Brooklyn Grandmother Says Decades-Long Home Was Swiped Out From Under Her In Sale-Leaseback Foreclosure Rescue Scam; Now Resists Eviction, Refuses To Go Down Without A Legal Fight

 In Brooklyn, New York, The Real Deal (New York) reports:

• A new legal filing and old mortgage documents shed light on an eviction saga in Crown Heights in which a 98-year-old woman lost ownership and then tenancy of her family home of 70 years.
  .
• Last week, city marshals evicted Ida Robinson and her family from the stately row house at 964 Park Place. The Robinsons had in 1951 become the first Black family on the block. But facing foreclosure in 2015, the matriarch was tricked into a deal that stripped her of her house’s deed, according to her lawyer.
  
  ***
• The lawyer, Adam Birnbaum, wrote that the type of title transfer likely used by the LLC buyer targets homeowners “who are almost always Black and usually elderly.”
  
  ***
• The document filed in housing court by Birnbaum, a lawyer at Abrams Fensterman referred to Robinson by Attorney General Letitia James, states that the transaction between Robinson and the LLC has many of the elements of a scam used to trick homeowners out of their deeds.
  .
• In those schemes, Birnbaum wrote, an LLC is often created specifically for the transaction. The LLC characterizes the documents that it draws up as a refinancing, which Robinson believed her deal was. But they actually transfer the title to the LLC.
  .
• Once the LLC has secured ownership, it transfers the title to a second or third owner to ensure the process is “difficult or impossible to unwind,” Birnbaum wrote. The LLC that allegedly bought 964 Park Place from Robinson immediately transferred the title to another LLC. Five days later, Menachem Gurevitch, Robinson’s current landlord, transferred it to himself.
  .
• The attorney wrote that Robinson is adamant that she never authorized anyone to sell her home and that she never executed any documents transferring the title.
  .
• Robinson’s granddaughter [Sherease] Torain told Law360 that her “grandmother never received a dime” from the deal. Court records show that Robinson initially “refused to consummate the sale,” which resulted in a lawsuit, settlement and eventually, her transer of the deed, Law360 reported.
  .
• Torain said her grandmother was 92 years old when the transaction took place. “To force this on, that’s elder abuse,” Torain said. “These are white-collar criminals and no one’s talking about it.”
  
  ***
• Birnbaum said the transfer that Robinson supposedly agreed to should have been void from the get-go. Andre Soleil, the attorney who represented her in the transaction, has since been disbarred after allegations that he took control of a Harlem nonprofit’s buildings and sold one for $1.4 million — funds the group never received, the New York Post reported.

For more, see Documents shed new light on Crown Heights eviction saga (Lawyer makes case for deed theft; owner took out mortgages during subprime bubble).

See also:

• Law360: Judge To Review Warrant In Heated Brooklyn Eviction Row,
• Brooklyn Paper: Crown Heights Family Fights Real Estate Mogul To Keep The Home They Owned For More Than 60 Years.

Sale Leaseback Arrangement Designed To Pilfer Home Equity Out From Under Elderly Homeowner Facing Foreclosure Goes Haywire For Scam Artist

The underlying facts in a 2019 California state appeals court case may serve as a cautionary tale for foreclosure rescue operators who effectively swindle the wrong financially distressed, elderly homeowner out of the title and equity in her home under the guise of a sale leaseback deal.
.
In this case, the victimized homeowner ended up suing the scam artist and a slew of other defendants(1) who had some part in the ripoff transaction. After extensive litigation, the homeowner ended up relinquishing any ownership claim she had in her home in exchange for financial settlements from various of the defendants for amounts totaling $1,050,000, and left the defendants to fight amongst themselves in their efforts to salvage something out of a deal that blew up in their face and went haywire for them.
.
For the court case, see EGB Group, Inc. v. Family Mortgage Options LLC (2019) No. B272467 (2d Dist., Div. 1) (unpublished).
.
For case access to information from the trial court proceedings, go here, then enter Case # YC069066.
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(1) The victimized homeowner sued the slew of defendants variously for (1) violation of Home Equity Sales Contract Act (Civ. Code, § 1695, et seq.), (2) wrongful foreclosure, (3) violation of Mortgage Foreclosure Consultants Act (id., § 2945, et seq.), (4) declaratory relief, (5) cancellation of deeds, (6) quiet title, (7) intentional fraud, (8) negligent misrepresentation, (9) breach of contract, (10) rescission of contract, (11) financial abuse of an elder, (12) recovery of usurious interest, (13) equitable redemption of plaintiff's interest in property, (14) violation of Business and Professions Code section 17200, (15) intentional interference with contract, and (16) slander of title.

Institutional Sale Leaseback Peddlers Facing Equitable Mortgage Re-Characterization Threats?

There has recently been an apparent influx of companies entering the real estate market that seek to "institutionalize" the business of "peddling" sale leaseback arrangements that, at least in part, target financially-strapped homeowners, homeowners that are " cash poor" but "equity rich."(1)

The looming question with these arrangements is: Will courts recognize these deals as "true sale-leasebacks," or are they nothing more than disguised equitable mortgages (ie. secured loans), and in some cases, disguised usurious equitable mortgages(2) that are made in violation of the Federal Truth-in-Lending Act, state usury laws, and other consumer protection laws.

Well, there is at least one law firm (I imagine that there may be others), located in Houston, that is apparently going after these types of companies with lawsuits on behalf of Texas homeowners asserting that the arrangements are nothing more than equitable mortgages.(3)

For more, including a summary of the firm's basis for bringing these lawsuits, see Real Estate Fraud Lawsuit Against EasyKnock, Inc. and EK Real Estate Services of NY, LLC.

Editor's Note:

One company that has been targeted by this law firm has apparently taken umbrage at the firm's effort to recharacterize these sale leaseback deals as equitable mortgages, has responded by filing a lawsuit against them for defamation, and has requested a temporary restraining order in connection therewith. This request has subsequently been denied by the court,(4) and a Motion to Dismiss this case is currently pending.(5)

Footnotes:

(1) See, for example:

• Sale-leasebacks increasingly target struggling homowners (Companies like EasyKnock and Invitation Homes look to tap that investment option) (may be behind paywall),
• Real-estate power players and startups are getting ready to buy thousands of homes and lease them back amid a wave of foreclosures (may be behind paywall).

(2) See:

• Sale Leasebacks Or Disguised Usurious Loans; Substance vs. Form,
• Usurious Loans Masquerading As Sale Leasebacks?

(3) Recharacterizing Sale Leasebacks As Equitable Mortgages In Texas.

(4) Memorandum Opinion And Order (Denying Application for Temporary Restraining Order).

See also, Judge Blocks TRO Bid Against Law Firm In Defamation Suit (may be behind paywall).

(5) Defendants' Motion To Dismiss For Failure To State A Claim, Or Alternatively, To Stay Or Abate This Proceeding.

Big Money Wall Street Operators Now Entering Sale Leaseback Rackets Targeting Financially Distressed Homeowners

 In New York City, The Real Deal (New York) reports:

• Sale-leaseback deals are becoming an increasingly popular investment option as homeowners struggle to pay their mortgages, with many facing the prospect of having to sell. Some companies are investing in that corner of the single-family home rental business, tapping into a property’s value while keeping a steady rent flow by not forcing out the seller, according to Business Insider.
  
  One such company, EasyKnock, is going all in.
  
  The firm is now armed with a $500 million credit line that it will use to buy homes then rent them back to sellers, EasyKnock CEO Jarred Kessler told Business Insider. That boosts the company’s buying power significantly. Its portfolio now includes $200 million worth of homes.
  
  Richard Hill, an analyst at Morgan Stanley, said that some large single-family rental companies could also use sale-leaseback deals as a way to market to older homeowners who need to tap into their equity for retirement or healthcare spending.
  
  Invitation Homes, the largest single-family home landlord, previously said that it will seek to add sale-leaseback deals to its pipeline of acquisitions.

Source: Sale-leasebacks increasingly target struggling homeowners (Companies like EasyKnock and Invitation Homes look to tap that investment option).

See also, Business Insider: Real-estate power players and startups are getting ready to buy thousands of homes and lease them back amid a wave of foreclosures (may be behind paywall).

Use Of Land Contracts In Sale Of Real Estate In Indiana Generally Treated As Outright Sale & Purchase, Equitable Mortgage Requiring Foreclosure, Not Forfeiture, In Event Of Default

In Indianapolis, Indiana, the Indianapolis Star reports:

• Indiana law has few protections for people who purchase a house with land contract, a shortcoming that consumer and housing advocates say places vulnerable buyers at risk.
  
  Still, the approach is attractive and increasingly common among individuals and families unable to obtain tradition financing, according to Amy Nelson, executive director of the Fair Housing Center of Central Indiana. That’s because buyers often can get into a contract with little or no money down, followed by affordable monthly payments over a set number of years.
  
  The gamble is whether the buyer, often financially distressed to begin with, will have the money or be able to obtain a loan when the balloon pay-off comes due. If they can’t — and default — the property reverts to the seller. The buyer walks away with nothing. There is no equity for the money they have paid the seller or improvements that were made.(1)
  
  Land contracts have been used for decades by individuals selling their homes or land. But recently, Nelson said, they are being used more often by businesses that sell homes in large-scale variations on rent-to-own deals. For instance, an IndyStar investigation found one such seller, Chart Properties LLC, has issued more than 100 contracts to buy and sell homes in a process that is not covered by Indiana’s real estate licensing law.
  
  Nelson said there should be a cap on how many homes a person or business can sell via contracts without a real estate license, which is required in Indiana to sell property a seller does not own
  
  “I would hope that maybe … once you are doing so many transactions a year that you would switch from being that mom-and-pop selling your own home, moving and trying to do it yourself, versus somebody who is in the business of so-called selling those homes,” she said.
  
  Chart President Robert “Bob” Keck explained to IndyStar that he does not need a real estate license because Chart claims ownership of homes it is buying on contract. He said Chart’s attorneys have thoroughly researched their legal standing and the company also has a supporting opinion issued in by the Indiana Attorney General.
  
  With a growing number of people purchasing homes via contracts — without the protections that come with transactions regulated by real estate licensure laws and mortgages — Nelson said the message is “buyer beware.”
  
  “The central problem with these land installment contract is that they exist in this no-man’s land in between where the potential home buyer has none of the protections of home ownership and none of the protections of being a tenant in a traditional lease,”(2) said Sarah Bolling Mancini, of counsel to the National Consumer Law Center and co-author of a 2016 report that called contract sales “toxic” and “predatory.”

For the story, see Indiana has few protections for those who buy homes with a land contract.

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

(1) While there may not be any statute in Indiana addressing this point, the Indiana case law makes abundantly clear that, except in limited circumstances (for two examples: in the case of an abandoning, absconding vendee; where the vendee has acquired very little, if any, equity in the property), a sale of real estate on a land contract is treated as an outright sale and purchase, with the payments due on the land contract being treated as payments on an equitable mortgage; and upon default, there is no automatic forfeiture of the property, but rather, the remedy for the seller is to bring a foreclosure action in the same way a traditional mortgage lender forecloses on a mortgage, with the buyer having a corresponding right of redemption.

For a discussion on this principle as it is applied in Indiana, see Skendzel v. Marshall, 261 Ind. 226, 301 NE 2d 641 (Ind. 1973), and the subsequent cases thereunder:

• [U]nder a typical conditional land contract, the vendor retains legal title until the total contract price is paid by the vendee. Payments are generally made in periodic installments. Legal title does not vest in the vendee until the contract terms are satisfied, but equitable title vests in the vendee at the time the contract is consummated. When the parties enter into the contract, all incidents of ownership accrue to the vendee. Thompson v. Norton (1860), 14 Ind. 187. The vendee assumes the risk of loss and is the recipient of all appreciation in value. Thompson, supra. The vendee, as equitable owner, is responsible for taxes. Stark v. Kreyling (1934), 207 Ind. 128, 188 N.E. 680. The vendee has a sufficient interest in land so that upon sale of that interest, he holds a vendor's lien. Baldwin v. Siddons (1910), 46 Ind. App. 313, 90 N.E. 1055, 92 N.E. 349.
  
  This Court has held, consistent with the above notions of equitable ownership, that a land contract, once consummated constitutes a present sale and purchase. The vendor "`has, in effect, exchanged his property for the unconditional obligation of the vendee, the performance of which is secured by the retention of the legal title.'" Stark v. Kreyling, supra, 207 Ind. at 135, 188 N.E. at 682. The Court, in effect, views a conditional land contract as a sale with a security interest in the form of legal title reserved by the vendor. Conceptually, therefore, the retention of the title by the vendor is the same as reserving a lien or mortgage. Realistically, vendor-vendee should be viewed as mortgagee-mortgagor. To conceive of the relationship in different terms is to pay homage to form over substance. See Principles of Equity, Clark, 4th edition, Sec. 9, p. 23.
  
  The piercing of the transparent distinction between a land contract and a mortgage is not a phenomenon without precedent. In addition to the Stark case, supra, there is an abundance of case law from other jurisdictions which lends credence to the position that a land sales contract is in essence a mortgage: [...]
  
  ***
  It is also interesting to note that the drafters of the Uniform Commercial Code abandoned the distinction between a conditional sale and a security interest. Section 1-201 of the UCC (IC 1971, XX-X-X-XXX (Ind. Ann. Stat. § 19-1-201 [1964 Repl.])) defines "security interest" as "an interest in personal property or fixtures which secures payment or performance of an obligation ... retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer is limited in effect to a reservation of `security interest.'" We can conceive of no rational reason why conditional sales of real estate should be treated any differently.[1]
  
  A conditional land contract in effect creates a vendor's lien in the property to secure the unpaid balance owed under the contract. This lien is closely analogous to a mortgage — in fact, the vendor is commonly referred to as an "equitable mortgagee." D.S.B. Johnston Land Co. v. Whipple, supra; Harris v. Halverson, supra. In view of this characterization of the vendor as a lienholder, it is only logical that such a lien be enforced through foreclosure proceedings. Such a lien "[has] all the incidents of a mortgage" (D.S.B. Johnston Land Co. v. Whipple, supra, 234 N.W. at 61), one of which is the right to foreclose.
  
  There is a multitude of cases upholding the vendor's right to foreclose. (See 77 A.L.R. 276, and the cases cited therein.) The remedy is most often referred to as a foreclosure of an executory contract. (A land contract is "executory" until legal title is actually transferred to the vendee.) A 1924 New York case best describes this remedy:
  
  "Out of the nature of the relationship created by a land contract, where the vendee is in possession, there have developed certain equitable remedies, among which is the right of the vendor in a proper case to sell out the interest of the vendee for the purpose of satisfying his lien under the contract, in case of default, and while it seems a misnomer, for convenience this remedy is spoken of as foreclosure, and the action as one to foreclose the contract. 3 Pomeroy's Equity Jurisprudence (4th Ed.) 3046, § 1262." Conners v. Winans (1924), 122 Misc. 824, 204 N.Y.S. 142, 145.
  
  See also, Keller v. Lewis (1878), 53 Cal. 113, for another excellent characterization.
  The foreclosure of a land sale contract is undeniably comprehended by our Trial Rules. TR. 69(C) IC 1971, 34-5-1-1, deals with the foreclosure of liens upon real estate:
  
  "Unless otherwise ordered by the court, judicial foreclosure of all liens upon real estate shall be conducted under the same rules and the sale procedures applicable to foreclosure of mortgages upon real estate, including without limitation redemption rights, manner and notice of sale, appointment of a receiver, execution of deed to purchaser and without valuation and appraisement. Judicial lien foreclosures including mortgage foreclosures may be held at any reasonable place stated in the notice of sale. In all cases where a foreclosure or execution sale of realty is not confirmed by the court, the sheriff or other officer conducting the sale shall make a record of his actions therein in his return to be filed promptly with the record of the case and also in the execution docket maintained in the office of the clerk." (Emphasis added.)
  
  The vendor's interest clearly constitutes a "lien upon real estate" and should, therefore, be treated as one. The basic foreclosure statute — that is for mortgages executed after July 1, 1957 — provides for a six-month period of redemption, commencing with the filing of the complaint. Additionally, it establishes the procedures attendant to the foreclosure sale. The statute reads as follows:
  
  "Mortgages executed after July 1, 1957 — Time of issuing execution — Sale — Notices. — In any proceeding for the foreclosure of any mortgage hereafter executed on real estate, no process shall issue for the execution of any such judgment or decree of sale for a period of six [6] months after the filing of a complaint in any such proceeding: Provided, That such period shall be twelve [12] months in any such proceeding for the foreclosure of any mortgage executed prior to July 1, 1957. Thereafter, upon the filing of a praecipe therefor by any judgment creditor in said proceeding a copy of the judgment and decree shall be issued and certified by the clerk under the seal of the court, to the sheriff, who shall thereupon proceed to sell the mortgage premises or so much thereof as may be necessary to satisfy the judgment, interest and costs, at public auction at the door of the courthouse of the county in which said real estate is situated, by advertising the same by publication once each week for three [3] successive weeks in a daily or weekly newspaper of general circulation printed in the English language and published in the county where the real estate is situated, the first of which publications shall be made at least thirty [30] days before the date of sale; and by posting written or printed notices thereof in at least three [3] public places in the township in which the real estate is situated, and at the door of the courthouse of the county: Provided, That if the sheriff be unable to procure the publication of such notice within such county he may dispense with such publication but he shall in his return state his inability to procure such publication and the reason therefor. [Acts 1931, ch. 90, § 1, p. 257; 1957, ch. 220, § 1, p. 476.]"
  
  IC 1971, XX-X-XX-X (Ind. Ann. Stat. § 3-1801 (1968 Repl.]).
  
   TR 69(C) requires that the procedures outlined in the above statute be applied "without limitation" to the "judicial foreclosure of all liens upon real estate." We believe there to be great wisdom in requiring judicial foreclosure of land contracts pursuant to the mortgage statute. Perhaps the most attractive aspect of judicial foreclosure is the period of redemption, during which time the vendee may redeem his interest, possibly through re-financing.
  
  Forfeiture is closely akin to strict foreclosure — a remedy developed by the English courts which did not contemplate the equity of redemption. American jurisdictions, including Indiana, have, for the most part, rejected strict foreclosure in favor of foreclosure by judicial sale:
  
  "The doctrine of strict foreclosure developed in England at a time when real property had, to a great extent, a fixed value; the vastly different conditions in this country, in this respect, led our courts to introduce modifications to the English rules of foreclosure. Generally, in consonance with equity's treatment of a mortgage as essentially a security for the payment of the debt, foreclosure by judicial sale supplanted strict foreclosure as the more equitable mode of effectuating the mutual rights of the mortgagor and mortgagee; and there is at the present time, in the majority of the American states, no strict foreclosure as developed by the English courts — either at law or in equity — by which a mortgagee can be adjudgd absolute owner of the mortgaged property. The remedy of the mortgagee is by an action for the sale of the mortgaged premises and an application of the proceeds of such sale to the mortgage debt, and although usually called an action to foreclose, it is totally different in its character and results from a strict foreclosure. The phrase `foreclosure of a mortgage' has acquired, in general, a different meaning from that which it originally bore under the English practice and the common law imported here from England. In this country, the modern meaning of the term `foreclosure' denotes an equitable proceeding for the enforcement of a lien against property in satisfaction of a debt."
  
  55 Am.Jur.2d, Mortgages, § 549 (1971).
  
  Guided by the above principles we are compelled to conclude that judicial foreclosure of a land sale contract is in consonance with the notions of equity developed in American jurisprudence. A forfeiture — like a strict foreclosure at common law — is often offensive to our concepts of justice and inimical to the principles of equity.
  
  This is not to suggest that a forfeiture is an inappropriate remedy for the breach of all land contracts. In the case of an abandoning, absconding vendee, forfeiture is a logical and equitable remedy.
  
  Forfeiture would also be appropriate where the vendee has paid a minimal amount on the contract at the time of default and seeks to retain possession while the vendor is paying taxes, insurance, and other upkeep in order to preserve the premises. Of course, in this latter situation, the vendee will have acquired very little, if any, equity in the property. However, a court of equity must always approach forfeitures with great caution, being forever aware of the possibility of inequitable dispossession of property and exorbitant monetary loss. We are persuaded that forfeiture may only be appropriate under circumstances in which it is found to be consonant with notions of fairness and justice under the law.
  
  In other words, we are holding a conditional land sales contract to be in the nature of a secured transaction, the provisions of which are subject to all proper and just remedies at law and in equity.
  
  [...]

(2) Ibid.

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Editor's Note: It should be noted that while Skendzel v. Marshall was decided over 40 years ago, it appears to continue to be valid case law in Indiana, inasmuch as the case has been cited at least three dozen times by the state supreme court and intermediate appeals court combined since the year 2000.

Idaho Supremes Void Foreclosure Purchaser's Tax Deed Where Taxing Authority That Conducted Auction Failed To Serve Written Notice Of Sale On Personal Representative For Deceased Prior Owner's Estate

From a recent Opinion Summary from Justia US Law:

• Eric and Kathryn Bowen purchased property in Caldwell through a tax deed sale conducted by the Caldwell Irrigation Lateral District (CILD).
  
  G. Lance Salladay brought suit arguing that the sale was void because the property was part of the Estate of Roger Troutner (the Estate), and Salladay, as personal representative of the Estate, was entitled to notice of the sale and never received such notice.
  
  The district court ruled that Salladay was entitled to notice and since he had not received notice of the sale there was no final decision regarding issuance of the deed as required by Idaho Code section 43-719(2). The district court then remanded the case to CILD.
  
  On appeal, Bowens argued the district court erred in its determination that Salladay was entitled to notice and that even if Salladay was entitled to notice, his petition to the district court was untimely. The Supreme Court found that the district court erred in remanding the case back to CILD. The Court concluded CILD failed to provide written notice to the record owner of the property, so the tax deed was void ab initio.

Source: Opinion Summary - Salladay v. Bowen.

For the court ruling, see Salladay v. Bowen, 2017 Opinion No. 5 (Id. January 23, 2017).

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).

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(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.

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(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.

Florida Appeals Courts Spent A Busy 2015 Reversing Trial Court Screw-ups In Foreclosure Cases

Anyone paying attention to the foreclosure litigation going on in the Florida courts knows that the appeals courts have been kept busy having to reverse incorrect rulings issued by the trial courts which have been unfavorable to homeowners (by my rough count, we're looking at around 150-175 reversals in 2015 alone (and counting) - possibly even a little more).

The following list (not necessarily all-inclusive, and in no particular order) represents what appears to be most of the reversals of homeowner-unfavorable trial court rulings (37 in total to date) by only one of Florida's five appellate courts - the 4th District Court of Appeal - in 2015.

Included in the list is the case caption, appellate court case number (those looking for the official citation are left on their own to locate it - sorry), and the guilty trial judge issuing the incorrect ruling. In addition, while most of the cases involved homeowners represented by attorneys, six involved homeowners who represented themselves (ie. pro se) - at least in the appellate phase of the litigation, and are noted accordingly.

Finally, in each case, the appeals court reversal was unanimous (3-0 rulings).

One can only imagine, through extrapolation, how many screwed-over homeowners lost their homes due to incorrect trial judge rulings who, because they (or their attorneys) lacked the knowledge and/or wherewithal, failed to appeal the outcomes of their cases in the lower courts (dozens for every one reversal? maybe 100 or more per reversal?).

• Murray v. HSBC Bank USA, No. 4D13-4316 (4th DCA, January 21, 2015) (unanimously reversing Palm Beach County Judge Howard Harrison);
  
  Jelic v. LaSalle Bank, Nat'l. Ass'n, No. 4D13-4040 (4th DCA, March 25, 2015) (unanimously reversing Palm Beach County Judge Kenneth Stern);
  
  Farkas v. US Bank National Association, No. 4D13-3006 (4th DCA, May 27, 2015) (unanimously reversing Palm Beach County Judge Diana Lewis) (pro se homeowner);
  
  Fiorito v. JP Morgan Chase Bank, Nat'l Ass'n, No. 4D13-2813 (4th DCA, August 26, 2015) (unanimously reversing Palm Beach County Judge Janis Brustares Keyser);
  
  Perez v. Deutsche Bank Nat'l Trust Co., No. 4D13-4812 (4th DCA, August 19, 2015) (unanimously reversing Broward County Judge Cynthia G. Imperato);
  
  Snyder v. JP Morgan Chase Bank, Nat'l Ass'n., No. 4D13-4036 (4th DCA, July 29, 2015) (unanimously reversing Broward County Judge Jeffrey E. Streitfeld) (Editor's Note: This judge bent over backwards to help the bankster - allowing it to reopen its case three times - and in the end, the court ruled incorrectly);
  
  Guzman v. Deutsche Bank National Trust Co., No. 4D14-2509 (4th DCA, November 25, 2015) (unanimously reversing Broward County Senior Judge Mark E. Polen);
  
  Matthews v. Federal Nat. Mortgage Ass'n, 160 So. 3d 131 (4th DCA, March 25, 2015) (unanimously reversing Palm Beach County Senior Judge Howard Harrison) (pro se homeowner);
  
  Assil v Aurora Loan Services, LLC, No. 4D14-2257 (4th DCA, August 12, 2015) (unanimously reversing Palm Beach County Senior Judge Howard H. Harrison);
  
  Citibank, NA v. Villanueva, No. 4D15-239 (4th DCA September 9, 2015) (unanimously reversing Broward County Judge Cynthia G. Imperato);
  
  Peoples v. Sami II Trust 2006-AR6, No. 4D14-2757 (4th DCA, October 14, 2015) (unanimously reversing Broward County Judge John B. Bowman);
  
  Tremblay v. US Bank, NA, No. 4D13-2402 (4th DCA, May 6, 2015) (unanimously reversing Broward County Judge Miette K. Burnstein);
  
  Joseph v. BAC Home Loans Servicing, LP, No. 4D12-4137 (4th DCA, January 7, 2015) (unanimously reversing Palm Beach County Judge Diana Lewis);
  
  Tilus v. As Michai LLC, No. 4D13-3616 (4th DCA, April 8, 2015) (unanimously reversing Palm Beach County Judge Kenneth Stern);
  
  Balch v. LaSalle Bank NA, No. 4D14-2057 (4th DCA, August 5, 2015) (unanimously reversing Martin County Judge James W. McCann) (pro se homeowner);
  
  Henderson v. Deutsche Bank Nat'l Trust Co., No. 4D13-1780 (4th DCA, February 11, 2015) (unanimously reversing Palm Beach County Judge Howard Harrison);
  
  Fanelli v. HSBC Bank USA, No. 4D13-4111 (4th DCA, June 3, 2015) (unanimously reversing Palm Beach County Senior Judge Susan R. Lubitz) (entitlement to homeowner's attorney fees);
  
  Donado v. PENNYMAC Corp., No. 4D14-1383 (4th DCA, August 19, 2015) (unanimously reversing Broward County Judge Cynthia G. Imperato);
  
  Jarvis v. Deutsche Bank Nat'l Trust Co., No. 4D14-991 (4th DCA, June 17, 2015) (unanimously reversing Palm Beach County Senior Judge William R. Slaughter, II);
  
  Lloyd v. Bank of New York Mellon, No. 4D13-3799 (4th DCA, March 25, 2015) (unanimously reversing Palm Beach County Judge Kenneth D. Stern);
  
  Kenney v. HSBC USA, National Association, 4D13-4165 (4th DCA, September 24, 2015) (unanimously reversing Palm Beach County Senior Judge Judy P. Biebel);
  
  Lamb v. Nationstar Mortgage, LLC, 4D13-3125, (4th DCA, August 19, 2015) (unanimously reversing Palm Beach County Judge Roger B. Colton) (pro se homeowner);
  
  Harris v. HSBC Bank, USA, N.A., 4D14-54 (4th DCA, September 9, 2015) (unanimously reversing Broward County Judge Cynthia G. Imperato);
  
  Schindler v. Bank of New York Mellon Trust Company, 4D13-4825 (4th DCA, April 8, 2015) (unanimously reversing Palm Beach County Senior Judge Howard H. Harrison) (pro se homeowner);
  
  Ensler v. Aurora Loan Services, LLC, 4D14-351 (4th DCA, October 28, 2015) (unanimously reversing Palm Beach County Senior Judge Roger B. Colton);
  
  Salmon v. Foreclosed Asset Sales And Transfer Partnership, 4D13-4618 (4th DCA, April 22, 2015) (unanimously reversing Palm Beach County Senior Judge Howard H. Harrison);
  
  Jelic v. BAC Home Loans Servicing, LP, 4D14-516 (4th DCA, November 4, 2015) (unanimously reversing Palm Beach County Judge Richard L. Oftedal);
  
  Sanchez v. SunTrust Bank, 4D14-2457 (4th DCA, November 25, 2015) (unanimously reversing Palm Beach County Judge Jack Schramm Cox);
  
  Cardona v. Nationstar Mortgage, LLC, 4D14-1609 (4th DCA, August 19, 2015) (unanimously reversing Palm Beach County Judge John J. Hoy);
  
  Rodriguez v. Wells Fargo Bank, N.A., 4D14-100 (4th DCA, October 14, 2015) (unanimously reversing Palm Beach County Senior Judge Howard Harrison) (special concurrence by Judge Connor may be of some interest regarding the establishment of standing to foreclose);
  
  Blum v. Deutsche Bank Trust Company, 4D13-4271 (4th DCA, March 4, 2015) (unanimously reversing St. Lucie County Senior Judge James W. Midelis);
  
  D'Alessandro v. Fidelity Federal Bank & Trust, 4D13-3387 (4th DCA, January 7, 2015) (unanimously reversing Palm Beach County Judge Lucy Chernow Brown) (pro se homeowner) (quiet title suit);
  
  Holt v. Calchas, LLC, 4D13-2101 (4th DCA, January 28, 2015) (unanimously reversing Broward County Judge Joel T. Lazarus);
  
  Vera v. Wells Fargo Bank, N.A., 4D14-2672 (4th DCA, November 4, 2015) (unanimously reversing Palm Beach County Judge Roger B. Colton);
  
  Wilson v. Deutsche Bank National Trust Company, 4D14-3747 (4th DCA, October 21, 2015) (unanimously reversing Martin County Judge James W. Midelis);
  
  Wright v. Deutsche Bank National Trust Company, 4D13-3221 (4th DCA, January 7, 2015) (unanimously reversing Broward County Judge Joel Lazarus);
  
  Osorio v. U.S. Bank N.A., 4D14-934 (4th DCA, March 25, 2015) (unanimously reversing Broward County Judge Cynthia G. Imperato).

Homeowners' Standing To Challenge Mortgage Assignments Where They Fail To Comply With Terms Of Trust's Governing Docs: U.S. Supreme Court Denies Homeowner's Petition For Review

A follow-up on the last post (September 24, 2015), U.S. Supremes Asked To Address Foreclosing Banksters' Claims That Homeowners Lack Standing To Contest Mortgage Assignments (Void or Voidable???) That Fail To Comply With Terms Of Trust's Governing Documents:

Regrettably for homeowners, consumer attorneys, and their other advocates, the U.S. Supreme Court made quick work of the case, denying the petition for certiorari on November 2, 2015.

Go here for the November 2, 2015 docket entry.

Thanks again to Deontos for the update.

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Editor's Note: The crucial question here (where, by its terms, the governing trust documents are controlled by New York state law) involves, not the application of federal substantive law, but the application of the substantive law of the state of New York. Further, while there is a long list of federal cases deciding this issue, the issue of law here appears to be one for which no controlling precedent of the New York Court of Appeals exists.

The next time a case like this one works its way up the federal court system to an appeals court, it may be a good idea for the homeowners' advocates to request that the federal appeals court, before deciding the case, first certify the question of law to the New York Court of Appeals,(1) the state's highest court and "best authority on its own law", as to whether the failure to comply with the terms of a trust's governing documents renders a mortgage assignment void, or only voidable. (See generally, Certified Question.)

As a reminder, and as the U.S. Supreme Court has said in Commissioner v. Estate of Bosch, 387 U.S. 456 (1967), and followed by the subsequent cases thereunder on the significance of how the highest courts of each state interpret their own state's substantive (as opposed to procedural) laws, and that the federal courts are to follow these interpretations (generally referred to as a part of the Erie Doctrine):

• "This is but an application of the rule of Erie R. Co. v. Tompkins, supra, where state law as announced by the highest court of the State is to be followed. This is not a diversity case but the same principle may be applied for the same reasons, viz., the underlying substantive rule involved is based on state law and the State's highest court is the best authority on its own law."

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(1) See New York Court of Appeals Rule 500.27 - Discretionary Proceedings to Review Certified Questions from Federal Courts and Other Courts of Last Resort:

• (a) Whenever it appears to the Supreme Court of the United States, any United States Court of Appeals, or a court of last resort of any other state that determinative questions of New York law are involved in a case pending before that court for which no controlling precedent of the Court of Appeals exists, the court may certify the dispositive questions of law to the Court of Appeals.

Note that the certification process is strictly discretionary, both on the part of the certifying court and the New York Court of Appeals. That is, the New York Court of Appeals is not required to accept any question of law certified to it; likewise, the court being requested by a party to certify a question of law to New York's highest court (or the highest court of any state, for that matter) is not required to certify the question of law.

It should be noted the United States Supreme Court has encouraged (but not mandated) the lower federal courts to make use of the certification process where available, which "in the long run save[s] time, energy, and resources and hel[ps] build a cooperative judicial federalism." Lehman Brothers v. Schein, 416 U.S. 386, 391 (1974), and which has been addressed by this list of cases thereunder.

See also, Arizonans for Official English v. Arizona, 520 U. S. 43, 77 (1997) ("Through certification of novel or unsettled questions of state law for authoritative answers by a State's highest court, a federal court may save `time, energy, and resources, and hel[p] build a cooperative judicial federalism'" (brackets in original)).