Tuesday, April 25, 2017

Appeals Court Slaps Sneaky Bankster For Legally Baseless Attempt To Glom Rental Income From Condo During Foreclosure Action

In Miami, Florida, the Daily Business Review reports:
  • Deutsche Bank National Trust went beyond the scope of its complaint when it "sequestered" rental income from a condominium in foreclosure, Florida's Third District Court of Appeal found.

    The bank foreclosed on investment property belonging to North Miami-based borrower UV Cite III LLC in 2016. While the case was pending, it moved to require that the defendant deposit into the court registry all rent from tenants occupying the Sailboat Cay condo. At trial after a hearing, Deutsche Bank succeeded on a motion to have UV Cite deposit rents into the court registry. It later won release of all funds in the registry as the prevailing party.

    But the borrower objected, arguing the trial court lacked subject matter jurisdiction and had provided more relief than Deutsche Bank sought in its complaint.

    "There wasn't a whole lot [of precedent] about whether you could sequester rent without pleading it," UV Cite's attorney, Todd L. Wallen of Wallen Hernandez Lee Martinez, said. "If you're going to seek a remedy … you need to plead it. You need to give notice that you're seeking that remedy, and you have to have a basis for it."

    Deutsche Bank's three-count complaint sought to foreclose on the mortgage and reform the mortgage and deed, but had no cause of action for the rent. It also sought no judgment for the rent, and provided no evidence of a rent assignment agreement.

    "Because the rent was not the subject of Deutsche Bank's lawsuit, and there was no other basis for sequestering the money, the trial court had no authority to order that the rent UV Cite collected from its tenant be deposited in the registry of the court," Third DCA Judge Robert Luck wrote in a unanimous decision with Judges Kevin Emas and Thomas Logue.

    Rent assignments are common in commercial mortgages, where lenders see them as a safeguard in case of loan defaults. These assignments allow lenders to collect the income generated from offices, retail properties and other commercial buildings, but are rare in residential mortgages, according to Corona Law Firm founder Ricardo Corona, who was not involved in the litigation.

    In this case, UV Cite III used the condo as an investment property, but the suit was a residential foreclosure.

    "What the bank did in this case … we've seen banks try to do in other cases," Corona said. "It's meant to pressure the borrower, because they don't have that cash flow."

    The state appellate court suggested both parties presented too little information at trial, as neither side cited cases that show a trial court's jurisdiction over money not claimed in the complaint.

    "We reverse because absent an agreement between the parties to assign rents, or some form of injunctive relief, a trial court has no authority to order a deposit of money into the registry of the court if the money was not the subject of the litigation," Luck wrote.
Source: 'Sequestering' Condo Rental Income Improper Without Pleading, Appeals Court Rules (may require subscription; if no subscription, TRY HERE, then click the appropriate link).

For the court ruling, see UV Cite III, LLC v. Deutsche Bank Nat'l Trust Co., No. 3D16-2341 (3d DCA, April 12, 2017).

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