Supreme Court Declares CDC Eviction Moratorium Unconstitutional

Late Thursday evening, the Supreme Court of the United States issued an opinion to reinstate a court order blocking the Centers for Disease Control and Prevention’s (“CDC”) nationwide moratorium on residential evictions.

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, which, in part, imposed a 120-day eviction moratorium on properties subject to federally backed mortgage loans.  Congress did not renew the eviction moratorium after its 120-day term.  Instead, the CDC promulgated a more expansive administrative eviction moratorium covering all residential properties nationwide and imposed criminal penalties on violators.  The CDC’s moratorium was originally scheduled to expire on December 31, 2020; however, subsequent renewals extended the moratorium through October 3, 2021.

To support its actions, the CDC relied on the statutory provision of § 361(a) of the Public Health Service Act, which provides:

The Surgeon General, with the approval of the [Secretary of Health and Human Services], is authorized to make and enforce such regulations as in his judgment are necessary to prevent the introduction, transmission, or spread of communicable diseases from foreign countries into the States or possessions, or from one State or possession into any other State or possession. For purposes of carrying out and enforcing such regulations, the Surgeon General may provide for such inspection, fumigation, disinfection, sanitation, pest ex-termination, destruction of animals or articles found to be so infected or contaminated as to be sources of dangerous infection to human beings, and other measures, as in his judgment may be necessary.

See 58 Stat. 703, as amended, 42 U.S.C. § 264(a).

In a 6-3 decision, the Supreme Court found the CDC’s reliance on § 361(a) to be unconstitutional.  The Supreme Court reasoned that “the CDC has imposed a nationwide moratorium on evictions in reliance on a decades-old statute that authorizes it to implement measures like fumigation and pest extermination.  It strains credulity to believe that [§ 361(a)] grants the CDC sweeping authority that it asserts.”  The Supreme Court found that the CDC misconstrued the scope of its authority under § 361(a) and that this statutory provision “is a water-thin reed on which to rest such sweeping power.”

The Supreme Court acknowledged the strong public interest of combating the spread of the COVID-19 Delta variant, but opined that the judicial system does not permit administrative agencies to issue unconstitutional regulations, even in pursuit of a desirable outcome.  Rather, the Supreme Court rested its decision on the fact that it is up to Congress, not the CDC, to decide whether a federally imposed eviction moratorium is to continue.

In a few jurisdictions, such as California, Minnesota, New Jersey, New York, and Washington, state governments have enacted their own legislation suspending residential evictions during the ongoing pandemic.  The Supreme Court’s decision will have little to no impact on those states’ moratoria.  However, the effect of the Supreme Court’s decision will be felt immediately in most states, where governments have relied entirely on the CDC’s moratorium to curtail eviction actions.  Accordingly, the Supreme Court’s rejection of the CDC’s moratorium may cause a flurry of state and local governments to enact new eviction moratoria in wake of Thursday’s decision.

 

Agency Director Ousted Immediately Following the Supreme Court’s Ruling that the FHFA’s Structure to be Unconstitutional

In a 7-2 decision, the Supreme Court of the United States ruled that the Federal Housing Finance Agency’s (“FHFA”) statutory structure, which protected its director from being removed from position “only for cause”, violated the Constitution’s separation of powers.  Writing for the majority in Collins, et al. v. Yellen, et al., Nos. 19-422 and 19-563, Justice Alito found that “the Constitution prohibits even ‘modest restrictions’ on the President’s power to remove the head of an agency with a single top officer.”  The Supreme Court found this structure to violate the Constitution and reasoned that “the President must be able to remove not just officers who disobey his commands but also those he finds to be negligent and inefficient[.]”  Hours after the Supreme Court rendered its ruling, President Biden removed FHFA’s Director, Mark Calabria.

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New Settlement Exhibits CFPB’s Continued Focus on Transparency for Short-Term Loans

The Consumer Financial Protection Bureau (“CFPB”) recently took aim at Driver Loan LLC (the “Company”), a company which frequently offers loans to drivers of ride share services, for the Company’s alleged deceptive practices.[1]  In its complaint, the CFPB described that, in addition to giving loans to drivers of Uber and Lyft, the Company also took deposits from consumers to fund these driver loans.[2]  The CFPB  alleged that the Company and its CEO created a deceptive business model because: (i) the Company told consumers they could deposit funds with it in FDIC insured accounts, although the accounts were not FDIC insured; (ii)  consumers who deposited funds with the Company were promised a 15% rate of return which they did not receive; and (iii) the short term loans offered to drivers of ride share companies had an APR of, at times, over 900% when they were advertised as having APRs of 440%.[3]

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Strict Foreclosure and Reforeclosure – Options in Foreclosing on Omitted Parties

“The absence of a necessary party in a foreclosure action leaves that party’s rights unaffected by the judgment and sale, and the foreclosure sale may be considered void as to the omitted party.”  6820 Ridge Realty LLC v. Goldman, 263 A.D.2d 22, 26 (2d Dept. 1999).

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CPLR 3216 Dismissal Demands Compliance from All – Courts Included

As vaccination rates increase, holds on foreclosure actions expire, and the courts slowly return to addressing their largely frozen foreclosure dockets, we can expect some familiar concerns to reappear. One common concern is the threat of dismissal pursuant to CPLR 3216 for unreasonable neglect to proceed. Given the severe disruption to mortgage litigation caused by the COVID-19 pandemic, and its effects on the staffing and continuity of many firms whose main focus is residential foreclosures, it would not be surprising to see an uptick in CPLR 3216 notices and/or CPLR 3216 dismissals. As with any dismissal, this poses a serious threat to lien enforceability and could lead to complete loss of the lien if, by the time of dismissal, the foreclosure is beyond or approaching six years since acceleration. Fortunately, the threat posed to mortgage liens is mitigated somewhat by the strict requirements imposed by the statutory language of CPLR 3216 and controlling case law.

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SCOTUS Issues Anticipated Decision in Facebook, Inc. v. Duguid And Unanimously Reverses Ninth Circuit, Holding Facebook’s Text Notification System Did Not Meet the TCPA’s Definition of An Autodialer Because It Did Not Use A Random Or Sequential Number Generator

On April 1, 2021, the Supreme Court of the United States issued its highly anticipated decision in the Facebook Inc. v. Duguid matter.  In a unanimous decision delivered by Justice Sonia Sotomayor, the Supreme Court addressed a hotly debated issue of statutory construction regarding the Telephone Consumer Protection Act (“TCPA”), and reversed the Court of Appeals for the Ninth Circuit’s decision holding that Facebook, Inc. (“Facebook”) used a text-message notification system that met the TCPA’s definition of an “autodialer.”  In short, the Court held that Facebook’s notification equipment did not meet the definition of an autodialer because it does not use a random or sequential number generator.  The Court rejected Plaintiff Noah Duguid’s more broad interpretation of the statute, noting that if an autodialer were any device that had the capacity to dial random numbers, the TCPA would encompass any equipment that stores and dials telephone numbers, such as a modern smartphone.

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To Forgive or Not to Forgive a CPLR 3215(c) Violation in a Residential Mortgage Foreclosure

CPLR 3215(c) requires a plaintiff to take proceedings for entry of judgment within one year of default or face dismissal of the action as abandoned, except where sufficient cause is shown why the complaint should not be dismissed.  The purpose of this provision is to prevent a plaintiff from taking advantage of a defendant’s default where the plaintiff has also been guilty of inaction.  See Myers v. Slutsky, 139 A.D.3d 2d 709 (2d Dep’t 2012).

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The Appellate Courts Look at the Waiver of Standing Defenses post-RPAPL § 1302-a

Prior to the enactment of Real Property Actions and Proceeding Law (“RPAPL”) § 1302-a, defendants waived their affirmative defense of standing in a residential foreclosure action by failing to raise that defense in an answer or a pre-answer motion to dismiss.  See, e.g., JP Morgan Chase Bank, Nat’l Ass’n v. Butler, 129 A.D.3d 777, 780 (2d Dep’t 2015).  However, since the enactment of RPAPL § 1302-a, which became effective on December 23, 2019, defendants can raise a standing defense at any time in a residential foreclosure action.  This issue arises both where the borrower defaulted in the foreclosure action and seeks to vacate that default to assert a standing defense and where an answer was filed but no standing defense was initially asserted. The Second Department has recently issued decisions addressing both the interplay between the new statute and a borrower’s default in answering and an answering defendant’s ability to amend to assert a standing defense after summary judgment was granted. In addition, the Court of Appeals has recently clarified application of the statute in the context of an appeal of an order entered prior to the enactment of RPAPL § 1302-a.

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Recent Developments in Demonstrating Standing to Foreclose in New York as the Court of Appeals Weighs Back In

In JPMorgan Chase Bank, N.A. v Caliguri, 36 N.Y.3d 953 (2020), the Court of Appeals recently clarified how a lender establishes standing in a foreclosure action.  Prior to this recent pronouncement, the standard set by that Court had been that a plaintiff evidences standing to foreclose by demonstrating that it possessed the original note agreement at commencement of the foreclosure action.  Aurora Loan Servs., LLC. v. Taylor, 25 N.Y.3d 355 (2015).  In Aurora, the lender demonstrated standing by averring, in an affidavit in support of a summary judgment motion, that it possessed the original note since prior to commencement, while attaching accompanying business records supporting such testimony, including the loan servicing agreement and records demonstrating that the note had been transferred to the plaintiff.  Id., at 356.  The Court in Aurora further held that a plaintiff need not demonstrate possession of the original mortgage at the time of commencement as the mortgage follows the note.  Nor was it necessary for a foreclosing plaintiff to detail how it came into possession of the original note, only to demonstrate possession of such at the time of commencement.

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New York Appellate Divisions Reach Different Conclusions as to Whether Actions on the Note May be Maintained once the Statute of Limitations Bars Enforcement of the Mortgage, Leaving the Issue Ripe for the Court of Appeals

The Appellate Division, Third Department recently issued a decision in Citimortgage, Inc. v Ramirez, ___AD3d___, 2020 NY Slip Op 07970 (2020) (“Ramirez“), concerning the plaintiff lender’s appeal from the Supreme Court’s dismissal of an action for recovery on a note, where plaintiff’s two prior foreclosures had already been dismissed. In its decision reversing dismissal, the Third Department held that when a lender accelerates a mortgage debt and elects to commence a foreclosure of the mortgage, the six-year statute of limitations on any claim by the lender for money damages on the note is tolled during such foreclosure(s), at least to the extent the foreclosures were themselves timely when filed.

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