Real Estate Transactions

Banks are both owners and landlords when they buy tenant-occupied property at a foreclosure sale

/ Leaseholds, Mortgages, Real Estate Transactions

Banks seem to have a hard time understanding that when they obtain title to property through a foreclosure sale that they not only own the property but have taken on themselves all the obligations that an owner has. If the property is occupied by tenants, the bank-owner is automatically the new landlord and the law imposes duties on landlords. The law also requires owners not to let their property become a nuisance. But this simple legal truth is repeatedly resisted by some banks. This rule extends to any entity that is the legal owner of the property and that includes the trustee of residential mortgage-backed securities that purchases the property at a foreclosure sale. The Maryland Court of Appeals ruled in Hector v. Bank of New York Mellon, 473 Md. 535, 251 A.3d 1102 (Md. 2021), that a lender that becomes a property owner by buying property at a foreclosure sale …

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Rights of first refusal do not violate the rule against perpetuities if they must be exercised during the holder’s lifetime

/ Estates and Future Interests, Real Estate Transactions

New York retains a version of the traditional rule against perpetuities. Like most states, it has classified options to purchase and rights of first refusal as “executory interests” subject to the rule against perpetuities. They therefore must vest (if at all) within 21 years of their creation, or within 21 years of the death of a named person in the conveyance or during the lifetime of a named person. The latter was the case in Martin v. Seeley, 142 N.Y.S.3d 252 (App. Div. 2021) where the right of first refusal could be exercised only by the original holder of it. The court also resolved a conflict between language suggesting the covenant ran with the land but that it would not apply to any successors in interest by finding that the “running with the land language” was of no legal effect.

Reverter clause requiring property to be used for church purposes not an invalid restraint on alienation

/ Estates and Future Interests, Real Estate Transactions, Restraints on Alienation

The Virginia Court held that a future interest requiring forfeiture of title if property was not used to church purposes was a valid possibility of reverter, and was not an invalid or unreasonable restraint on alienation of land. Canova Land & Inv. Co. v. Lynn, 856 S.E.2d 581 (Va. 2021). The court said that a liberal interpretation should be granted to deeds involving land granted for charitable purposes because limiting property to charitable uses is consistent with public policy.

Damages awarded tenant when landlord threatens to engage in illegal self-help eviction

/ Consumer Protection, Leaseholds, Real Estate Transactions

The Maryland Supreme Court held that residential tenants can sue for damages if the landlord posts a notice telling them that they are being evicted. This constitutes a form of “nonjudicial self-help eviction” prohibited by state law, which requires landlords to use court eviction procedures to recover possession of the premises. State law would have allowed self-help eviction only if the landlord had a reasonable belief based on a reasonable inquiry that the tenants had abandoned the premises, something that did not happen in this case. Wheeling v. Selene Finance LP,2021 WL 1712318 (Md. 2021). The court found that a threat to use self-help eviction violated the statute and that this allowed a suit for damages under the state statute prohibiting self-help eviction, Md. Real Prop. art. §7-113, and a suit for emotional damages under the Maryland Consumer Protection Act, Md. Commercial Law art. §13-101 et seq.

Reverter clause requiring property to be used for church purposes not an invalid restraint on alienation

/ Estates and Future Interests, Real Estate Transactions, Restraints on Alienation

The Virginia Court held that a future interest requiring forfeiture of title if property was not used to church purposes was a valid possibility of reverter, and was not an invalid or unreasonable restraint on alienation of land. Canova Land & Inv. Co. v. Lynn, 856 S.E.2d 581 (Va. 2021). The court said that a liberal interpretation should be granted to deeds involving land granted for charitable purposes because limiting property to charitable uses is consistent with public policy.

Bank has standing to foreclose despite inability to produce the note on which the mortgage was based

/ Mortgages, Real Estate Transactions

The New Jersey Supreme Court allowed a bank to foreclose on property without direct evidence that it had the right to foreclose. Ordinarily, the foreclosing entity must produce the note that memorializes the underlying debt. The UCC allows foreclosure when notes have been lost, UCC 3-309, if a “lost note affidavit” is filed with the court. In Investors Bank v. Torres, 2020 WL 3550701 (N.J. July 1, 2020), the homeowner borrowed money from one lender who filed a foreclosure action but subsequently dismissed that action and later executed a lost note affidavit. It then assigned the note and the mortgage to a second lender who brought foreclosure proceedings based on the lost note affidavit of the prior lender. Some courts have held that a lost note affidavit must state that the party attempting to enforce the note is the party that lost the note. See Dennis Joslin Co., LLC v. Robinson Broadcasting …

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Hawaii Supreme Court measures deficiency judgment by reference to fair market value rather than foreclosure price

/ Mortgages, Real Estate Transactions

The Hawai’i Supreme Court held that deficiency judgments should be measured by the difference between the unpaid debt and the property’s fair market value rather than by reference to the difference between the unpaid debt and the foreclosure price. HawaiiUSA Federal Credit Union v. Monalim, 2020 WL 2079890 (Haw. 2020). The court cited the Restatement (Third) of Property, Mortgages §8.4 (Am. Law Inst. 1997), and found no language in the state mortgage foreclosure act that might have required a different result. This is the modern approach and has been adopted by statute or judicial decision in the majority of states. The reasoning behind this modern approach is the mortgage statutes have an underlying policy designed to define and protect the legitimate interests of both the borrower and the lender. The lender is entitled to get back the loan with interest, as specified in the note, and the mortgage lien on the property …

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Loan servicer liable for negligent handling of loan modification negotiations

/ Mortgages, Real Estate Transactions

A California court has found a mortgage loan servicer to be liable for negligence in its handling of an application for a loan modification. Weimer v. Nationstar Mortgage, LLC, 260 Cal. Rptr.3d 712 (Ct. App. 2020. The court found loan servicers to be in a “special relationship” with the borrower and thus within an exception to the general rule of no tort duty for economic losses. After defaulting on a mortgage, the mortgagor entered into a loan modification process with Bank of America, and was told that he had been approved for a loan modification. Because of that approval, he made a downpayment of $50,000 to obtain the loan modification. The bank had promised him that once it received the downpayment, it would halt foreclosure proceedings. The bank transferred the loan servicing rights and obligations to Specialized Loan Servicing (SLS) which initially refused to honor the terms of the loan modification …

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Landlord may be liable for fair housing violation if no response to one tenant’s racial harassment of another

/ Antidiscrimination Law, Fair Housing Act, Real Estate Transactions

In the case of Francis v. King’s Park Manor, Inc., 2019 WL 6646495 (2d Cir. 2019), a tenant engaged in a vicious campaign of abuse and intimidation of another tenant, coming to his door and threatening to kill him and repeatedly yelling at him and calling him the “n-word” and “fucking Jews.” The victim called the police several times and notified the landlord of the harasser’s behavior, which persisted. The victim sued the landlord, claiming that it failed to investigate or attempt to resolve the problem and allowed the harasser to continue to live in his unit without reprisal. The harasser was convicted of the crime of harassment in violation of New York Penal Law §240.26(1). The Second Circuit agreed with other Circuits that have addressed the question that post-acquisition claims are cognizable under the federal Fair Housing Act (FHA), 42 U.S.C. §§3601 et seq.. Section §3604(b) prohibits discrimination in the “terms, …

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