DS News

34 LEGAL INDUSTRY UPDATE NATIONAL FOCUS attorney relationships, something that may sometimes be limited or lost in an era when technology has enabled what Diaz calls "portal relationships"—filtering interactions, more and more, through layers of digital intermediaries. "While the efficiency that comes with case- management portals is a valuable asset to all parties involved in the default space, knowing when to move beyond those systems and com- municate directly is critically important," Diaz said. "e goal should be to allow the portals to support the relationship but not to be the primary driver." "Communication is successful only when both sides understand the information and work together toward resolutions," said Eric Deigh- ton, Attorney, Carlisle Law. "It is important that servicers train employees to understand the significance of the legal process." He further emphasized the critical nature of flexibil- ity when it comes to servicers' processes and procedures so that law firms can more ably help them comply with new and evolving regulatory demands. When it comes to navigating the treacherous waters of compliance management, communi- cation between law firms and attorneys can be the sonar that keeps your ship from running aground. But the challenges involved are many, and they often come down to the practical realities of how difficult it can be to standard- ize processes and paperwork between multiple organizations, all working with their own philosophies and priorities. A GAME PLAN FOR 2019 With a new year stretched out ahead of us, what should the industry expect from 2019? BDF Law Group's Forster suggests that state regulators will be taking a more active role after 2018's changes to Dodd-Frank and the evolving state of the BCFP under newly minted Director Kathy Kraninger. Forster explained, "It has become increasingly obvious that the states are taking a more assertive role in the regulation of the financial industry, so the slack the federal government provided the industry is simply shifting to state regulators." One subject that's been in the headlines and on the lips of the entire industry is the Supreme Court case Obduskey v. McCarthy & Holthus, LLP. e Legal League 100 filed an amicus curiae brief this past November in support of McCarthy & Holthus in the case. e brief contended that law firms acting on behalf of their mortgage servicer clients by completing the non-judicial foreclosure process in states where permitted are not subject to regulation under the Fair Debt Collection Prac- tices Act (FDCPA). e brief noted that such servicers are not collecting a debt as defined under the plain language of the statute. "e Legal League 100 stands committed to serving mortgage servicing professionals and all of our industry partners," Diaz said. Commenting on the amicus brief, Michelle Garcia Gilbert, Legal League 100 Advisory Council Vice Chair and counsel of record, said, "Application of the FDCPA to nonjudicial foreclosures is an issue that has a significant effect on the foreclosure process in states from coast to coast. We appreciate the opportunity to contribute and applaud the Court for taking up this important issue." Subjecting law firms engaged in non-judicial foreclosures to liability paves way for opportu- nistic debtors' attorneys to file lawsuits alleging violations in states where foreclosure laws are in conflict with the FDCPA, the brief contends. Matt Podmenik, Managing Partner for the Southwest, McCarthy & Holthus, told DS News, "e narrow issue before the court is whether or not the FDCPA is applicable to non-judicial foreclosures. One of the distinc- tions between a judicial and non-judicial foreclosure is the possibility of a deficiency judgment. In Colorado, a deficiency judgment is not possible in the non-judicial foreclosure. Ar- guably, if a plaintiff did not request a deficiency judgment in a judicial foreclosure, some of the arguments we made would be equally applicable to judicial foreclosures." Podmenik added, "It would be helpful to the industry if the decision was broad enough to apply to all foreclosures, but it is hard to predict whether the court will expand on the narrow issue in front of it." In support of the respondent, McCarthy & Holthus, the Legal League 100 brief argued that finding in favor of the plaintiff would be likely to encourage mortgage servicers to proceed with judicial foreclosures in states where permitted. is would, in turn, result in a significant increase of the time and costs associ- ated with a foreclosure, and the borrower would eventually bear the cost per the terms of most deeds of trust and state law. e brief also stated the possibility of states with carefully crafted foreclosure laws designed to protect borrowers and lenders being com- pelled to rewrite their laws in order to comply with the FDCPA. BDF's Forster also believes that it will be interesting to see how regulators react to the increasing role played by non-bank servicers, which hold "over half the nation's mortgages within their portfolios." As Forster points out, "traditional banks have always been subject to more regulation in the past. With inflation, ris- ing interest rates, what appears to be a cooling housing market, and all-time low default rates, there's no telling what's next." Deighton explained that the default servic- ing industry will continue to be challenged by the regulatory reporting requirements imposed upon it, and will, therefore, need to monitor and ensure compliance with all required report- ing obligations carefully. He also cautioned servicers not to focus on the national perspec- tive at the expense of the local one. "With local elections, the personnel and policies of many municipal governments may change. Servicers may be subject to more regulatory burdens, such as foreclosure notification filing fees, vacant property registration/notification requirements and fees, point-of-sale inspections, and bonding requirements upon the filing of a foreclosure action," Deighton said. e new year also means a new Democratic majority in the House of Representatives, as well as a new Chair of the powerful House Financial Services Committee. Many specu- late that Rep. Maxine Waters (D-California) is a likely candidate for the position, and her philosophy toward industry regulation is very different from that of her Republican predeces- sor. During an interview with e Financial Times after the midterm elections, Waters said, "It is critical to bring accountability to the cur- rent administration and the regulatory agencies under the committee's jurisdiction." "We will have to wait and see if they deliver on the agenda aimed at halting the purported deregulation of the banking industry," Forster said. "What that means exactly, no one knows, but it certainly will have an impact on all facets of the mortgage industry." Whether 2019 will see any significant economic downturns remains to be seen, but Sherman told DS News that there are already signs that the status quo can't maintain itself in- definitely. "We are starting to see some cracks in the wall already," Sherman said. "We're starting to see more bankruptcy filings. People smarter than me are anticipating a change." When that change will happen, and in what form, is in some ways incidental to the fact that the industry should be prepared to pivot to tackle whatever challenges come at it, whether in 2019 or beyond. "In 2006, neither the servicing com- munity nor the legal professional community were ready for what was coming—on any level," Sherman said. "e goal shouldn't be waiting until the brakes don't work on the car anymore. You need to get things ready before your brake pads are worn down."

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