Massachusetts Appeals Court Affirms Ruling Restoring Nursing Home-Bound 83-Year Old Widow's Ownership Of Over $2.5 Million In Real Estate, Other Assets Pilfered By Sleazy Son, Daughter-In-Law; Fiduciary Relationship Among Parties Shifted Burden Onto Defendants To Prove Transactions Were Free From Fraud, Undue Influence

From a recent story in WealthManagement.com:

• The near epidemic of financial exploitation of the elderly and infirm came into sharp focus in the Massachusetts Appeals Court’s decision on Nov. 2, 2016 involving the guardianship of Alice Migell, a nursing home-bound 83-year-old widow. (Guardian v. Migell, 2016 Mass. App. Unpub. LEXIS 1056 (Nov. 2, 2016)) On behalf of Alice, a complaint in equity was filed against her son and daughter-in-law to recover over $2.5 million in assets after an investigation by the local protective services agency revealed that Alice was the victim of a scheme to strip her of everything.
  
  Alice’s son, Andrew, and his wife, Kai, failed to win reversal of judgments holding them guilty of criminal contempt of court and recovering real estate and money that they’d taken from her. A key aspect of the case was the fiduciary relationship that Andrew and Kai had created toward Alice. Andrew was a trustee and acted under a power of attorney for Alice. Both Andrew and Kai boasted about how they did everything for Alice because she couldn’t take care of herself. They tried to use that relationship as a justification for, if not entitlement to, keeping proceeds from selling property held in trust and receiving outright conveyances of other valuable real estate. As discussed below, this proved to be their undoing under the Massachusetts rule for burden shifting in transactions that benefit a fiduciary.
  
  Disturbing Basic Facts
  
  Alice’s husband Bruce died in 2006, while she was hospitalized. They’d been married for over 40 years and had amassed a sizeable estate. Alice is the primary beneficiary of Bruce’s estate. The Appeals Court agreed with the trial judge that Andrew “had a plan to obtain transfers of property Alice owned or reasonably expected to inherit.” Several valuable real estate properties were owned in a nominee realty trust with Bruce as sole beneficiary. Andrew was a trustee but obtained a transfer of beneficial interest from Bruce shortly before his death. Investment properties in New Hampshire and Florida had also been held in the nominee trust, but Andrew sold them and kept the money. Alice held title to a vacation home in her name. Two other properties that Alice owned when Bruce died were deeded over to Andrew shortly after Bruce’s death, which the guardian was able to recover outside of the lawsuit.
  
  Appeals Court Ruling
  
  The Appeals Court upheld the trial court’s decision to restore title to the real estate and order Andrew to turn over the sale proceeds. The court also agreed that the trial judge properly found Andrew’s wife, Kai, to be liable since she received some of the property or use of the sale proceeds. Indeed, Andrew had reconveyed one property to himself and Kai. As a result, transfers of title that rendered Alice essentially destitute were reversed, so that she’ll benefit from Bruce’s estate as he’d intended.
  
  Alice’s Standing
  
  Andrew and Kai’ argued on appeal that Alice had no standing because she didn’t own the properties at issue in the trial. The Appeals Court held otherwise, concluding that under Bruce’s estate plan, his widow was intended to be its primary beneficiary. The facts clearly established that Andrew worked continuously on his plan to deprive Alice of her expected inheritance, giving her standing to recover it. Accordingly, the equitable relief to restore these assets was proper. It should also be noted that courts of equity have extraordinary latitude to grant relief for protected persons, such as those under guardianship and conservatorship like Alice.
  
  Fiduciary Relationship Shifted Burden of Proof
  
  On appeal, just like they did at trial, Andrew and Kai argued that there was insufficient evidence against them for Alice to gain back the property and money. The Appeals Court, however, agreed with the trial judge’s determination that both Andrew and Kai stood in a relationship of trust and confidence toward Alice. Although they were defendants in this action, and so wouldn’t ordinarily bear the burden of proof, the finding of a fiduciary relationship shifted the burden of proof so that Andrew and Kai were required to prove that challenged transactions weren’t the burden of fraud or undue influence.
  
  Andrew and Kai didn’t appear at trial or offer any testimony concerning the challenged transactions so the record was barren of any evidence that could show these challenged transactions were proper. It was incumbent on the defendants, as a result of burden shifting, to demonstrate the circumstances of the transactions and their intended benefit to Bruce. As a matter of common sense, although the Appeals Court decision is silent on this point, one is left to wonder where such evidence could have been obtained.
  
  Criminal Contempt
  
  The judgment to recover the assets followed an earlier decision, also affirmed by the Appeals Court, sanctioning Andrew and Kai for more than $550,000 in expenses that Alice incurred to defend against the “plan” to divert to Andrew and Kai all that Alice had, and so render her destitute. That judgment included an injunction freezing Andrew and Kai’s assets until Alice has been made whole.
  
  Andrew filed for bankruptcy shortly after the Appeals Court upheld that judgment in 2014. During the bankruptcy case, which was ultimately dismissed, it became apparent that Andrew transferred ownership in a real estate investment property to Kai and their daughter and that both defendants put a homestead declaration on a second property. The obvious intent was to shield these valuable assets from being reached to satisfy the judgment.
  
  Both Andrew and Kai were found guilty of criminal contempt, with Andrew receiving a 45-day jail sentence and Kai receiving 250 hours of community service. They appealed, essentially arguing that what they did wasn’t so bad, didn’t harm Alice and wasn’t willful. If anything, the argument went, a finding of civil contempt was the most that should have entered against them.
  
  The Appeals Court rejected all of these arguments. Clearly, each transaction violated an injunction that forbade any transfer of assets, and the violations were willful because the defendants volitionally committed the acts on which the convictions were grounded. Indeed, both Andrew and Kai showed contempt for the court’s authority, such as by Andrew’s “flippant statements” about the transfer of the investment property to Kai and their daughter and the timing of the homestead declaration that occurred just days after their appeal failed.

For the story, see Estate Plan Protects Widow From Son's Breach of Fiduciary Duty (In Migell, a Massachusetts Appeals Court ordered that real estate and other assets be returned to elderly, infirm woman).

For the court ruling, see O'Regan v. Migell, No. 16-P-348 (Mass. App. Novenber 2, 2016).

Tax Court: Sale Leaseback Deal Fails Substance Over Form Test; Transaction An Improper Tax Dodge Treated As A Loan For Income Tax Purposes

From a recent post in CCH Tax Day Report:

• A series of transactions consisting of a like-kind exchange, coupled with a sale and leaseback between an electricity producer/distributor corporation and two tax-exempt public utilities, were disregarded because they failed the substance over form test.
  
  The transactions were recharacterized as loans because the taxpayer funded the transactions entirely with its own funds and received the funds back with interest in two payments: the first six months after the closing date and the second at the end of the sublease term in the form of the option cancellation payment. In addition, the taxpayer’s return on investment was predetermined and it did not have an upside potential or much of a downside risk.
  
  The transactions were similar to traditional sale/leaseback (SILO) and lease-in/lease-out (LILO) transactions because they created a circular flow of money accompanied by a transfer of tax benefits from a tax-exempt to a taxable entity. In addition, the terms of the transaction ensured that only six months into the deal, the taxpayer was in the same cash position as if it had taken out a loan to finance the transaction.
  
  Moreover, the taxpayer did not have any obligation regarding the maintenance, operation or insurance of the leased property during the sublease term or the remainder of the headlease. Under the terms of the sublease, the municipal utility accepted all of the risks associated with the operation of the power plant during the sublease term. Further, the taxpayer’s due diligence did not indicate any ownership rights because the taxpayer did not follow up on any of the red flags raised in the engineering reports.

For more, see Like-Kind Exchange with Sale and Lease-Back Transactions Were Loans; Penalties Imposed.

For the court ruling, see Exelon Corp. v. Commissioner. 147 T.C. 230 (2016), 147 T.C. No. 9 (September 19, 2016).

The case was subsequently appealed, and affirmed Exelon Corp. v. CIR, 906 F. 3d 513 (7th Cir. 2018).

Ohio Supreme Court Slams Brakes On Liability Insurer's Attempt To Automatically Deny Coverage To Landlord Sued By Prospective Tenant For Alleged Discrimination Under Fair Housing Act

From a recent article appearing in the insurance industry publication, Claims Journal:

• [T]he Ohio Supreme Court recently considered application of the inferred-intent doctrine(1) in a federal fair housing discrimination lawsuit. Granger v. Auto-Owners Ins., 144 Ohio St.3d 57, 40 N.E.3d 1110 (Ohio 2015).
  
  In Granger, the insured [ie. the landlord] owned various rental properties. Those properties were insured by Auto-Owners Insurance Group with a primary dwelling policy that included landlord-liability coverage and a second umbrella policy. The primary policy was issued by Auto-Owners Mutual Insurance Company and the second policy was issued by Owners Insurance Company.
  
  Both policies covered personal injuries. However, the definition of what constituted a “personal injury” differed between the policies. The primary policy defined “personal injury” in terms of causes of action, i.e., libel, slander, defamation, false arrest, invasion of privacy, wrongful eviction, etc. The definition of “personal injury” contained within the umbrella policy was broader in scope. The umbrella policy definition included reference to particular types of damages rather than only particular types of causes of action. The broader definition of “personal injury” in the umbrella policy included within the definition “humiliation.”
  
  The insured refused to rent one of the insured properties because the proposed renter was African-American and had a six year old son who would be living with her at the property. It was determined that the insured had discriminated against the tenant on the basis of familial status and race in violation of 42 U.S.C. 3604 and R.C. 4112 .02(H). Part of the damages sought by the putative tenant was emotional distress.(2)
  
  The umbrella policy also contained an intentional act exclusion. Specifically, the policy excluded coverage when “the personal injury … was expected or intended.” Auto-Owners asserted that the exclusion was applicable. Auto-Owners argued that “discriminatory intent is inferred as a matter of law for purposes of an intentional act exclusion under an umbrella policy of insurance on a claim for pre-leasing housing discrimination.” 144 Ohio St.3d at 64, 40 N.E.3d at 1117.
  
  Auto-Owners was seeking application of the inferred-intent doctrine. Under the inferred-intent doctrine, “when there is no evidence of direct intent to cause harm and the insured denies the intent to cause any harm, the insured’s intent to cause harm will be inferred as a matter of law in certain instances.” Auto-Owners argued that it could be inferred as a matter of law from the nature of the insured’s act—pre-leasing housing discrimination—that the insured intended to cause the putative tenant’s personal injuries and, therefore, the exclusion applied.
  
  The Ohio Supreme Court in Granger disagreed.
  
  Previously, the Ohio Supreme Court had rejected the “substantially certain” test in inferred-intent cases. 144 Ohio St.3d at 65, 40 N.E.3d at 1118. Under the “substantially certain” test, any harm that was substantially certain to result from an intentional act would fall under the intentional act exclusion of the policy.
  
  The Ohio Supreme Court adopted a different test for application of the inferred-intent doctrine. Under Ohio law, “the doctrine of inferred intent applie[d] only in cases in which the insured’s intentional act and the harm caused [were] intrinsically tied so that the act [had] necessarily resulted in the harm.” 144 Ohio St.3d at 65, 40 N.E.3d at 1118.
  
  The Ohio Supreme Court then found that humiliation was not so intrinsically tied to pre-leasing discrimination that the insured’s act necessarily resulted in the harm suffered by the putative tenant.
  
  While acknowledging that emotional distress damages were available under the law to victims of housing discrimination, the Court found that such damages were not automatically awarded.
  
  Therefore, the Court remanded the case to the trial court so that the trier of fact could determine whether the insurance company was able to demonstrate that the insured intended to cause humiliation to the putative tenant without the benefit of the inferred-intent doctrine removing that burden of proof.

For the article, see Ohio High Court Rejects Inferred-Intent Doctrine in Fair Housing Discrimination Case.

For the court ruling, see Granger v. Auto-Owners Ins., 144 Ohio St.3d 57, 40 N.E.3d 1110 (Ohio 2015).

See also, Landlord Owed Defense In Bias Row, Ohio High Court Says (may require subscription; if no subscription, TRY HERE, then click the appropriate link for the story).

------------------------

(1) In Ohio, the inferred-intent doctrine is a judicially-created rule that liability insurers often rely on when attempting to wiggle their way out of providing coverage denying coverage to a policy holder when the insurer claims that the conduct of an insured that gives rise to harm was as a result of an intentional act, thereby triggering the intentional act exclusion in the insurance policy (which allows the insurer to deny coverage).

The court describes the inferred-intent doctrine as follows:

• Under the inferred-intent doctrine, "when there is no evidence of direct intent to cause harm and the insured denies the intent to cause any harm, the insured's intent to cause harm will be inferred as a matter of law in certain instances." Campbell, 128 Ohio St.3d 186, 2010-Ohio-6312, 942 N.E.2d 1090, ¶ 9, citing Gearing v. Nationwide Ins. Co., 76 Ohio St.3d 34, 36, 665 N.E.2d 1115 (1996), paragraph one of the syllabus.

(2) A summary of the facts that led up to the landlords' lawsuit against the insurance company (including a description of their alleged conduct that triggered the fair housing lawsuit against them), as roughly abstracted from the court ruling, follow:

1. In June, 2010, the prospective tenant ("Kozera") first made contact with the landlord.
   .
2. After being discouraged by the landlord from applying for a vacant apartment available for rental on the subject premises, a four-unit property in Akron, Ohio, Kozera contacted the Fair Housing Contact Service, Inc. ("FHCS"), the local non-profit fair housing organization, which investigated her housing discrimination claims by using trained testers to interact with the landlord ("Granger").
   .
3. One tester inquired about the property by e-mail, and Granger replied, "Truely [sic] a lovely and large apartment and in a very well keep [sic] apartment house. No pets or children."
   .
4. Granger later sent an additional e-mail to the same tester, stating, "Yes it is still available as I am selective as to who [sic] I rent to and I run a background check on any possible tenant, just so you know. It is an adult apartment house so it is quite [sic] and very will keep [sic] with no children or pets permitted."
   .
5. He sent a proposed lease to at least one tester; one of its terms was "No children or pets are permitted—period."
   .
6. Further, FHCS related that Granger told only an African-American tester that he ran background checks on prospective tenants because "he didn't want a rapist in the building"; he did not make the same comment to a Caucasian tester.
   .
7. Based on information from Kozera and the testers, FHCS contended that Granger had discriminated against Kozera, an African-American, on the basis of familial status and race in violation of 42 U.S.C. 3604 and R.C. 4112.02(H).
   .
8. In March, 2011, (nine months after her initial contact with the landlord), Kozera, along with FHCS, filed a fair housing lawsuit in federal court against Granger and one, Steigerwald, (Granger's partner/co-landlord), individually and in their capacities as trustees of the trust that held title to the subject rental property).
   .
9. Kozera claimed that she had "experienced out of pocket costs and emotional distress as a result of Defendants' conduct"; FHCS alleged that it had "expended its resources and was harmed in its mission by Defendants' conduct."
   .
10. In May, 2011 (two months after getting hit with the fair housing lawsuit), Granger and Steigerwald forwarded the lawsuit to their insurance agent, who then contacted the insurance company, seeking coverage under one of the policies, including the providing of a legal defense to the fair housing lawsuit (ie. the insurer's "duty to defend"),
    .
11. A month later, citing various reasons, the insurer denied coverage on one of the policies; they immediately requested coverage under their second policy (the umbrella policy), but they never heard back from the insurer,
    .
12. On July 11, 2011, Granger and Steigerwald settled the federal case with Kozera and FHCS for $32,500. Separate payments went to the two plaintiffs: $5,000 to Kozera and $27,500 to FHCS.
    .
13. On July 22, 2011 (less than two weeks thereafter), the landlords, Granger and Steigerwald, sued the insurance company (unfortunately for the insurance agency and the individual insurance agent, they too got roped into the landlord's lawsuit) for claims relating to the insurer's failure to provide coverage.

Void vs. Voidable: Illinois Lawsuit: Failure To Use State-Licensed Private Detective Agency To Serve Foreclosure Lawsuits Violates State Law, Leads To Slew Of Void (Not Merely Voidable) Foreclosure Judgments; Property Owner Seeks Return Of $3.5 Million In Proceeds From 22 Sales

In Chicago, Illinois, the Cook County Record reports:

• Trying to take advantage of a “procedural windfall,” a Chicago-area investment firm is alleging West Suburban Bank owes it almost $3.5 million from the sales of foreclosed properties held as collateral for a $10 million loan the firm defaulted on, because the firm was not legally served with notice of the foreclosures, as the process servers did not work for a state-licensed private detective agency as required by law.
  
  Advantage Financial Partners lodged a one-count restitution complaint Feb. 16 in Cook County Circuit Court against West Suburban Bank, which is headquartered in Lombard and has 19 branches in the suburbs.
  
  The case originated in 2005, when Advantage took a $10 million loan from West Suburban Bank, putting up 23 mortgaged properties as collateral, 15 of which were in Cook County, with the rest in DuPage, Will and Kane counties. The bank, however, alleged Advantage defaulted in 2008, and initiated foreclosure proceedings in December that year. The bank used a private detective agency, MPSI, to serve summonses on Advantage for 22 of the cases, and used another process server in the 23rd case. Advantage purportedly never responded.
  
  In 2009, default judgments were ordered against Advantage. West Suburban next bought the properties at sheriff’s sales, then sold them to third parties for $3.5 million, according to Advantage.
  
  In April 2013, Advantage sued to have 22 of the foreclosure judgments vacated, saying MPSI was not licensed with the state at the time its agents served foreclosure notice on Advantage. Specifically, MPSI’s agency license had expired Aug. 31, 2008, and was never renewed. Given that MPSI was not licensed, Advantage argued it was never legally served with notice of the foreclosure actions.
  
  Advantage did not claim it never received the summonses.
  
  West Suburban Bank filed a motion to consolidate the cases, which was granted, with 22 of the cases combined in DuPage County Circuit Court; the 23rd case was from Cook County and remained there. The bank then moved for dismissal of the cases in DuPage County handled by MPSI, contending, although the agency was not licensed as a detective agency, the agency’s employees who served the summonses were licensed. As a consequence, the bank contended the summonses were lawfully served.
  
  DuPage County Judge Robert G. Gibson agreed with the bank and dismissed Advantage’s suit in September 2013. Advantage appealed to Second District Appellate Court in Elgin, which in November 2014 overturned Gibson’s ruling, voided the foreclosure judgments and reinstated Advantage’s case.(1)
  
  The appellate court found the detective agency was the entity authorized to serve process, not the agency’s employees, regardless of whether they were individually licensed. Justice Mary Seminara-Schostok, who authored the appellate opinion, noted the opinion was in keeping with judicial principles “embedded in Illinois law for over a century.”(2)
  
  However, the court reached this decision with reluctance, having concern about the unjust effect of its ruling.
  
  “I invite the reader to step back and set aside, for a moment, the procedural niceties in play here and consider this case with an intuitive sense of justice. I venture that few would find this result at all palatable. Advantage has received an undeserved procedural windfall,” said Justice Joseph E. Birkett, who concurred in the opinion with Justice Schostok, as well as with Justice Ann B. Jorgensen.
  
  The case was remanded to DuPage County Circuit Court, where more legal maneuvers were made before the case was closed in July 2015.
  
  Advantage lodged a new complaint Feb. 16 in Cook County Circuit Court, demanding West Suburban Bank return to Advantage the $3.5 million in proceeds from the sale of 21 of the foreclosed properties, plus pre- and post-judgment interest, as well as any damages the judge deems just.
  
  Advantage alleged the money the bank received by selling the properties was based upon “unlawful judicial proceedings,” as the appellate court laid out in its ruling.

Source: Foreclosed land investors exploit technicality to demand $3.5 million 'procedural windfall' from bank.

----------------------------

(1) West Suburban Bank v. Advantage Financial, 23 NE 3d 370 (Ill. App. 2nd Dist. 2014).

(2) From the 2014 appeals court ruling:

• ¶ 20 WSB argues that MPSI's expired certification is a technical defect that should not result in a lack of personal jurisdiction. However, the weight of Illinois law is clearly to the contrary: defects in the service of process are neither "technical" nor insubstantial.
  
  ***
  Further, strict compliance with the statutes governing the service of process is required before a court will acquire personal jurisdiction over the person served. Sarkissian v. Chicago Board of Education, 201 Ill.2d 95, 109, 267 Ill.Dec. 58, 776 N.E.2d 195 (2002); C.T.A.S.S. & U. Federal Credit Union v. Johnson, 383 Ill.App.3d 909, 912, 322 Ill.Dec. 543, 891 N.E.2d 558 (2008).
  
  ***
  ¶ 24 WSB contends that the defect in service of process merely rendered the judgments voidable, not void, [...].
  
  ***
  As we have said, the proposition is well established that invalid service results in a judgment that is void for lack of personal jurisdiction. Sarkissian, 201 Ill.2d at 109, 267 Ill.Dec. 58, 776 N.E.2d 195; Thill, 113 Ill.2d at 308-09, 100 Ill.Dec. 794, 497 N.E.2d 1156; see also Pennoyer v. Neff, 95 U.S. 714, 732, 24 L.Ed. 565 (1877) ("if the court has no jurisdiction over the person * * * and, consequently, no authority to pass [judgment] upon his personal rights and obligations[,] * * * the whole proceeding * * * is coram non judice and void").
  
  There is no similar support for the idea that lack of personal jurisdiction merely renders a judgment voidable.

Florida Appeals Court Invokes 'Two Strikes & You're Out!' Rule To Permanently Sink Foreclosure Action; Unanimous Panel Says Banksters Allowed Only One Refiling Per Mortgage Note (Not Per Plaintiff), Then Get The Boot After The 2nd

In West Palm Beach, Florida, the Daily Business Review reports:

• One voluntary dismissal too many sank a foreclosure case for a lender who acquired a debt that had been sold at least twice before.
  
  The Fourth District Court of Appeal considered the procedural history and the number of voluntary dismissals tied to the note rather than the dismissals per plaintiff to reverse the foreclosure Wednesday and leave homeowner attorneys celebrating.
  
  "This has always been the rule … but it's interesting in the context of foreclosure where there's this constant shifting of plaintiffs," said foreclosure defense attorney Thomas Ice of Ice Legal in Royal Palm Beach, who was not involved in the litigation. "Often the parties are different on paper, but they're related somehow, so it really is the same lawsuit."
  
  The appellate court invoked the so-called two-dismissal rule under Florida Rule of Civil Procedure 1.420(a)(1), which allows one voluntarily dismissal but not two.(1)
  
  The appeal pitted Loxahatchee property owner Charles Nolan against MIA Real Holdings LLC, a successor lender that sought to foreclose on the same default as its predecessor, Flagstar Bank. It was the third foreclosure attempt against Nolan following two voluntary dismissals.
  
  The first suit came from Flagstar, which filed for foreclosure in 2011 after Nolan reportedly defaulted on the loan.
  
  Flagstar dismissed that case and later assigned the note and mortgage to DKR Mortgage, which started its own foreclosure before selling the debt as a trouble mortgage to MIA Real Holdings.
  
  MIA sought to be substituted as the real party in interest to take over the case but then voluntarily dismissed the suit before filing a third complaint alleging the same breach.
  
  Nolan's lawyers, Brian Korte and Scott Wortman of Korte & Wortman in West Palm Beach, argued the suit — "based on the same mortgage, same note, same default and same damages as the prior two actions" — was barred under the two-dismissal rule.
  
  "It's just unfair," Korte told the Daily Business Review. "The court wants some finality. You get two bites of the apple."
  
  MIA attorney Jerome Tepps of Sunrise did not respond to requests for comment by deadline. His client triumphed at trial when Palm Beach Circuit Judge Catherine Brunson counted MIA's voluntary dismissal as the only one applied to the current parties in the litigation.
  
  But Nolan successfully challenged that decision.
  
  "We hold that the two noteholders — the original plaintiff and the subsequent assignee of the note — were the same 'plaintiff' under the rule, so that the second voluntary dismissal triggered an 'adjudication on the merits,' " Fourth DCA Judge Robert Gross wrote in a unanimous decision with Judges Martha Warner and Spencer Levine concurring.

Source: Appeals Court: Two Strikes and You're Out on Foreclosure Dismissals (may require subscription; if no subscription, TRY HERE, then click appropriate link for the story).

For the court ruling, see Nolan v. MIA Real Holdings, LLC, No. 4D15-666 (Fla. App. 4th DCA, February 24, 2016).

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(1) "[A] notice of dismissal operates as an adjudication on the merits when served by a plaintiff who has once dismissed in any court an action based on or including the same claim." Florida Rule of Civil Procedure 1.420(a)(1). (Page 124)

Florida Appeals Court: "Precise Identity Of Each Entity In The Chain Of Transfers Is Crucial" When Bankster Is A 'Nonholder In Possession' Attempting To Foreclose On Note Containing 'Special Indorsement'

From a recent client alert from the law firm Maurice Wutscher LLP:

• The District Court of Appeal of the State of Florida, Fourth District, recently affirmed the dismissal of a mortgage foreclosure action because the mortgagee failed to present competent, substantial evidence that it had standing to foreclose, due to lack of conformity between the name of the plaintiff mortgagee and the names in the transactional documentation by which the plaintiff mortgagee claimed an interest in the note at issue. [...] The promissory note contained a special indorsement in favor of the mortgagee's predecessor in interest, astrustee.(1)

For more, see FYI: Fla App Ct (4th DCA) Affirms Dismissal of Foreclosure Because Plaintiff Not Party to Transactional Documents In Evidence.

For the court ruling, see Bank of New York Mellon Trust Company, NA v. Conley, No. 4D14-2430 (Fla. App. 4th DCA, January 6, 2016).

-------------------

(1) From the court ruling:

• In this foreclosure case, the trial court granted the borrower's motion for involuntary dismissal because the bank did not present competent substantial evidence of its standing to foreclose. We affirm.
  
  The record in this case reveals that, at one time or another, at least six different banking entities claimed ownership of the borrower's note. The problem is not the number of entities claiming ownership, but the similarities of their names. Two of the entities are:
  
  • JP Morgan Chase Bank; and
  • JP Morgan Chase & Co.
  
   Two others are:
  
  • Bank of New York Company, Inc.; and
  • The Bank of New York Mellon Trust Company, National Association
  
   We write to emphasize that when a nonholder in possession attempts to establish its right to enforce a note, and thus its standing to foreclose, the precise identity of each entity in the chain of transfers is crucial.
  
  At bar, the plaintiff is:
  
  The Bank of New York Mellon Trust Company, National Association fka The Bank of New York Trust Company, N.A. as Successor to JPMorgan Chase Bank N.A. as Trustee for RASC 2004KS4 [hereinafter "the Bank of New York Mellon"].
  
  In pursuit of this foreclosure, the Bank of New York Mellon presented an original note bearing a special indorsement in favor of "JP Morgan Chase Bank, as Trustee."

Reminder To Florida Trial Judges On Reestablishment Of Lost Notes (Both In Foreclosure & Non-Foreclosure Debtor-Creditor Cases): No Entry Of Judgment Allowed Until Person Required To Pay On Instrument Is Adequately Protected Against Risk Of Loss Of Double Payment

A recent ruling by a Florida appeals court serves as a reminder to all trial judges presiding over debtor-creditor cases (both foreclosure and non-foreclosure cases) that, when a bankster claims to have lost the promissory note it seeks to enforce, and is able to provide sufficient evidence to prove entitlement to reestablish a lost note, a trial judge still cannot enter a final judgment in the bankster's favor without first providing adequate protection to the property owner as mandated by Fla. Sta. § 673.3091.

The protection is against the possibility that the lost note turns up in another party's hands, and that party attempts to enforce the note a second time (essentially, making the property owner pay twice).

From the ruling:

• (2) A person seeking enforcement of an instrument under subsection (1) must prove the terms of the instrument and the person's right to enforce the instrument. If that proof is made, s. 673.3081 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means. § 673.3091, Fla. Stat. (2014) (emphasis added).
  
  As this statutory language makes clear, and contrary to the Blitches' argument here, adequate protection is not an element of the Bank's prima facie case. Instead, it is a post-proof condition of the entry of the final judgment. See Fifth Third Bank v. Alaedin & Majdi Invs., Inc., No. 8:11-CV-2206-T-17TBM, 2012 WL 1137104, at *3 (M.D. Fla. Apr. 4, 2012) (noting that after the plaintiff showed that it was entitled to enforce the note at the time it lost the note, "the Court is required to address the issue of providing adequate protection to the defaulting party against loss that might occur if a claim were brought by another party to enforce the instrument"); see also Correa v. U.S. Bank Nat'l Ass'n, 118 So. 3d 952, 956 n.2 (Fla. 2d DCA 2013) (stating that "[i]f the court is concerned that another person might attempt to enforce the original note, it may require security in favor of the payor to ensure adequate protection" (emphasis added)); Beaumont v. Bank of New York Mellon, 81 So. 3d 553, 555 (Fla. 5th DCA 2012) (after discussing the deficiencies in the bank's proof, stating "[t]he trial court was also required to address the issue of providing adequate protection to Beaumont" (emphasis added)).
  
  Because the court's consideration of the issue of adequate protection is a condition of entering a judgment that reestablishes a lost note, its failure to provide adequate protection, or to make a finding that none is needed under the circumstances, requires reversal and remand for the court to consider the issue. See Delia v. GMAC Mortg. Corp., 161 So. 3d 554, 556 (Fla. 5th DCA 2014).
  
  Generally this post-proof condition is satisfied through a written indemnification agreement in the final judgment, the posting of a surety bond, a letter of credit, a deposit of cash collateral with the court, or "[s]uch other security as the court may deem appropriate under the circumstances." § 702.11(1)(e), Fla. Stat. (2014).
  
  Here, the Bank proved at the bench trial that (1) it was entitled to enforce the note when the loss of possession occurred; (2) the loss of possession was not due to a valid transfer or lawful seizure; and (3) it could no longer reasonably obtain possession of the note because it was lost while in the possession of its first law firm, which is no longer in existence. The Bank also presented evidence to establish the terms of the note and that it had the right to enforce it when it was lost. This evidence was sufficient to show that the Bank was entitled to reestablishment of the lost note.
  
  However, the trial court made no provision for adequate protection of the Blitches in the final judgment, nor did it determine that adequate protection was unnecessary in this case. This omission requires us to reverse the final judgment and remand for further proceedings, at which the court must address the means by which the Bank must satisfy this post-proof condition.

For the ruling, see Blitch v. Freedom Mortgage Corporation, No. 2D14-4398 (Fla. App.2nd DCA, February 5, 2016).

Editor's Note:

Question for the Day

For all those past foreclosure judgments that have been entered in "lost note" cases that ended up in a foreclosure sale, where adequate protection against the risk of double payment was neither given to the homeowner, or even addressed by the trial judge, are those foreclosure sales VOID, or are they MERELY VOIDABLE???

Since there was no foreclosure sale in this case, the point was a non-issue, and accordingly, was unnecessary to address by the court.

Void vs. Voidable Mortgage Assignments: California Foreclosed-Upon Homeowners Score Big Win Over Sloppy Banksters; "[A]n Allegation That The Assignment Was Void, & Not Merely Voidable At The Behest Of The Parties To The Assignment, Will Support An Action For Wrongful Foreclosure," Say State Supremes In Unanimous (7-0) Decision

In Sacramento, California, National Mortgage News reports:

• The California Supreme Court on Thursday ruled that borrowers may challenge a wrongful foreclosure on the grounds that the assignment of the deed of trust was invalid.(1)
  
  The decision in Yvanova v. New Century Mortgage Corp. has the potential to radically increase the number of lawsuits brought by borrowers, particularly on loans that were pooled into securitized trusts, experts on both sides of the issue said.
  
  "There will be a flood of litigation only because the lending industry was not diligent in doing its paperwork during the housing finance boom," said Richard Antognini, who represented the plaintiff, California homeowner Tsvetana Yvanova.
  
  The decision tackles a question that became important after the housing market's collapse in 2008: can a defaulted homeowner contest the validity of the chain of assignments involved in the securitization of loans?
  
  In 2012 Yvanova challenged the foreclosure and public auction of her Woodland Hills, Calif., home, alleging there was a four-year break in the chain of title, essentially making it void.
  
  Yvanova in 2006 took out a loan for $483,000 from Irvine, Calif.-based New Century Mortgage, which went bankrupt the next year. In 2011 the mortgage servicer Ocwen Loan Servicing executed an assignment of the deed of trust on Yvanova's loan to Deutsche Bank, which served as a trustee of a Morgan Stanley investment trust.
  
  But Yvanova alleged that the Morgan Stanley investment trust had a closing date of January 2007 and should never have been assigned the mortgage. But the foreclosure went through, and Yvanova ultimately was evicted in May 2015.
  
  Multiple lower courts in California had ruled in high-profile cases such as Jenkins v. JPMorgan Chase that borrowers have no standing to file a claim of wrongful foreclosure because they are not a party to or holder of the debt.
  
  However, the state Supreme Court disagreed with those rulings and essentially sided with a 2013 state appellate ruling in Glaski v. Bank of America, which held that a borrower has standing to challenge a nonjudicial foreclosure sale based on alleged violations of the terms of a pooling and servicing agreement.
  
  "The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security," the Supreme Court stated in a 33-page ruling. "A homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity's hands. No more is required for standing to sue."
  
  The case now will go back to the state Court of Appeals or a trial court, which would decide on the merits of Yvanova's claim.
  
  Frederick Levin, a partner at BuckleySandler, said the decision will breathe new life into the foreclosure defense bar, which believes that a loan assigned into a securitized trust after the trust's closing date makes the assignment void.
  
  "This decision has [the] potential to increase litigation challenging securitized loans," said Levin, who on behalf of banks has long argued that contractual language gives investors and lenders broad latitude to reassign loans.
  
  Others said the court was sending a big message to the lending industry.
  
  "This was the court in California directing lenders and Wall Street securitizers to be very careful in documenting their instruments and assignments," said Kenneth Styles, a litigator at the law firm Miller Starr Regalia. "They've been more than sloppy in the past, and this was a directive to make sure their procedures are clean."
  
  Antognini, the attorney for Yvanova, put it this way: "if you claim you own a debt, you have to prove it. And if you claim to own a debt, the borrower has the ability to allege and later to prove that you don't own it."

Source: Calif. Supreme Court Lets Borrowers Challenge Wrongful Foreclosures.

For the court ruling, see Yvanova v. New Century Mortgage Corp., S218973 (Cal. February 18, 2016).

Editor's Note: Having a clear understanding of how this ruling may lead to a flood of litigation against banksters guilty of using sloppy mortgage assignments in their chains of title, the California Supreme Court took great pains in trying to tamp down the excitement this ruling will create within the foreclosure defense bar.

In that light, the court prefaced its ruling with the following admonition:

• Our ruling in this case is a narrow one. We hold only that a borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment.
  
  We do not hold or suggest that a borrower may attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party‘s right to proceed.
  
  Nor do we hold or suggest that plaintiff in this case has alleged facts showing the assignment is void or that, to the extent she has, she will be able to prove those facts.
  
  Nor, finally, in rejecting defendants‘ arguments on standing do we address any of the substantive elements of the wrongful foreclosure tort or the factual showing necessary to meet those elements.

-----------------------------

(1) From the introductory part of the ruling:

• The collapse in 2008 of the housing bubble and its accompanying system of home loan securitization led, among other consequences, to a great national wave of loan defaults and foreclosures. One key legal issue arising out of the collapse was whether and how defaulting homeowners could challenge the validity of the chain of assignments involved in securitization of their loans. We granted review in this case to decide one aspect of that question: whether the borrower on a home loan secured by a deed of trust may base an action for wrongful foreclosure on allegations a purported assignment of the note and deed of trust to the foreclosing party bore defects rendering the assignment void.
  
  The Court of Appeal held plaintiff Tsvetana Yvanova could not state a cause of action for wrongful foreclosure based on an allegedly void assignment because she lacked standing to assert defects in the assignment, to which she was not a party. We conclude, to the contrary, that because in a nonjudicial foreclosure only the original beneficiary of a deed of trust or its assignee or agent may direct the trustee to sell the property, an allegation that the assignment was void, and not merely voidable at the behest of the parties to the assignment, will support an action for wrongful foreclosure.