Friday, December 19, 2014

More On The Slumbering New Jersey Lender Who Slept Through Statute Of Limitations On Foreclosing Mortgage, Leaving Lucky Homeowner w/ Free & Clear Home

The Philadelphia, Pennsylvania-based law firm Duane Morris LLP has recently published a post about the recent New Jersey court case where a homeowner who had defaulted on his house payments on a $520,000 mortgage had the outstanding balance of his mortgage wiped out where the lender apparently "fell asleep" for six years without bringing a foreclosure action, and whose statute of limitations "alarm clock" apparently didn't awaken it from its slumber until after the applicable limitations period had expired, leaving it time-barred from initiating a lawsuit.

For the post, see Bankruptcy Court Finds Debtor Entitled To A "Free House" Because Mortgage Foreclosure Complaint Barred By New Jersey Statute Of Limitations.

For the court ruling, see In re Washington, 2014 Bankr. LEXIS 4649 (Bankr. D.N.J. Nov. 5, 2014).

Editor's Note:

Not unlike some others, I found myself confronted with the temptation of employing "rhetorical flourish" and using the term "free house" to describe the homeowner's windfall in the headline for this piece, as well as in my original post on this story (see Expiring Statute Of Limitations Leaves New Jersey Homeowner With Free & Clear Home While Foreclosing Lender Left Holding The Bag).

While I don't feel that it's such a horrible thing to"keep the facts from getting in the way of a good headline" every once in a while, I resisted on this post because, according to the facts of the case - see The acquisition of the property:
  • The homeowner did, in fact, put a $130,000 down payment (20% down) on a $650,000 purchase price - not exactly "chump change" (presumably, there were thousands of dollars in additional out-of-pocket expenses paid for closing costs as well),
  • The homeowner did, in fact, make three mortgage payments on a $520,000 loan (not to mention any escrow cash for real estate taxes & insurance) before defaulting,
  • The homeowner purchased his home on February 27, 2007 (which, for students of 21st century history of the U.S. real estate market, was right around the time when the market was at its absolute peak, if it hadn't already begun to stall, crash, and burn); presumably the value of the subject home in this case began to tank shortly after purchase, and probably has yet to fully recover.
While the homeowner scored a great win in this case, the home certainly did not turn out to be as "free" as I first thought it might be.

Wednesday, December 17, 2014

Does Recorded, Properly Prepared But Improperly Indexed Deed Provide Constructive Notice To Bona Fide Purchasers? Yes, Says Bay State Bankruptcy Court

  • A chapter 7 trustee sought to avoid a transfer of the debtor’s real property using his “strong arm” powers based on an argument that the deed conveying the property did not provide constructive notice since it was not properly indexed in the real estate records.

    The debtor owned property in Boston that he transferred in July 2003 by a deed that correctly identified the grantor as “William O. Hultin.” However, when the deed was recorded, it was listed in the grantor index under “William Hiltin.” The original deed from the debtor was followed by a deed from his purchaser in 2005, a foreclosure deed in 2008, another deed in 2008, and a mortgage in 2011.

    A trustee’s strong arm powers include the ability to avoid transfers that could be avoided under state law by a bona fide purchaser of real estate as of the petition date. Typically under state law (1) a purchaser can take free of an interest unless it has notice of the interest, and (2) a properly recorded deed provides constructive notice of the grantee’s interest.

    As of the date that the debtor filed bankruptcy in 2013, the deed was indexed under William Hiltin. (This is significant because someone examining the grantor index to determine the status of the property would conclude that it was still owned by William Hultin.) Thus, the trustee’s argument was that the 2003 deed was not properly recorded, with the result that it did not provide constructive notice that the debtor transferred the property and a bona fide purchaser in 2013 could acquire the property free of the interests of the subsequent owners and lender.

    The analysis turned on a state statute that provided (emphasis added):

    No instrument shall be deemed recorded in due course unless so recorded in the registry of deeds for the county or district in which the real estate affected lies as to be indexed in the grantor index under the name of the owner of record of the real estate affected at the time of the recording.

    The defendant lender contended that this meant only that a document must be presented for recording that could be properly indexed, and did not require the recording party to confirm that proper indexing occurred. The lender argued that the deed complied with the statute so that the question of whether it provided constructive notice was a question of common law. Under common law, there were a number of cases holding that an indexing error did not prevent an otherwise properly recorded document from providing constructive notice.

    In contrast, the trustee argued that the requirement that the deed be “so recorded… as to be indexed in the grantor index” meant that it must be properly indexed in order to be deemed recorded. The trustee countered the lender’s position by arguing that (1) the purpose was to insure parties had constructive notice by requiring the interest to be in the grantor index, (2) enactment of this section abrogated many of the earlier cases relied on by the lender, and (3) in many of the cases the document was accessible notwithstanding the error, which was not the case here since a party searching the grantor index to determine whether the debtor owned property would not have found the deed transferring his interest.

    The court concluded that the statute was not precise so that it should turn to common law. The court reviewed several cases holding that a mistake made by a clerk in indexing does not invalidate constructive notice. The court predicted that the state supreme court “would uphold the common law rule concerning mistakes by a registry and ‘[hold] in favor of a person who has done all he could to have a transaction recorded, as against a subsequent creditor or purchaser who has relied on an erroneous record.’”

    The court specifically rejected the view that the decision should turn on whether the document would be found in a search of the real estate records. According to case law:

    Instances are not rare in which the constructive notice provided for by statutes requiring the registration of instruments proves insufficient to protect the interests of those for whose benefit they are intended, but who do not, for that reason, have a right to priority.

    As for legislative intent, the court concluded that the requirement for indexing was intended to eliminate “indefinite references” in recorded instruments. In particular, it did not place the burden on a recording party to assure that a document was in fact indexed properly.

    Since the deed correctly identified the grantor and the registry was the source of the indexing error, the court determined that the deed provided constructive notice of the transfer of the debtor’s interests in the property, and accordingly dismissed the trustee’s claims.

    Note that the issue in this case arose ten years after the deed was recorded. It can be difficult to predict whether a court will find that an improperly indexed real estate document provides constructive notice so that the interests of subsequent purchasers and lenders are protected.

    Although there are periodic discussions among real estate lawyers about whether it is necessary to verify proper indexing of recorded real estate documents, as a practical matter, the usual approach is to rely on title insurance.
For the ruling, see Agin v. Dookhan (In re Hultin), 516 B.R. 190 (Bankr. D. Mass. 2014).

Tuesday, December 16, 2014

Federal Court To Multiple Sclerosis-Afflicted Tenant Requesting Entitlement To Reasonable Accommodation Under Fair Housing Act For Doctor-Prescribed, Medical Marijuana Use: No Chance!

From the Fair Housing Defense blog:
  • In an age when more states continue to decriminalize use of small amounts of marijuana, apartment management employees are getting a more common request: can medical marijuana be a reasonable accommodation because of a disability?

    Earlier this month, a federal district court answered that question with a resounding no. In a case from Michigan involving an affordable housing community (Michigan permits medical marijuana pursuant to the state’s Medical Marijuana Act), a U.S. District Court judge ruled that because marijuana is still classified as a controlled substance under federal law (in other words, use of marijuana is still against federal law), the resident is not entitled to a reasonable accommodation for medical marijuana use under the Fair Housing Act (“FHA”).(1)

    In so ruling, the judge reviewed applicable state and federal law as well as guidance from the U.S. Department of Housing and Urban Development (“HUD”) written in 2011 in which HUD concluded that persons using illegal drugs (including medical marijuana) are categorically disqualified from relief pursuant to the FHA, Section 504 of the Rehabilitation Act of 1973 and/or the Americans with Disabilities Act as the requested accommodation was not reasonable and would constitute a fundamental alteration in the nature of the housing operations.
Source: Medical Marijuana as a Reasonable Accommodation Because of a Disability? One Court Says No.

For the court ruling, see Forest City Residential Management, Inc. v. Beasley, Case No. 13-14547 (E.D. Mich. December 3, 2014).

(1) From the court's opinion:
  • Beasley's [the tenant's] physician prescribed medicinal marijuana to help with her symptoms of Multiple Sclerosis. [...] Beasley obtained a Medical Marijuana card issued by the State of Michigan pursuant to the Michigan Medical Marihuana [sic] Act.

Monday, December 15, 2014

Pennsylvania Appeals Court Kiboshes Tax Sale Where Widow Had $250K Home Sold Out From Under Her Over $6.30 Late Fee; Ruling Reverses Lower Court Decision That Initially Gave Her The Boot

In Harrisburg, Pennsylvania, Reuters reports (via Public Citizen's Consumer Law & Policy Blog):
  • A widow whose western Pennsylvania home was sold by the county after she failed to pay interest accrued on $6.30 in late tax fees was overjoyed when a court ruled she can keep her home, her lawyer said on Friday.

    Eileen Battisti, who is in her early 50s and lost her husband in 2004, was unfamiliar with managing her finances and did not understand in 2009 that she owed the $6.30 late fee, which subsequently accrued $234.72 in interest, prompting the tax sale of her home in 2011, said her lawyer, Ed Santillan.

    A judge in Pittsburgh on Thursday ruled Battisti could keep ownership of the home in Aliquippa, about 20 miles northwest of Pittsburgh.

    She has remained in the home with two of her three adult children since it was sold by the Beaver County Tax Claim Bureau to S.P. Lewis, a man who buys tax delinquent properties and sells them back to their former owners for a profit, according to court papers.

    "We are thrilled with the decision of the commonwealth court and my client cried tears of joy when she heard the news," Santillan said.

    "I think when you read the opinion it is clear that the property should never have been sold," he added.

    Pennsylvania Commonwealth Court Judge Mary Leavitt ruled that county tax officials failed to provide Battisti with proper notification or warning regarding the sale of her house.

    "A reasonable tax claim bureau would have responded to Taxpayer's payment on the 2008 taxes with an invoice for $6.30, and it would have invoiced Taxpayer in 2010 for the 2009 shortage of $234.72," the judge wrote in her ruling.

    The home, which is worth between $250,000 and $280,000, was sold to Lewis for $113,000. He offered to sell the property back to Battisti for $160,000, Santillan said.

    Lewis did not immediately respond to a request for comment.

    The bureau still has the money from the sale and is expected to return it to Lewis, Santillan said, but Lewis has 30 days to appeal the court ruling.
Source: Court lets Pennsylvania widow keep home sold over interest on $6.30 tax bill.

For the court ruling, see Battisti v. Beaver County Tax Claim Bureau, No. 733 C.D. 2014 (Pa. App. December 11, 2014).

Go here for a 'friend of the court' brief filed in this case by The American Association of Retired Persons (AARP), the National Association of Consumer Advocates (NACA), and the National Consumer Law Center (NCLC). AARP is a nonprofit organization which promotes the interests of individuals over the age of 50 and seeks to protect older individuals from unfair and abusive business practices. NACA is a nonprofit corporation comprised of attorneys, law professors, and law students who primarily focus on the protection of consumers. NCLC is an advocacy organization which focuses on the needs of low income and elderly consumers.

Sunday, December 14, 2014

San Bernardino DA Puts Pinch On Pair Accused Of Hijacking Title To Vacant Home, Then Flipping It To Unwitting Buyer For $440K+; Duo Faces 22 Felony Counts Of I.D. Theft, Forgery, Procuring & Offering False/Forged Instruments, Conspiracy

From the Office of the San Bernardino County, California District Attorney:
  • A Rancho Cucamonga man and woman were recently arrested for stealing Title on a home and selling it for profit.

    Investigators from the District Attorney’s Office Real Estate Fraud Unit arrested Emma Adel, 45, and Mazen Fazah, 39, on Nov. 25, 2014. Both Adel and Fazah were booked at West Valley Detention Center on felony arrest warrants for various criminal acts involving felony real estate fraud.

    Following the arrest, DA Investigators executed a search warrant on their homes and Upland-based business, Smart Edge Auto.

    “During the search we were able to seize additional evidence related to the investigation,” said Senior Investigator John Vega, who is assigned to the case.

    In June 2014, Adel and Fazah allegedly unlawfully acquired a vacant house in Rancho Cucamonga and forged the names of the owner and notary public on the grant deed. Next, they transferred the property into their own business called “Perking’s Trust.”

    According to Vega, shortly after recording the false grant deed with the County Recorder, the pair deceived the escrow and title companies and sold the house to an unsuspecting buyer for over $440,000.

    Adel and Fazah were booked on 22 felony charges (see attached copy of the complaint) with more charges pending in San Bernardino and Riverside Counties. Deputy District Attorney Vance Welch will prosecute this case. Adel and Fazah were arraigned via video Nov. 26, and both pleaded not guilty to all counts. A Disposition/Reset Hearing is scheduled Dec. 22 at the San Bernardino Justice Center.

Tuesday, December 09, 2014

More On Use Of Eminent Domain To Write Down Unpaid Balances On Underwater Mortgages

From Public Citizen's Consumer Law & Policy Blog:
  • Robert C. Hockett of Cornell has written 'We Don't Follow, We Lead': How New York City Will Save Mortgage Loans by Condemning Them, 124 Yale Law Journal Forum 131 (2014).

    Here is the abstract:

    This brief invited essay lays out in summary form the eminent domain plan for securitized underwater mortgage loans that the author has been advocating and helping to implement for some years now. It does so with particular attention in this case to New York City, which is now actively considering the plan. The essay's first part addresses the plan's necessity. Its second part lays out the plan's basic mechanics. The third part then systematically addresses and dispatches the battery of remarkably weak legal and policy arguments commonly proffered by opponents of the plan.

Sunday, December 07, 2014

Local D.C. Lawmakers Vote In Favor Of Overhauling City Forfeiture Laws In Effort To Crack Down On "Policing For Profit;" Some Law Enforcement Agencies View Legal Loopholes In Law Allowing Asset Seizures As Handy Source Of Slush Funds

In Washington, D.C., Forbes reports (via Public Citizen Consumer Law & Policy Blog):
  • The Council of the District of Columbia voted unanimously [last week] in favor of overhauling the city’s civil forfeiture laws, which lets police seize property from people never charged with a crime. Law enforcement can then pocket all of the proceeds gained from forfeiture.

    The Civil Asset Forfeiture Amendment Act of 2014 stabs at the heart of what makes civil forfeiture so potentially corrupting: Letting cops and prosecutors keep what they forfeit creates “at best, the appearance of a conflict of interest, and at worst, an unchecked incentive for slush funds,” remarked Councilman Tommy Wells, who authored the reform.

    If the bill becomes law, Washington, D.C. would join just eight states that ban policing for profit. Rather than padding law enforcement budgets, any revenue generated with civil forfeiture instead would be deposited into the general fund.
For more, see Washington, D.C. Council Votes to Reform City's Civil Forfeiture Laws, Ban Policing for Profit.

See also:
Go here for some earlier posts on civil forfeiture. forfeiture feds

Friday, December 05, 2014

South Florida Feds Pinch Paralegal For Allegedly Looting $3.78 Million From Law Firm's Trust Account; Cash Meant For Real Estate Transactions, Loan Payoffs, Etc.; Suspect Continued To Make Lulling Payments To Banks In Attempt To Conceal Ripoff

In Fort Lauderdale, Florida, the South Florida Sun Sentinel reports:
  • A paralegal pleaded not guilty Wednesday to allegations that he stole more than $3.78 million from client trust accounts at the Hollywood law firm where he worked, court records show.

    Steven Sacks, 57, was released on bond after pleading not guilty to four counts of wire fraud in federal court in Fort Lauderdale.

    Sacks used his position at the Gilbert & Caddy law firm to embezzle from clients whose money was kept in the firm's trust accounts to pay for mortgages and other real estate transactions, according to a charging document filed by prosecutors.

    Sacks set up a corporation in Nevada and diverted clients' money to a related bank account between 2011 and March of this year, according to the charges. Prosecutors wrote that Sacks continued to make mortgage payments for some clients to conceal the missing funds but investigators gave no other information about what happened to the rest of the money.

    Efforts to contact Sacks' lawyer late Wednesday were unsuccessful. If convicted, Sacks faces up to 20 years in prison and a $250,000 fine on each of the four charges.
Source: Broward paralegal stole $3.78M from clients, feds say (Paralegal set up Vegas corporation, stole millions from South Florida law firm clients, feds say).

Wednesday, December 03, 2014

35 Year-Old Woman Jilts, Then Sues Her Married, 59-Year Old Ex-Sugar Daddy For Trying To Give Her The Boot Out Of $1.3M Love Hideaway He Bought Her; Will Battle Dumped Beau's Attempted 'Snatch-Back' In Court To Hang Onto Condo, Other Loot He Showered Her With During Once-Sizzling, Now-Fizzled Fling

In New York City, the New York Daily News reports:
  • A beautiful blond songwriter’s relationship with an older, married multimillionaire ended on a sour note — she’s suing him for trying to kick her out of her apartment.

    In papers filed in Manhattan Supreme Court, Ayelet Argaman, an Israeli singer, songwriter and actress, says former beau Robert Rothenberg is a vindictive “scorned lover who has taken the break up badly.”

    Argaman, 35, says real estate investor Rothenberg, 59, tried to sweep her off her feet this spring by buying a $1.3 million Upper East Side apartment for her to live in. Now that they’ve broken up, he’s trying to give her the boot — and she says he has no legal right to do so.

    Argaman, a buxom beauty who has been photographed with everyone from Bill Clinton to Eliot Spitzer, says she and Rothenberg first met in September 2013, and he wooed her for two months until they started dating. By February, he had bought a one-bedroom unit for her to live in Trump Palace on E. 69th St.

    In April, he signed an agreement giving her a 60% share of the holding company that owns the apartment, and the right to buy out his 40% share if their relationship did not last until May 2015. She broke up with him in June because of “irreconcilable differences,” the filing says.

    He balked on their deal, threatened to sue her for $5 million and moved to evict her, filings say.

    Rothenberg, of Woodmere, L.I., contends he was used.

    His planned suit, included as an exhibit in Argaman’s filing, charges he only bought the apartment and signed the deal after she duped him into thinking she’d marry him. It also accuses her and her parents of trying to shake him down.

    Argaman says the “engagement” argument isn’t much of a defense, because Rothenberg was already married.

    Their lawyers declined to comment.
Source: Blond songwriter sues multimillionaire ex for trying to kick her out of $1.3M apartment (Ayelet Argaman, 35, says her married former flame Robert Rothenberg, 59, has no right to boot her out of the Upper East Side apartment he bought for her. Rothenburg claims that Argaman used him).

See also, New York Post: Actress suing married sugar daddy to keep $3M in gifts:
  • He also showered Argaman with $1.3 million in other gifts, including money to fund her entertainment career, luxury home furnishings and $100,000 a month for expenses, according to court papers.

Sunday, November 30, 2014

Return Of The Robosigners In Fannie Mae's Pursuit Of Deficiency Judgments To Squeeze Foreclosed, Ex-Homeowners

The New York Times reports:
  • Remember the robo-signers, those mortgage loan automatons who authenticated thousands of foreclosure documents over the years without verifying the information they were swearing to?

    Well, they’re back, in a manner of speaking, at least in Florida. Their dubious documents are being used to hound former borrowers years after their homes went into foreclosure.

    Robo-signer redux, as it might be called, has come about because of an aggressive pursuit of former borrowers by debt collectors hired by Fannie Mae, the mortgage finance giant. What Fannie is trying to recoup from these borrowers is the difference between what the borrowers owed on the mortgages when they were foreclosed and the amount Fannie received when it resold the properties.

    These monetary amounts — and they can be significant — are known as deficiency judgments. It is legal in most states for lenders to pursue them. (California is one notable exception.) The time limit for debt collectors to go after former borrowers varies from state to state; Florida allows deficiencies to be pursued for 20 years, and borrowers must pay a compounded annual interest rate of 4.5 percent.

    The problem, experts say, arises when robo-signed documents enabled banks to foreclose even when they didn’t have legal standing to do so.


    “It’s bad enough that Fannie Mae and their collectors are pursuing consumers many years after they’ve lost their homes,” [attorney Chip] Parker said. “But the fact that these lawsuits may be built on a foundation of foreclosure fraud is galling.

    Amazing, isn’t it, how the effects of the foreclosure crisis go on and on?

Saturday, November 29, 2014

Death Knell For Bankruptcy Strip-Offs Of Completely Underwater 2nd Mortgages?

Professor Bob Lawless writes on Credit Slips:

Probably No Strip-Offs After Supremes Rule
  • The headline for this post will be mysterious and perhaps slightly salacious in a general newsfeed, but bankruptcy experts will know it means the time is nigh in the 11th Circuit for lien strip-offs. The Supreme Court agreed to hear Bank of America v. Caulkett and Bank of America v. Toledo-Cardona, where the 11th Circuit allowed lien strip-offs of wholly underwater junior mortgages in a chapter 7. The Supreme Court case of Dewsnup v. Timm would seem to hold otherwise, but the 11th Circuit ruled Dewsnup applied only to partially underwater mortgages. Hence, the 11th Circuit believe it was bound by its own pre-Dewsnup precedent allowing strip-offs for wholly underwater junior mortgages.

    I like the 11th Circuit rule as a matter of policy, but I have to believe that as a matter of precedent, the Supreme Court is almost certain to reverse.

Friday, November 28, 2014

Landlord/Operator Of Gov't-Approved Supportive Housing Program For Homeless & Disabled Vets Tagged With Fair Housing Complaints; Management Allegedly "Segregated The Blacks From The Hispanics From The Whites" Until Catching Wind Of HUD Grievances; Then Began "Shuffling" Whites, Blacks Throughout Bldg., Says Renters' Advocate

In Denver, Colorado, The Denver Post reports:
  • For Anthony Mitchell, the Fourth Quarter Residences were a godsend, a low-rent haven for homeless and disabled veterans at a time when he and his wife were living in their car.

    Now, more than three years after residents began moving into the 36-unit complex, he and others describe a building where security is so lax that neighborhood drug addicts and prostitutes move freely through the halls, and strangers sleep in the stairwells.

    Handicapped bathrooms on the first floor are often locked, and tenants don't have access to stairs that lead between floors. Mitchell and others whose medications cause incontinence sometimes soil themselves before they can get back to their apartments.

    "In the beginning, it was lovely. It has turned into a huge crack house," said Mitchell, a veteran of the first Gulf War.

    Mitchell is among 11 tenants of the complex in Five Points who have filed Fair Housing complaints with the U.S. Department of Housing and Urban Development against Fourth Quarter Partners LLLP, the owner, and Burgwyn Residential Management Services.

    The building is part of a supportive housing program for chronically homeless veterans that combines HUD rental assistance and Veterans Affairs' long-term case-management services to help homeless veterans.

    Among the complaints: Only African-American tenants were relegated to the fourth floor, and a property manager allegedly referred to the floor as "the black four."

    Mitchell was among them. When he first moved into the building, he and his wife lived in an apartment on the second floor, he said. Not long after their move, management asked him to move to the fourth floor, giving him only one day to vacate. When he objected, he was told he could move or be evicted.

    "The 4th floor was full (all Black) when Anthony Mitchell moved in. He was placed on the second floor. When a room opened up on the 4th floor he was ordered to move up to that floor. They segregated the Blacks from the Hispanics, from the Whites," Gary Lacefield of Lacefield & Coleman Fair Housing Advocates, the firm handling the complaint, said in an e-mail.

    Once word got out that tenants were filing complaints, the landlord began "shuffling" white and black residents to different apartments, Lacefield said.
  • VA spokesman Daniel W. Warvi said Fourth Quarter is among the many community providers it works with as part of its goal to end veteran homelessness by 2015.

    "While VA has a duty to review the care provided to our veterans by these community providers," he said, "the day-to-day operations of these facilities must be the responsibility of the providers themselves."

Thursday, November 27, 2014

Court OKs Gov't Use Of Eminent Domain To Snatch Elderly Man's Atlantic City Home Of 45 Years, Even Without Any Specified Purpose For The Property; Victim, Counsel Say Appeal Will Follow

In Atlantic City, New Jersey, The New York Times reports:
  • Charlie Birnbaum will have to go to a higher court to defend his parents’ home in Atlantic City, which he wanted to keep as something of a shrine.

    Superior Court Judge Julio L. Mendez ruled on Monday that New Jersey’s Casino Reinvestment Development Authority, charged with developing the gambling and tourism industries in Atlantic City, had broad leeway to exercise eminent domain and could take the property if it felt there would be a better use that would enhance the city.

    In a telephone interview, Mr. Birnbaum described the decision as “gut-wrenching.”

    “I’m disappointed that a chapter of our lives may be over,” he said.

    But he said that the Institute for Justice, a nonprofit, libertarian-leaning law firm that has challenged other eminent domain proceedings, wanted to appeal to an appellate court and then to the state’s Supreme Court and that he would go along with the firm’s decision. The judge said he would not allow the development authority to take the property for 45 days, effectively giving Mr. Birnbaum’s lawyers time to appeal.

    Mr. Birnbaum, 67, a piano tuner who has done work for Frank Sinatra and Tony Bennett as well as almost every casino in Atlantic City, uses the ground-floor apartment once occupied by his parents at 311 Oriental Avenue as his workshop. But to him it is more important as a reservoir of memories. His parents, Holocaust survivors who lived in the building for 30 years, found comfort in the house, the ocean and the beach, Mr. Birnbaum said.

    The casino development authority included the building two years ago in a plan to create a tourism district to invigorate Atlantic City’s fortunes as a gambling resort. Almost every owner of the 62 low-rise buildings and empty parcels accepted the prices offered. But Mr. Birnbaum turned down an offer of $237,000, saying he would not give up the house for any amount.

    He said the authority had no right to take property without identifying a specific intended purpose. But Judge Mendez ruled that the authority needed only a general rationale of turning the area into a tourism district, so broad were the powers the State Legislature had given it.
Source: Setback in Atlantic City for Man Hoping to Save Parents’ Home.

For the trial court's ruling, see Casino Reinvestment Development Authority v. Birnbaum, (N.J. Super, Ct. Law Division, November 17, 2014).
See also:

Wednesday, November 26, 2014

Expiring Statute Of Limitations Leaves New Jersey Homeowner With Free & Clear Home While Foreclosing Lender Left Holding The Bag

In Newark, New Jersey, reports:
  • In what may be a first in New Jersey, a Morris County man who defaulted on his $520,000 mortgage in 2007 has instead won the right to retain ownership of his house, according to court records.

    Earlier this month, Gordon A. Washington of Madison won a challenge against creditors Specialized Loan Servicing LLC and Bank of New York Mellon to collect the debt, saying they failed to file a viable foreclosure complaint within a six-year statute of limitations.

    In his written opinion, Judge Michael B. Kaplan repeatedly expressed his reluctance to nullify the mortgage agreement — stating he did so with a "figurative hand holding the nose" — but, nonetheless, he ruled in favor of Washington by voiding the mortgage lien.

    "The debtor retains the property, free of any claim of the defendants," Kaplan wrote in his Nov. 5 decision. "The court will proceed to gargle in an effort to remove the lingering bad taste."(1)

    Earlier this year, the percentage of New Jersey homes in foreclosure rose to the highest rate in the nation.

    Montclair lawyer Margaret Jurow told The Record, which first reported the court's decision early Saturday morning, that this was the first case she was aware of in which the court applied the statute of limitations to the correction of a mortgage loan, and that borrowers can generally only hope for a modification of the loan to get a lower down payment.

    The newspaper reported that it wasn't able to determine Friday if Washington's creditors intended to appeal the decision.

    Washington's attorney, Walter Nealy, told NJ Advance Media Saturday afternoon the decision spoke for itself and that Washington's bankruptcy proceedings were ongoing.
Source: Morris County man facing foreclosure beats creditors, takes ownership of house.

Thanks to Deontos for the heads-up on the story.

(1) "The maxim has long been recognized that equity aids the vigilant, not those who sleep on their rights." Brick Plaza, Inc. v. Humble Oil & Refining Co., 218 N.J. Super. 101, 526 A.2d 1139 (App. Div.1987) (citing Stout v. Seabrook's Executors, 30 N.J. Eq. 187, 190-191 (Ch. 1878), aff'd o.b. 32 N.J. Eq. 826 (E. & A. 1880)). The lender, and its assignors (if any) had six years to successfully enforce their rights, What does this judge not get? A judge who sympathizes with plaintiff/financial institutions who slept on their rights for six years in a foreclosure case is a judge having no business presiding over foreclosure cases. I extend my sympathy to those homeowner/defendants who regrettably get stuck with Judge Kaplan presiding over their foreclosure cases. Hopefully, they'll have counsel versed in the appellate process because prevailing in such a foreclosure action may require a trip to an appellate court to reverse an unfavorable trial court ruling.

Tuesday, November 25, 2014

WV Supremes OK Foreclosed Homeowner's Use Of 'Fair Market Value Defense' When Determining Deficiency Judgment; Court Overrules Its Prior Precedent That Mandated Automatic Use Of Auction Sale Price In Calculation; Ruling Will Lead To Less Lender Windfalls, Lower Post-Foreclosure Liability For Property Owner

From an Opinion Summary from Justia US Law:
  • Defendants defaulted on their obligation to Plaintiff, who had loaned them $200,000 secured by a first deed of trust on real property they owned. Plaintiff subsequently purchased the subject property at a trustee’s sale and then filed the instant lawsuit seeking a deficiency judgment for the unpaid balance of Defendants’ promissory note.

    The circuit court entered summary judgment in favor of Plaintiff and awarded Plaintiff post-judgment interest on this award. Defendants appealed, arguing that the deficiency judgment was too high and should have been adjusted to reflect the fair market value of their property when it was sold at the trust deed sale.

    The Supreme Court reversed, holding that a trust deed grantor may assert, as a defense in a lawsuit seeking a deficiency judgment, that the property was sold for less than its fair market value at the trust deed foreclosure sale.
Source: Justia Opinion Summary - Sostaric v. Marshall (Signed Opinion).

For the court ruling, see Sostaric v. Marshall, No.14-0143 (W.V. November 12, 2014)

Editor's Note: This court ruling provides a handy primer on the statutes and case law governing the calculation of deficiency judgments in foreclosure actions in that the West Virginia Supreme Court examines and considers:
  1. the majority view of other jurisdictions that permit the sale price of foreclosed property to be challenged in a deficiency judgment lawsuit;(1) and
  2. West Virginia's statutory law on trust deed foreclosure sales, as well as its earlier binding precedent in Fayette County. National Bank v. Lilly, 199 W.Va. 349, 484 S.E.2d 232 (1997) which it now overrules.
For stare decisis fans, the opinion also sets forth the basis used by the majority for deviating from its prior precedent, and includes a vigorous dissenting opinion by Chief Justice Robin Jean Davis, who argued against violating prior precedent, explaining why:
  • the case was absent of any compelling justification for doing so, and
  • any change of the prevailing law requires legislative, not judicial, action.


(1) Buried in footnotes 11 and 12 of the ruling is the following collection of statutes that the court describes as the majority rule governing the calculation of post-foreclosure deficiency judgments in other states:
  • Footnote 11:

    Statutes that define the deficiency as the difference between the mortgage obligation and the "fair value" of the foreclosed real estate include the following: Ariz. Rev. Stat. § 33-814 ("fair market value" as of the date of sale); West's Ann. Cal. Code Civ. Proc. §§ 580a ("fair market value" as of date of sale in power of sale foreclosure), 726(b) ("fair value" as of sale date in judicial foreclosure); Colo. Rev. Stat. Ann. § 38-38-106 ("fair market value"); Conn. Gen. Stat. Ann. § 49-14(a) ("actual value" as of date title vested in mortgagee in strict foreclosure); Ga. Code Ann. § 44-14-161 ("true market value" as of sale date); Idaho Code § 6-108 ("reasonable value"); Kan. Stat. Ann. § 60-2415 ("fair value"); Me. Rev. Stat. Ann. tit. 14, § 6324 ("fair market value" at time of sale); Mich. Comp. Laws Ann. § 600.3280 ("true value" at time of sale); Minn. Stat. Ann. § 582.30, subd. 5(a) ("fair market value"); Neb. Rev. Stat. § 76-1013 ("fair market value" as of sale date); Nev. Rev. Stat. §§ 40.455-40.457 ("fair market value" as of sale date); N.J. Rev. Stat. § 2A:50-3 ("fair market value"); N.Y. Real Prop. Acts. § 1371 ("fair and reasonable market value" as of sale date); N.C. Gen. Stat. § 45-21.36 ("true value" as of sale date); N.D. Cent. Code §§ 32-19-06, 32-19-06.1 ("fair value"); Okla. Stat. Ann. tit. 12, § 686 ("fair and reasonable market value" as of sale date); Pa. Stat. Ann. tit. 42, § 8103 ("fair market value"); S.C. Code Ann. § 29-3-700 et seq. ("true value"); S.D. Codified Laws Ann. § 21-47-16 ("fair and reasonable value"); Tex. Prop. Code Ann. § 51.003 ("fair market value" as of sale date); Utah Code Ann. § 57-1-32 ("fair market value"); Wash. Rev. Code Ann. § 61.12.060 ("fair value"); Wis. Stat. Ann. § 846.165 ("fair value").

    Footnote 12:

    In many jurisdictions, the court must conduct a hearing as to value and apply the "fair value" amount in computing a deficiency even though the deficiency defendant fails to request it. See, e.g., Idaho Code Ann. § 6-108; Neb. Rev. Stat. § 76-1013; Nev. Rev. Stat. § 40.457; Okla. Stat. Ann. tit. 12, § 686; Pa. Stat. Ann. tit. 42, § 8103.

    Other states place the burden on the deficiency defendant to raise the "fair value" defense. See, e.g., Kan. Stat. Ann. § 60-2415; Me. Rev. Stat. Ann. tit. 14, § 6324; Mich. Comp. Laws Ann. § 600.3280; N.C. Gen. Stat. § 45-21.36; N.J. Rev. Stat. § 2A:50-3; and Tex. Prop. Code Ann. § 51.003.
Buried in Footnotes 16 and 17 of the ruling, the court finds support for allowing a foreclosure defendant to assert a fair market value defense by including excerpts of a dissenting opinion in a Missouri case (a state which does not permit the fair market value defense), in which the dissenting judge makes a compelling (albeit unsuccessful) argument in favor of a foreclosed property owner getting credit for the full fair market value of the property foreclosed as an offset to the loan obligation when calculating the deficiency:
  • Footnote 16:

    The Missouri Supreme Court considered this issue and, like Lilly, followed the minority rule that does not permit a deficiency defendant to assert a fair market value challenge following a foreclosure sale. Missouri Chief Justice Richard B. Teitelman dissented to the court's ruling and discussed why denying a deficiency defendant the opportunity to present a fair market value challenge is inconsistent with the general purpose underlying a damage award:

    The purpose of a damage award is to make the injured party whole without creating a windfall. Accordingly, in nearly every context in which a party sustains damage to or the loss of a property or business interest, Missouri law measures damages by reference to fair market value. Yet in the foreclosure context, Missouri law ignores the fair market value of the foreclosed property and, instead, measures the lender's damages with reference to the foreclosure sale price. Rather than making the injured party whole, this anomaly in the law of damages, in many cases, will require the defaulting party to subsidize a substantial windfall to the lender. Aside from the fact that this anomaly long has been a part of Missouri law, there is no other compelling reason for continued adherence to a measure of damages that too often enriches one party at the expense of another. Consequently, I would hold that damages in a deficiency action should be measured by reference to the fair market value of the foreclosed property.

    First Bank v. Fischer & Frichtel, Inc., 364 S.W.3d 216, 224-25 (Mo., 2012) (C.J. Teitelman, dissenting).

    Footnote 17:

    In response to a bank's argument that allowing a defendant to present a fair market value challenge in a deficiency judgment proceeding could negatively affect banking institutions, one court noted:

    First Bank argues that changing to the fair market value approach will place all the risk in the foreclosure process onto the lender. This argument is not persuasive. By focusing only on the foreclosure process, First Bank deflects consideration of the risk management techniques available to lenders when the loan is made. A lender compensates for risk by charging an interest rate that is set both by the financial markets and by the lender's assessment of the borrower's creditworthiness. The lender also manages risk by appraising the fair market value of the property to ensure that the loan is adequately secured. Changing to a fair market value approach certainly would lessen the lender's chance of a large windfall and would mean only that First Bank, like the borrower, is losing or gaining money based on fair market value of property. The risk of loss is part of the risk of lending. That risk of loss should not be borne solely by the borrower and then amplified by measuring the deficiency by reference to the foreclosure sale price.
First Bank v. Fischer & Frichtel, Inc., 364 S.W.3d 216, at 228 fn. 5 (Mo., 2012) (C.J. Teitelman, dissenting).

Contained in the footnotes of the ruling in First Bank v. Fischer & Frichtel, Inc., is a useful collection of statutes and case law of other states on the issue of post-foreclosure deficiency judgments.