NY AG Probe Targets Upstate Sale-Leaseback Foreclosure Rescue Operator, Says Firm's Lawyer; Company's Ch. 11 Bankruptcy Filing Dismissed

In Albany, New York, The Albany Business Review reports:

• Rivertown Investments LLC, an Albany, N.Y., company that bought properties on the brink of foreclosure(1) before going out of business last summer, won’t be able to liquidate its assets in bankruptcy court.

• U.S. Bankruptcy Judge Robert E. Littlefield Jr., dismissed the Chapter 11 cases at the request of government lawyers who accused Rivertown and its real estate holding company, Momentum Properties LLC, of “gross mismanagement of the estate.” The dismissal comes at a time when Rivertown’s attorney has said the New York state attorney general’s office is investigating the firm.

• Rivertown attorney Justin Heller of Nolan & Heller LLP in Albany has said he’s not aware of any consumer fraud at Rivertown. No charges have been filed against the company. The attorney general’s office won’t comment.

For more, see Rivertown bankruptcy case dismissed.

For earlier stories, see:

• Real estate leaseback company files for bankruptcy,
• Lease-back plan for homes fails (Owner of dozens of properties files for bankruptcy protection).

(1) According to the story, Rivertown would buy a client’s home, pay off the mortgage and other debt, and lease the home back to the client for 18 months or so until the client could repurchase the home. Rivertown’s portfolio reportedly includes 56 properties in Albany, Troy, Delmar, Saugerties and many others downstate, in Pennsylvania and in New Jersey. It’s unclear what the dismissal of the bankruptcy case will mean for the people who sold their homes to Rivertown and continue to live in them, the story states.

It may very well be that those sale-leaseback deal could be voided in the event there is a provable fraud involved. If there is no provable fraud, the arrangements could possibly still be voided if the deals can be recharacterized as equitable mortgages. Further, given the continuous occupancy and possession of those people who sold and leased backed their homes, there may be New York case law that supports the proposition that any subsequent purchasers or encumbrancers (ie. mortgage lenders) of the homes involved are not bona fide purchasers, thereby disqualifying them from the protection of the recording statutes and leaving their interests subject to being voided by the now-former homeowners. See:

• Phelan v. Brady, 119 N.Y. 587; 23 N.E. 1109; (NY 1890): "Actual possession of real estate is sufficient notice to a person proposing to take a mortgage on the property, and to all the world of the existence of any right which the person in possession is able to establish." [citations omitted].
• Ward v. Ward, 503624,2008 NY Slip Op 4984; 52 A.D.3d 919; 859 N.Y.S.2d 774; 2008 N.Y. App. Div. LEXIS 4816 (App. Div. 3d Dept. 2008);
• Doyle v. Siddo, 31 A.D.3d 697, 818 N.Y.S.2d 474, 2006 N.Y. App. Div. LEXIS 9569 (N.Y. App. Div. 2d Dep't, 2006).