Late Charges on Balloon Payments: How Big Can They Be?

Getting charged extra for a late payment is standard protocol in lending practices. Judges, lawmakers and regulators have long agreed there’s an administrative hassle lenders should be compensated for when having to recover money past its due date. But in the commercial real estate industry, there’s a new question related to maturing loans originated before the financial crisis: Can a lender charge a late fee on the full amount of a balloon payment due at maturity?

In the world of commercial real estate finance, the answer to that question can mean a six or seven figure swing in your loan payoff depending on how the loan documents are interpreted. But so far, courts in New York, Michigan, Arizona and elsewhere have split on what the answer is.  Continue Reading

U.S. Supreme Court Weighs in on Bankruptcy Claims, Fair Debt Collection Practices Act

The United States Supreme Court issued a ruling Monday resolving the question of whether filing a proof of claim for a debt that is time-barred by the statute of limitations is a violation of the Fair Debt Collection Practices Act (FDCPA). In Midland Funding, LLC v. Johnson, Justice Stephen Breyer, writing for the majority, held that filing a proof of claim for a debt that is barred by the applicable state statute of limitations is NOT a violation of the FDCPA.

The case arose out of a Chapter 13 bankruptcy case in which Midland filed a proof of claim for a credit card debt that, on its face, showed that the credit card had not been used in more than 10 years. Such a claim was barred by the six-year statute of limitations in Alabama. After successfully objecting to the claim, the debtor then sued Midland, claiming that the filing of the proof of claim on an obviously time-barred debt was “false,” “deceptive,” “misleading,” “unconscionable” and “unfair” under the FDCPA. The district court held that the FDCPA did not apply and dismissed the lawsuit. The Eleventh Circuit reversed.

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Lenders Welcome Cinco de Mayo Ruling From NC Supreme Court on Deficiency Judgments

Readers of my case alerts may remember a July 2015 alert about the troubling North Carolina Court of Appeals decision in United Community Bank v. Wolfe, which made it a lot harder for lenders to obtain a post-foreclosure deficiency judgment. (For a refresher, you can read that old case alert here.)

Well, the wheels of justice have slowly turned and on May 5, 2017 (almost two years after the Court of Appeals’ ruling), the North Carolina Supreme Court issued its opinion and unanimously reversed the Court of Appeals. Those cheers you hear are lenders celebrating this Cinco de Mayo present.

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Foreclosures in North Carolina – Say Goodbye to Discovery and Res Judicata

Late December is a time of family, mistletoe and “presents under the tree.” It’s not usually the time when minds switch to the specifics of foreclosure procedure. Yet just before they retired for their Christmas break, the justices of the North Carolina Supreme Court dropped off a December 21, 2016 holiday present called In re Lucks which radically changes foreclosure procedure in North Carolina as we know it. Was it a timely present, a lump of coal, or maybe a little of each? You decide.

The Facts

The facts involved in Lucks are pretty dry. In 2006, Borrower executed a 30-year, $225,000 promissory note which was secured by a deed of trust on property in Buncombe County. At some later date, the note went into default. In 2013, a law firm claiming to be the substitute trustee under the deed of trust started a non-judicial foreclose. That foreclosure was dismissed by the clerk based on the failure of the law firm to present evidence that the firm had actually been appointed as the substitute trustee. Continue Reading

Need To Fix That Accidental Release of a Deed of Trust?

N.C. Gen. Stat. § 45-36.6(b) provides that if a secured party erroneously records a release or satisfaction of a security instrument, then the secured party can file a document of rescission that will effectively rescind the release or satisfaction and reinstate the erroneously released instrument. The Court of Appeals of North Carolina recently issued an opinion outlining which mistakes will permit the filing of a document of rescission.


In 1999, husband and wife borrowers obtained financing to purchase a home in Burlington. The loan was secured by a purchase money deed of trust on their house. In March 2004, the borrowers obtained a home equity line of credit from a predecessor of American National Bank that was secured by a second priority deed of trust on their house. In August 2004, the borrowers refinanced their original purchase loan with a loan from Wells Fargo. This loan was secured by a deed of trust. Wells Fargo subsequently entered into a subordination agreement with American National Bank that provided the Wells Fargo deed of trust had priority over the earlier-filed American National Bank equity line deed of trust. Continue Reading

Don’t Forget About Those Aging Judgments!

Has it really been 8 years since the Great Recession? It doesn’t seem all that long ago when the world economy faced the worst recession in a generation. Bankruptcy filings shot up and it seemed as if no borrower could pay back any loan, particularly those real estate development loans that only a few years earlier seemed like “no lose” loans. As a result of the record number of loan defaults, lenders throughout North Carolina obtained thousands of judgments against borrowers and guarantors. These judgments, obtained in 2008-2010, were dismissed by lenders as “uncollectible” and quickly put on a shelf to gather dust.

Those judgments, which are now 6-8 years old, will expire soon, and a lender must take affirmative action to keep their judgments alive. In North Carolina, a judgment (and the lien on real property created by the judgment) expire ten years from the date of the judgment. The statutes provide that no execution may be issued after the judgment, and its corresponding lien, expire. N.C. Gen. Stat. §§ 1-234, 1-306. It is not enough for the execution to have been commenced prior to the ten year expiration; in North Carolina the execution must be completed before the ten year expiration. Once the judgment expires, so does any pending execution. Continue Reading

Supreme Court Issues Opinions Favorable to Financial Services Companies

May is usually a busy month on the Supreme Court before the justices head off for some summer R&R. It is historically a time when many opinions are issued, and May 2016 has been no exception. Financial services companies should cheer two opinions issued by the  Supreme Court yesterday (May 16, 2016) –  Husky International Electronics, Inc. v. Ritz and Spokeo, Inc. v. Robins.

Husky and Non-Dischargeability of Fraudulent Transfers

Husky was an electronics company that sold $164,000 in products to Chrysalis Manufacturing Corp. Daniel Lee Ritz was a director and partial owner of Chrysalis. In 2006 and 2007, Ritz drained Chrysalis of assets through a series of transfers to related entities, leaving the debt to Husky unpaid. In 2009, Husky sued Ritz personally and sought to hold him liable for the outstanding Chrysalis debt. Ritz filed a Chapter 7 bankruptcy petition and Husky filed a bankruptcy adversary proceeding to have the debt declared “non-dischargeable” under the Bankruptcy Code. Continue Reading

Of ECOA and the FDCPA – A Tie in the Supreme Court and A Fourth Circuit Win for Debt Collection

It was a busy week in the fabled halls of justice last week as judges undoubtedly worked to get out a few more opinions before Easter break. Two opinions, one from the Supreme Court and one from the Fourth Circuit Court of Appeals, were particularly noteworthy. So carry on, dear reader, and find out the latest on ECOA and the FDCPA.

ECOA and the Supreme Court

As readers of my updates will recall, it has been a little over a year since the Supreme Court agreed to hear a case from the Eighth Circuit (Hawkins v. Community Bank of Raymore) dealing with whether guarantors were “applicants” entitled to sue for ECOA violations, or whether only borrowers could sue. (You can find my prior post on the topic here) On March 22, 2016, we got an answer from the Court, although it was not the clarifying answer we expected.  In fact, the opinion was all of a whopping nine-words long: “The judgment is affirmed by an equally divided Court.” Continue Reading

North Carolina Supreme Court Confirms That Lenders Do Not Owe Fiduciary Duties To Borrowers

On Friday, December 18, 2015, the North Carolina Supreme Court issued an opinion affirming the dismissal of a lender, and its appraiser, from a lawsuit alleging breach of fiduciary duty, fraud, violation of North Carolina’s Mortgage Lending Act, and other causes of action. Arnesen, et al. v. Rivers Edge Golf Club & Plantation, Inc., et al. The case arises out of several developments located on North Carolina’s coast, in which individuals purchased undeveloped lots prior to the recession. BB&T was the primary lender for the purchasers, and BB&T obtained appraisals for several of the lots. The homeowners alleged that BB&T and the appraiser failed to disclose that the appraisals allegedly overstated the value of the lots and that the bank had a duty to discover and disclose this information.

The Court began by stating the existing rule that a lender generally does not owe its borrower any duty beyond its contractual obligations. The purchasers in this case did not rely on the bank or appraiser for any information and obligated themselves to purchase the lots independent of the loan process. In short, the Court found that the purchasers alleged nothing more than a typical debtor-creditor relationship and, as a result, the bank has no duties outside of the contract. Continue Reading

Tough News for Lenders – Major NC Supreme Court Decision on Collection of Post-Foreclosure Deficiencies

Fall is football time. And as every football fan knows, not every player on the line of scrimmage is an eligible receiver. Imagine how dramatically it would change the game if the entire offensive line were eligible to catch forward passes.

Well, on Friday (9/25/15), the NC Supreme Court made a change which is every bit as dramatic and signals a brave new world for lenders seeking to recover on post-foreclosure deficiencies. In High Point Bank & Trust Co. v. Highmark Properties, LLC, the Court instituted a major change to the lender/guarantor relationship. The Court overruled at least 35 years of Court of Appeals decisions in holding that guarantors can seek an offset of the deficiency amount by contesting the fair market value of the property sold at foreclosure. Lenders beware! That offensive tackle just got a whole new section in the playbook. Continue Reading