a judgment against a member is the easy part. Between Florida’s debtor-friendly exemptions and trying to find the debtor, actually getting any money back on a judgment can be challenging. One popular option for collecting on a judgment is a garnishment on the debtor’s deposit accounts. This allows the Credit Union to freeze a deposit account and withdraw funds to satisfy the debt. There are several exceptions to an account garnishment, one being that if a judgment is against a single party, a Credit Union cannot garnish any account held as tenancy by the entirety by that debtor. However, a recent case has carved out a small exception to this rule that may be helpful in collecting against debtors.

A garnishment is a legal process by which a creditor, after obtaining a court judgment, can collect funds directly from a debtor’s deposit accounts to settle the unpaid debt. This begins by filing a motion with the Court and obtaining a Court Order that requires the debtor’s financial institution to freeze funds in the debtor’s accounts. Once a Writ of Garnishment is issued, the debtor must be notified, which gives them the opportunity to contest the garnishment, request exemptions, or negotiate repayment terms. Typically, specific types of income, such as Social Security benefits, veteran’s benefits, and disability benefits, are exempt from being garnished.

One other exemption that offers significant protection from creditors are accounts held as tenancy by the entirety. This is a special form of joint ownership available only to married couples. It treats the couple as a single legal entity, meaning that the property or account cannot be divided between them and is entirely owned by the spouses together.  In Florida, a financial account owned by tenancy by the entirety cannot be garnished or seized by a creditor of just one spouse. This is because the debt is considered to be the responsibility of the individual, not the couple as a legal entity. As long as the account meets the requirements for tenancy by the entirety, then a creditor has no claim against both spouses jointly; therefore, the account is protected.

Tenancy by the entirety is a common law legal doctrine which has six characteristics: (1)unity of possession (joint ownership and control); (2) unity of interest (the interests in the account must be identical); (3) unity of title (the interests must have originated in the same instrument; (4) unity of time (the interests must have commenced simultaneously); (5) survivorship; and (6) unity of marriage (the parties must be married at the time the property became titled in their joint names).

Whether an account meets the requirements of tenancy by the entirety was in question in the recent case of Loumpos v. Bank One and Dove Investment Corp., coming out of the 2nd District in Florida. Here a creditor of the wife, Linda Loumpos, sought to garnish a bank account titled in her name and the name of her husband. Her husband had opened the account in his name only, then seven months later he and his wife executed new account signature cards that stated that they both owned the account. They also checked the Joint Tenancy by the Entirety box. When the creditor sought to garnish the bank account, the debtor claimed that it was exempt as an entireties account, as the debt was only against Ms. Loumpos. However, the creditor disagreed, arguing that while the later of the signature cards does state their intention to have the account as an entireties account, it does not meet the unities of time and title. The Court held that because the account was originated by the husband individually, only later adding the wife, the mere fact that they added language at that time stating the account was held as an entireties account did not overcome the requirements set forth in common law and cemented in case law. Thus, the account was subject to the garnishment.

Collecting on a debt can be a long, frustrating, and confusing venture, but remember, we are here to help. A judgment in Florida is good for 20 years, so if you have old ones sitting in a drawer, it may be time to dust them off and send them over to your attorney to try and see if there are any options for recovery. If you have any questions about garnishments, or any collection topics, please reach out to us at (850)388-0500.

Staff Spotlight on Asia Ross

Asia is one of our legal assistants in the bankruptcy department. She joined the SVL team in April of this year. Originally from Camden County, Georgia, Asia made her way to Tallahassee, Florida, to attend Florida State University, where she graduated in December 2023 with her bachelor’s degree in political science and a minor in law.

She was interested most in finding a position in the legal field due to its ever-changing nature that continually grows and expands. She feels there will always be something new to learn because the law is continuously changing. This will always keep you on your toes and that is what makes it so exciting! Asia feels that “being a part of the SVL team feels like a big family where everyone wants to see you succeed. They really care about their employees and the firm wants the best for them.” We are proud our culture attracts people like Asia to our team!

In Asia’s time away from the office, she likes spending time outdoors, going on runs with friends, and attending sporting events at the university. A couple fun facts that you may not know about Asia is that she has a love for hikes and she is training to run a 5K in December! She is also currently studying to obtain her Paralegal Certification.

Asia, we are so grateful for you, your dedication to the firm, and all you have learned in such a quick time being here. Thank you for all you do!

Staff Spotlight on Tanya Darbouze

 Tanya was born and raised in Miami, Florida, but her family is originally from Haiti and the Dominican Republic. She has lived in Tallahassee for 10 years. She moved to Tallahassee for school and found a job in the early childhood education field, which kept her in Tallahassee after she finished school. During her time in Tallahassee, she has earned her Child Development Associate’s and Director’s Credentials and has over 10 years of experience working in this field.

In May, Tanya transitioned into the legal field after being interested in exploring new opportunities and a new career outside of childcare. She was excited to expand her knowledge and be a part of a supportive and collaborative environment like Sorenson Van Leuven!

While away from work, Tanya frequently visits Miami to spend time with family and enjoy vacation time. She likes spending her free time running, practicing yoga, and traveling. She also enjoys teaching at conferences where she helps educators obtain the credentials they need to run and teach at daycares or schools. Tanya finds so much joy pouring into others!

A few fun facts about Tanya: Haitian Creole is her first language, and she still speaks it fluently; she is a dog mom to two fur babies; and she loves visiting Los Angeles and goes at least once a year. It is her favorite place to travel.

Tanya, you are such a gift to our firm, and we are proud to have you as a part of this team!

SVL SourcExpo 2024

On July 10-12, 2024, Sorenson Van Leuven held a successful SVL SourcExpo Conference at the Renaissance International Plaza Hotel in Tampa. We want to thank everyone who attended – the SVL team thoroughly enjoyed our time spent with each of you. We would also like to thank our sponsors: Allied Solutions, South Bay Remarketing Services, SWBC and United Solutions Company.

The SourcExpo is our annual learning event for Credit Unions that focuses on collections, bankruptcy, foreclosure, and other related issues. The goal of the SVL SourcExpo is to instruct, innovate, and inspire. We do this by having the attorneys from our office provide training over the three-day event. Additionally, we help Credit Union representatives network with other Credit Unions in attendance to share ideas while also working to inspire each Credit Union team to improve its processes.

We are excited to announce we will be hosting again in Tampa at the Renaissance International Plaza Hotal for our SVL SourcExpo 2025. The dates for next year’s conference will be July 9-11, 2025. Be sure to save the date and join us!

More details will be posted in the coming months. We cannot wait to see you in July 2025!

Fourth DCA Seeks to Change Process in a Deceased Foreclosure

Occasionally, a credit union is faced with a foreclosure that results from the borrower having passed away, and with no one in a position to step forward and resume payments or pay the balance owed.  When this happens, the credit union is left with no option but to wait 120 days and initiate foreclosure.   In a foreclosure where the estate has not been probated or title has not vested in a new owner, it has long been the process to include both the known heirs and unknown heirs of the borrower, assuming the borrower was the owner of the property at time of their death.  To properly serve the unknown heirs in the foreclosure, we must publish a notice of action in a local newspaper for two consecutive weeks.  To then represent the interest of the unknown heirs, we appoint guardian ad litem.  The guardian ad litem is tasked with completing a search for any known heirs  and filing a response on behalf of the unknown heirs.  The Fourth District Court of Appeal has recently called this process into question.

On February 14, 2024, the Fourth DCA, in Desbrunes v. US Bank N.A., 2024 Fla. App. LEXIS 1092, held that the known and unknown heirs is not always a necessary and proper party to a foreclosure.  In Desbrunes, the borrower passed away during pendency of the foreclosure. The Plaintiff sought to substitute the known and unknown heirs and appoint a guardian ad litem.  The trial court entered final judgment of foreclosure, but upon appeal the Court initially held that the inclusion of the known heirs and unknown heirs was improper.  In reaching its initial ruling the Court found that when the borrower and owner is deceased, the proper party is the estate’s legal representative appointed by a probate court, which in most cases is a personal representative, and not someone appointed by the foreclosure court or the heirs.  When there is no estate or legal representative, the proper step is to petition for administration of the estate as a creditor.   Upon a request for rehearing, the Court clarified its ruling by distinguishing between homestead and non-homestead property.  In Florida, homestead property is not property of the estate and passes outside the estate.  If the property is non-homestead, then it does become property of the Estate.  Based on this clarification and the facts of the case, the Court reversed its ruling and found that final judgment of foreclosure was proper as the property was homestead.  Desbrunes v. US Bank N.A., 2024 Fla. App. LEXIS 3570.  However, had the property been non-homestead, the Court’s initial ruling would likely have been upheld to find that a legal representative of the estate must be added to represent the interest of the deceased borrower.

It is important to note that the holding in Desbrunes is only binding on cases within the Fourth District Court of Appeal (Palm Beach, Broward, St. Lucie, Martin, Indian River, and Okeechobee Counties).  For foreclosures within these counties that involve a deceased borrower and non-homestead property, the Court may require that probate be initiated, and the legal representative be joined.  If the family has not probated the estate, it may fall upon the credit union to petition for administration of the estate as a creditor.  While this is not binding upon other Circuits, a Court may choose to adopt this holding as persuasive.  However, given the long standing process in a foreclosure to appoint a guardian ad litem and include any known or unknown heirs, it is uncertain how many other circuits will adopt this holding.

If you have questions related to a mortgage or foreclosure involving a deceased member, or any other questions related to mortgages or foreclosures, please do not hesitate to contact one of the lawyers at SVL to discuss.

Changes Coming to Florida Rules of Civil Procedure

The way civil lawsuits proceed in Florida is changing. On May 23, 2024, the Florida Supreme Court issued amendments to several of the civil procedure rules, which will go into effect on January 1, 2025.

First, the Supreme Court amended Rule 1.510. Rule 1.510 deals with summary judgment, which is a mechanism for a party to move for judgment without having to go to a trial. Summary judgment is appropriate when there is no dispute regarding the material facts of a case and the arguments are purely how the law applies to the facts of the case. We often file a motion for summary judgment in collections and foreclosure litigation when the debtor does not deny the debt but presents some argument on why they should not be obligated on the debt. The amended rule changes the timelines for a party to respond to the motion. Currently, a party must file their response 20 days prior to the scheduled hearing. Under the amended rule, a party must file their response “no later than 60 days after the service of the motion for summary judgment.”

This rule change could lengthen the time it takes to get a hearing on a pending motion for summary judgment. Currently, we could schedule a hearing between thirty and sixty days after the motion is filed. Under the amended rule, the hearing cannot take place prior to the new 60-day deadline. However, in many counties with a large metropolitan area, the ability to get a hearing within 60 days is already rare given the busy dockets of those judges.

New Rule 1.202 is titled Conferral Prior to Filing Motions. This new rule will impose a duty on a moving party (the party who is filing a motion in the court case) to confer with the opposing party in a good-faith effort to resolve the issues raised in the motion prior to setting a hearing on the motion. The idea is to force the parties to communicate and only bring before the court for hearing motions that are truly contested. This rule does not apply to certain motions, including a motion for summary judgment.

While this new rule can be helpful when both parties are represented by an attorney, this new rule can create challenges in a case where a party is pro se (not represented by an attorney). In most of the collections lawsuits we handle, most debtors are not represented by an attorney. Under this new rule, we are going to have to make a good-faith effort to reach the debtor and discuss the pending motion prior to setting a hearing. As most debtors are not very communicative, this requirement can take time and delay the resolution of the case. Additionally, this new requirement will require more time by the attorney and, therefore, increase the legal fees charged in these cases.

Furthermore, the Florida Supreme Court amended Rule 1.280, which governs discovery in a civil case. These changes follow how the Federal Rules of Civil Procedure operate and now require that parties provide initial discovery disclosures whether the other party makes any discovery requests. This duty will now require us to provide certain information to a debtor during litigation, thereby requiring us to get more information at the beginning of a case so that the required information can be submitted to the debtors.

Other changes in the rules will have a limited impact on routine collections and foreclosure litigation but could impact more complex litigation. Should you have any questions about these rule changes or collections or foreclosure litigation, please do not hesitate to contact a lawyer at SVL.

Staff Spotlight on Rhonda Taylor

Rhonda is originally from Charleston, South Carolina, but moved to Tallahassee when she was eight months old. She has a twenty-eight-year-old daughter named Heather who works as a social worker at a local middle school in Tallahassee. Rhonda enjoys spending her time with Heather and her son-in-law, Ryan. They got married in February 2022.

Rhonda joined the SVL Team in January of this year. She is the legal assistant handling Georgia collection cases for our Credit Union clients. Rhonda enjoys working in the legal field because there is always something new to learn. She loves having goals to strive for as she learns the process.

In her time away from the office and legal work, she loves to get crafty! Rhonda uses sublimation to create resin tumbler cups with fun designs. She loves to be a part of local craft shows to showcase her tumblers. She also does special orders for these special cups.

Thank you for all you do, Rhonda – we are happy to have you here at SVL!

Staff Spotlight on Brianna Hill

Brianna joined the SVL Team in February of this year. She is the legal assistant handling all Florida replevins. Along with working full time at our office, she is currently attending Tallahassee Community College where she will obtain her Associate’s Degree at the end of this summer. She plans on transferring to FAMU in August where she will earn her Bachelor’s Degree in Business Administration.

Brianna enjoys working in the legal field because it is an ongoing learning process. She loves that it keeps her on her toes!

In her spare time away from the office, Brianna enjoys adventuring and trying new things. Going to restaurants that she has never been to and taking classes around town, such as cycling, painting, and barre are just a few of her favorite ways to fill her “extra” time.

Brianna, we love having you apart of our team – thank you for being a true rockstar!

Sorenson Van Leuven in the Community

Sorenson Van Leuven participated in the 24th Annual Friends of the NMCRS Charity Golf Tournament on April 5, 2024. This is an annual Golf Tournament in Pensacola, Florida, proudly supporting the Navy-Marine Corps Relief Society, Inc. The mission of this organization is to provide “financial assistance and educate service members to become financially self-sufficient and better managers of their personal finances.” Attorneys Steve Orsillo and Blair Boyd had a great time playing in this tournament and supporting the cause.

On April 22, 2024, Sorenson Van Leuven participated in Gulf Winds Credit Union’s first charitable golf tournament called the Chip in Fore in Pace, FL. This event raised more than $33,000 with the support of the golfers, sponsors, and donations. It was a great day for networking, fun, and providing support to over 20 local non-profit organizations in the area. Tyler Van Leuven and Blair Boyd were in attendance at this event.

Sorenson Van Leuven was also a Gold Sponsor in the 2024 Tallahassee Chapter of Credit Union’s Golf Tournament held on April 8, 2024, located in Tallahassee. This is always a great event and attorneys Tyler Van Leuven, Steve Orsillo, and Blair Boyd enjoyed supporting the Credit Union movement through a fun day on the course

2024 CUCP Summit

Our firm sponsored and attended the 2024 Credit Union Collection Professionals (CUCP) Summit in Nashville on May 15-17, 2024. The mission of the CUCP is to develop, educate, promote, and provide a professional support system to all people in the Credit Union movement. Attorney Steve Orsillo from our office spoke on the topic of Revolutionizing Collections – the Dynamic Impact of Tech Driven.

It was a great time networking with some of our current Credit Union clients and also building new relationships too. Thank you CUCP for including us!

Out of the Office

On Saturday, June 8, 2024, SVL hosted a Family Fun Day at a local hangout in Tallahassee – District 850. We enjoyed bowling and fun arcade games for the afternoon. It was a fun time away from the office, spending time with our co-workers, their spouses, and their children. We are looking forward to the next staff get-together!

Don’t Forget Post-Judgment Interest

If you file a claim against a member for breach of contract and a court awards you a dollar figure, it is not just the damages that stem from the contract/loan that the court will award you, there is also something know as post-judgment interest.

What is Post-Judgment Interest?

Post-judgment interest is the interest awarded for the period of time from the date the final judgment is entered until the judgment is satisfied. Post-judgment interest is meant to encourage the defendant/member to quickly pay the damages that are due and to compensate the prevailing party for the inability to collect the awarded money, which in many cases can take up to several years. Unless otherwise agreed by contract, the post-judgment interest rate is set by statute. The interest rate set by law is compensatory.

Why should you care about the Post-Judgment Interest rate?

As a creditor, you should be aware that post-judgment interest will accrue on the judgment balance. The longer the judgment goes unpaid, the more the post-judgment interest will accrue and the bigger the ultimate balance will be. Ultimately, post-judgment interest can mean that the amount of the judgment can greatly increase over time.

Post-Judgment Statutory Interest in Florida

Fla. Stat. § 55.03 sets a statutory interest rate for post-judgment interest in Florida. Although Fla. Stat. § 55.03 allows the parties to a contract to set the rate of post-judgment interest, a contractual provision that sets only the rate of interest for the debt does not also govern the rate of post-judgment interest.

Collecting Interest on a Florida Judgment – changes in the law

In 2011, the law changed how interest applies to Florida judgments in two major ways. First, the law now reads that the rate of interest will be adjusted by the Chief Financial Officer on each quarter (on January 1, April 1, July 1, and October 1) of each particular year. The second major change in the law was that, not only does the amount of interest change quarterly, the rate of interest that applies to a particular already established judgment will vary quarterly until the judgment is paid in full. The statute is clear that nothing in the statute shall affect the rate of interest that is set in a contract.

Current Interest Rate for Florida Judgment

The current interest rate is 9.09%. However, on April 1, 2024, it will increase to 9.34%.

Post-Judgment Interest in Georgia

In Georgia, the applicable post-judgment interest rate is either (1) the specific interest rate agreed to in the contract between the parties or (2) the legal rate, if not agreed in a contract. According to GA Code § 7-4-12, all judgments in this state shall bear annual interest, upon the principal amount recovered, at a rate equal to the prime rate, as published by the Board of Governors of the Federal Reserve System, as published in statistical release H. 15 or any publication that may supersede it, on the day the judgment is entered plus 3 percent. As of April 2023, the Georgia post-judgment legal interest rate is 11%. If you have questions about post-judgment interest or other aspects of the post-judgment process, please do not hesitate to contact one of the attorneys at SVL for legal advice.

Recent Advisories on the Fair Credit Reporting Act

The Consumer Financial Protection Bureau (“CFPB”) has recently issued two advisories on the Fair Credit Reporting Act (“FCRA”). The CFPB was formed around twelve years ago in response to the Great Recession and serves as an aid to consumers in the financial sector. In addition to serving consumers, the CFPB is also responsible for supervising financial institutions, including Credit Unions. This supervision includes issuing guidance and interpreting certain legislation.

The CFPB is in charge of interpreting the Fair Credit Reporting Act. Per the CFPB, the FCRA “promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies.” Among other objectives, the FCRA is intended to protect consumers from erroneous data appearing in their credit reports. In addition to keeping errors off credit reports, certain data must be purged from consumer reports after a specified amount of time. Generally, the FCRA allows seven years for any negative information to appear on a consumer report. After the seven years has passed, the FCRA requires that negative information be removed.

On January 11, 2024, the CFPB issued an advisory on Background Screening, specifically on how it relates to housing and employment decisions. A consumer report may be used by landlords, property managers, and potential employers to assess a candidate for housing or employment. The Background Screening advisory has clarified how long certain negative information can stay on a consumer report. Going forward, the CFPB has advised that the seven-year timeframe on any proceeding, criminal, eviction, or otherwise, shall run from the commencement of the proceeding, not the disposition of the proceeding.

For example, if a consumer had an eviction proceeding commence on May 20, 2020, and that eviction proceeding was dispensed on June 20, 2020, the seven-year timeframe would run from the May 20, 2020, date, not the June 20, 2020, date. The CFPB advised that this clarification was intended to promote data accuracy. The CFPB noted that some states had inconsistent procedures for reporting disposition of certain matters that led to uncertainty in consumer reports.

The second advisory was also issued on January 11, 2024. This second advisory concerns File Disclosures. The advisory was intended to remind financial institutions that consumers must be provided with complete files on their consumer reports. The file must contain complete and full information and be provided with “clear and accurate information that is presented in a way an average person could understand.” The CFPB further clarifies that this means the information must be presented in such a way that consumers can easily identify inaccuracies and understand how to exercise their rights to dispute inaccurate or incomplete information.

Furthermore, the CFPB includes an additional item to include in a complete consumer report. Consumer reporting agencies must disclose to a consumer “both the original source and any intermediary or vendor source (or sources) that provide the item of information.”

The CFPB continues to provide guidance to financial institutions. If you have any questions or concerns regarding the above advisories, please contact one of the attorneys at Sorenson Van Leuven.

Staff Spotlight on Kaylyn Shaw

Kaylyn is from Tallahassee, Florida, and graduated from Florida State University in the Fall of 2020 with her bachelor’s degree in criminology. She re-joined the SVL team in November of 2023, and we are so grateful to have her back! She is the legal assistant handling probate matters for our Credit Union clients.

While away from the office, Kaylyn loves to travel and read. Her favorite getaway experiences have been traveling to Aruba and Amber Cove. She traveled to both of these destinations via a cruise line last year, and she can’t wait to go back. She said that the water was so beautiful, and she had a blast snorkeling there! Kaylyn loves to read romance novels and recently has been partaking in fantasy books, which she has really enjoyed, as well.

A couple of fun facts about Kaylyn: she is the youngest of three daughters, she is a third-generation FSU graduate, and her sister is getting married this month!

We are so happy to have you back as a part of our team, Kaylyn!

Staff Spotlight on Zenee Theophille

Zenee is originally from Ft. Lauderdale, Florida, but now lives in Cairo, Georgia. Zenee’s mom’s side of the family lives in Georgia, so she moved there to be close to family. Zenee joined the SVL team in November of 2023 and is one of our legal assistants in the Collections Department.

When away from the office, Zenee enjoys graphic design. To name a few, she creates flyers, Instagram graphics, Pinterest pin covers, and videos. Her favorite things to design are flyers for events, such as community fundraisers. Zenee says she has the most creative freedom when it comes to creating those types of designs. Zenee also has an interest in social media, the environment, and various social issues in our society.

A couple fun facts about Zenee: she is proficient in the German language, she is an only child, and she used to “show goats” (like a dog show, but for goats!). Once in high school, she stopped showing goats because she got involved in band.

Zenee, thank you for all that you do for our firm. We appreciate you and are so happy to have you as a part of our team!

“See Us” At:

24th Annual Friends of the NMCRS Charity Golf Tournament –                                                                   Credit Union Collection Professionals (CUCP) Summit – 
April 5, Pensacola ,                                                                                                                                             May 15 to May 17 in Nashville, Tennessee 

Florida Tallahassee Chapter Golf Tournament –                                                                                           Southeast Credit Union Conference & Expo – 
April 8, Tallahassee, Florida                                                                                                                               June 14 to June 16, Orlando, Florida

Gulf Winds Cares Foundation Chip in Fore Charity Golf Tournament –                                                    Southernmost Chapter Golf Tournament –
April 22, Pace, Florida                                                                                                                                       October 10, Miami, Florida 

Successors in Interest and Bankruptcy

A recent bankruptcy decision out of Virginia highlights the breadth of rights a successor in interest has in a residential mortgage loan. The court opinion is from In re: Stevenson, a Chapter 13 bankruptcy, pending before the United States Bankruptcy Court for the Eastern District of Virginia. The decision was entered on November 8, 2023. The Debtor filed a Chapter 13 bankruptcy with the intent to cure the arrearage on a mortgage loan owed to Wesbanco Bank.

The Debtor, Mr. Stevenson, was not obligated on the mortgage loan (he had not signed the note or the mortgage), and the property in question was not his residence. Mr. Stevenson had inherited the property after the previous owner died. Under Federal law, that makes the Debtor a successor in interest and subject to the rights of a successor in interest under the Federal Mortgage Servicing Rules.

The Bank objected to the Debtor’s plan on the grounds that the Debtor was not obligated on the note and mortgage and was seeking to force an assumption for the mortgage loan without its consent. The Court overruled the Bank’s objection, confirming the Chapter 13 plan. The Court noted that bankruptcy courts do not agree on whether a Chapter 13 plan may cure a defaulted secured claim when no privity of contract exists (meaning the Debtor is not personally liable on the note and mortgage). The Court sided with the majority of courts that found that the bankruptcy code allows a debtor to propose a plan to repay a debt on the property that the Debtor owns, even if the Debtor is not personally liable for the debt.

While the court did not cite the mortgage servicing rules, the rights of a successor in interest would have justified the same result for the court. Mr. Stevenson inherited the property, making him a successor in interest. The CFPB’s rule on successors in interest took effect on April 19, 2018. The Rule applies to all servicers, including small servicers. The law entitles a successor in interest to make loan payments and apply for loss mitigation assistance.

When dealing with a person who has inherited a mortgaged property, lenders must understand that this person is a successor in interest and has certain rights under Federal law. Furthermore, a successor in interest has certain rights whether or not they assume the loan. If the successor in interest chooses to file bankruptcy, most courts will find that the bankruptcy code allows them to cure any arrearage on the loan and resume payments under the note and mortgage.

If you have questions or concerns regarding successors in interest or bankruptcy-related issues, please get in touch with a lawyer at Sorenson Van Leuven.

New Ruling Has Effect on Till Rate in “Cram Downs

In a Chapter 13 bankruptcy, a debtor has the chance to reorganize their finances and repay debts over a specified period, typically three to five years. For secured creditors, this process introduces a crucial concept known as “cram down,” which carries significant implications. A cram down occurs when a bankruptcy court approves a repayment plan proposed by the debtor that reduces the outstanding balance of a secured debt to the collateral’s value, rather than the total amount owed. However, the Supreme Court ruled in its Till decision that, when this occurs, the secured creditor is entitled to an interest rate of the current prime interest rate plus a 1-3% risk adjustment. Creditors are entitled to this even if the contract rate is less than Till rate.

A recent case in the 8th Circuit discusses the issue of whether Till requires the Court to start at the prime interest rate or if the treasury rate is also applicable.

The Case

The case at issue, Farm Credit Services of America v. Topp, 22-2577 (8th Cir. Aug. 2, 2023), deals with a Chapter 12 (family farmer or fisherman bankruptcy) debtor who proposed a cram down plan to compensate a secured lender who held a $595,000 mortgage on property worth $1.45 million. The parties could not agree on the interest rate to be paid on debt. The creditor argued that they are entitled to the prime (3.25% plus a 2% risk-adjustment for a rate of 5.25%), while the debtor argued that they start with the 20-year treasury rate (1.87% plus 2% for a rate of 4%).

The Court sided with the debtor and ruled that “Till did not explicitly analyze the merits of starting with the prime rate versus the treasury rate.” The Court discussed the prime rate simply because that was the formula-approach proponents used. As for the appropriate risk adjustment on top of the prime rate, the plurality did not decide; it merely observed that courts had generally approved adjustments of 1% to 3%.

The Effect

In today’s wild financial climate, interest rates are ever changing. As of the date this article was drafted, the prime interest rate is 8.5% and the treasury rate 4.503%; the difference is substantial and can add up quickly on larger debts. While I have not seen a Court use the treasury rate yet in a Chapter 13, it is only a matter of time until a debtor’s attorney tries something like this.

As always, when a member files bankruptcy the name of the game is to try and limit your losses. To do that you need to pay close attention to all the filings and make sure you don’t miss any deadlines. When a plan is filed, always remember to review it and look out for the VIP: Valuation, Interest, and Payments. These are the common reasons for an objection to a plan. If you have any questions about a Chapter 13 Plan, you should immediately contact your attorney to see what steps should be taken.

Should you have any questions about this issue or any other matter, please feel free to contact a lawyer at our firm for further instruction and guidance.

Staff Spotlight on Cassidy James

Cassidy was born in New Brunswick, New Jersey, and made the move to Tallahassee to attend Florida A&M University. She will be graduating from Florida A&M this month with her bachelor’s degree in political science. Cassidy joined our team in August of this year to gain more experience within the legal field. Her goal is to become a lawyer! She is one of our legal assistants in the post-judgment area and is such an amazing addition to our firm.

Away from the office, Cassidy loves to photograph landscapes and scenery. She has recently taken up this hobby and loves to take photos of sunsets and buildings lit up at night. A fun tidbit about Cassidy is that once a month she tries something “new” that she has never done before. Just a few examples of what Cassidy has done: horseback riding, skiing and snowboarding in the Poconos, trying Mangosteen and squid, going to an electronic dance festival, seeing a new singer in concert, going to an adult gymnastics class and, finally, participating in a local dog contest with her dog, Milo! What a great idea!

Cassidy, thank you for all that you do. We appreciate you!

SVL Launches New Podcast

We have launched a new Podcast focusing on all things Credit Unions and the law. The name of the Podcast is “Banking on Credit Unions” and can be found on iTunes, Spotify, and other popular platforms. You can also find episodes at www.svllaw.com/podcast/ Come give us a listen. We are confident that this podcast will be informative and helpful.

Holiday Party

On Saturday, December 9, 2023, the SVL team gathered at Steve & Virginia Orsillo’s beautiful home to celebrate the holiday season. Staff, spouses, and friends had a great time spreading Christmas cheer. We are thankful that we have such a great work family to spend these special times with.

Cookie Bake-Off & Sweater Contest

On Saturday, December 9, 2023, the SVL team gathered at Steve & Virginia Orsillo’s beautiful home to celebrate the holiday season. Staff, spouses, and friends had a great time spreading Christmas cheer. We are thankful that we have such a great work family to spend these special times with.

On Saturday, December 9, 2023, the SVL team gathered at Steve & Virginia Orsillo’s beautiful home to celebrate the holiday season. Staff, spouses, and friends had a great time spreading Christmas cheer. We are thankful that we have such a great work family to spend these special times with.