Real Estate Advisor Law Blog : Ohio Real Estate Lawyer & Attorney : Ulmer & Berne Law Firm : Columbus, Cleveland OH

The U.S. Court of Appeals for the District of Columbia recently upheld a 2007 Federal Communications Commission ("FCC") order prohibiting the owner's of apartment buildings, condominiums and other multi-unit residential properties from entering into exclusive contracts for providing cable T.V. services.  The FCC relied upon Section 628(b) of the Communications Act.  The FCC's position is that to restrict a multi-unit residential project's access to only one cable provider forecloses the expansion of fiber and phone, video and internet bundling services; thereby, denying residences the benefits of increased competition, lower prices and improved content and services. Take note of this ruling when the issue arises in the multi-unit residential projects you own, manage or are developing.

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Where there’s trouble, there’s trouble. As a growing number of homeowners have defaulted or neared default on their mortgages, numerous schemes have cropped up taking advantage of their willingness to do whatever it takes to save their homes. 

The Court in State v. Cicerchi, 2009 Ohio 2249 (Ohio Ct. App. 2009) took the time to explain one of the more common plots:

One all-too common scam occurs when an individual or company identifies an at risk homeowner and misleads the homeowner into a "temporary" transfer of the deed to a third party with good credit. The third party then purchases the property and "leases" it back to the homeowner. The scammer convinces the homeowners that they can "refinance" their home using the third party's good credit. The homeowners are led to believe that they will pay "rent" on the home and once their credit is rehabilitated, they will get the title to their house back.  The homeowners then lose title to their homes, while the perpetrator profits by remortgaging the property or pocketing fees paid by the homeowner. Rarely do the homeowners ever regain title or receive any benefit from the sale, and often lose any equity that may have been in their home.

In Cicerchi, the defendant perpetrated a similar fraud and was convicted of misdemeanor theft, securing writings by deception, and telecommunications fraud. On appeal, the Court overturned the securing writings by deception conviction due to insufficient evidence. 

Earlier this year, the U.S. Department of the Treasury announced a partnership with several state and federal agencies to combat these mortgage-rescue frauds. The focus of the partnership is to identify offending companies and disseminate information to potential victims. The Federal Trade Commission and Office of the Comptroller of the Currency have each published a helpful bulletin on the variety of scams that can occur. 

The obvious victims are homeowners in a situation where they require assistance to perform under their loan or otherwise come to an amenable resolution with a lender. But fraudulent foreclose rescue companies are also an impediment to banks because they commonly tell borrowers not to contact their lender or not to enter workout discussions. Banks are left in the dark until it’s likely too late. Further, the “fees” borrowers pay to participate in the scam could otherwise be paid to the lender for amounts due on the loan. Mortgage lenders would be well advised to contact distressed borrowers as soon as possible to notify them of potential scams and initiate workout negotiations. 

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A helpful reminder to lenders – if you’re going to foreclose, read the note and mortgage and do what they say. In a recent Ohio Court of Appeals case, the bank failed to follow these instructions and was rewarded by having its foreclosure complaint dismissed. 

The borrower missed a payment on her mortgage and the bank sent a default notice via certified mail. When the past due amount was left unpaid, the bank foreclosed. Seems like a run-of-the-mill foreclosure case, right? Not quite, because the subject Note contained the following language: “Any notice that must be given to me under this Note will be given by delivering it or by mailing it by first class mail to me at the Property Address.” The borrower denied that she received the notice and, in fact, the certified mail envelope was returned to the bank as “unclaimed.”

Based on the express language of the Note (the Mortgage contained similar language), the Court rejected the bank’s arguments that it satisfied the notice requirements. The Note gave two options – delivery or mailing first class. There was no evidence the notice was actually delivered, and any presumption of delivery never arose because there was evidence, i.e. the returned envelope, that the notice was not delivered. The bank never mailed the notice by first class mail. The fundamental step of choosing the best mail service method could have saved the complaint. 

This example continues a trend toward more rigorous review of lenders’ methods in foreclosure cases. From requiring proof of note ownership, to mandating alternative dispute resolution and dismissing cases under a res judicata analysis, courts have become a more borrower-friendly environment as the foreclosure crisis has progressed. As judges cast an increasingly skeptical eye upon each foreclosure action that appears on the docket, it is critical that lenders pay attention to the smallest, seemingly insignificant details of the process. 

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Congress has recently introduced a number of measures in response to the problems caused by defective drywall imported from China. Both the House and Senate introduced identical bills titled the Drywall Safety Act of 2009 (H.R. 1977; S. 739), which, if enacted, would require the U.S. Consumer Product Safety Counsel to study at least ten samples of drywall imported from China between 2004 and 2007 taken from homes in Florida, Louisiana, Mississippi, Texas and Virginia. The study is to include an analysis of (1) the chemical and organic composition of the drywall, (2) the effect of the drywall compounds on metal wiring, air conditioning and heating units, and other metal fixtures, and (3) any health or environmental impact of the compounds. The Act further directs the CPSC to initiate a proceeding to determine whether a consumer product safety standard regulating the composition of materials used in drywall is necessary to protect the health and safety of residential homeowners and imposes a temporary ban on the importation of drywall exceeding five percent organic compounds.

Additionally, the House passed a measure to amend the Mortgage Reform and Anti-Predatory Lending Act, H.R. 1728, to direct the Secretary of Housing and Urban Development to study the effect on residential mortgage foreclosures of (1) the presence of defective Chinese drywall in such residences and (2) the availability of property insurance for residences where such drywall is present.  HUD is required to report its findings, conclusions and recommendations to Congress. This bill has been referred to committee.

The focus of the legislation under consideration is the evaluation of the drywall problem and its impact upon residential owners, and addressing future drywall imports, as opposed to providing any relief to those whose homes contain the defective Chinese drywall. If the proposed studies show that Chinese drywall issues have caused environmental, health, foreclosure or insurance issues for residential property owners, there may be another round of legislation to address those issues. Check back here for updates as we track the progress of these measures through Congress.       

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We are pleased to announce that Midwest Real Estate News magazine named the Firm eighth on its list of 2009 Top 25 Midwest Real Estate Law Firms – Best of the Best. Ulmer & Berne was once again ranked first in the state of Ohio.

Midwest Real Estate News is one of the region’s leaders in commercial real estate coverage. According to the publication, each year hundreds of surveys are submitted by law firms from across the Midwest (a 14-state region) to the magazine for consideration. Only those law firms that completed a high enough number of transactions and provided top-notch client service while doing so earned one of the coveted rankings.

In the 14-state region alone, Ulmer & Berne completed over 670 transactions with 90 of those transactions valued at above $5 million in 2008. Areas of transaction included commercial, industrial, shopping centers, land, office buildings and multifamily housing.
 

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US EPA has amended the Standards and Practices for All Appropriate Inquiries (“AAI”) to acknowledge another ASTM standard can be used to satisfy the AAI requirement for the landowner defenses to liability under Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) – innocent landowners, bona fide prospective purchasers, and continuous property owners. In addition to ASTM International Standard E1527-05, you can now use, when applicable, ASTM International Standard E2247-08 entitled Standard Practice for Environmental Site Assessments:  Phase I Environmental Site Assessment Process for Forestland or Rural Property (“ASTM E2247-08”).

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