NEW CASE ALERT: Our Firm Files Lawsuit Against Local Predatory Lender, Charging 50% Interest and Attempting to Evict Local Family
On Monday, a new client came into my office with an unbelievable story. My client had some financial difficulties and was in pre-foreclosure with his second mortgage holder. Looking for some unconventional solutions, he was introduced to a local “hard money” private lender who offered a workout loan to stop the foreclosure. This lender sold him on a $50,000 loan, with 50% interest rate with a 6 month balloon payment.
Under the Massachusetts criminal usury law, however, a lender cannot charge more than 20% interest without first registering with the Attorney General’s Office. This private lender was not registered. That was the first red flag. The next red flag was that in addition to a standard mortgage, the private lender demanded that my client (and his wife) take the highly unusual step of signing over a “reverter deed” to their house, as additional security. Under duress, my clients signed the deed.
Only days later, the private lender recorded the deed, thereby becoming the record owner of the clients’ home, then, unbelievably, started eviction proceedings against my client and his family. Mind you, the loan was not even due for payment until March 2020. The lender appeared to have pulled a fast one over the local district court judge, and was able to get an eviction move out order. (My client did not have the means to retain counsel, unfortunately). The loan shark also sent threatening text messages like “TELL YOUR KIDS THEY ARE MOVING OUT!!!”
On the eve of the sheriff’s move out, I filed a multi-count civil action against the private lender, alleging predatory and illegal loan shark activities and unfair debt collection practices. I was able to get a temporary restraining order to stop the eviction, as well as a lis pendens (notice of claim), in order to rescind the loan and the deed.
This family of four can now sleep knowing they won’t be thrown on the street. And my fatherhas come up with a new nickname for me….Robin Hood Vetstein. I’ll take it! I will keep you posted on developments. Hopefully, the Attorney General’s Office will take interest in this lender. If this story sounds familiar, please contact me…I do not want to divulge the lender’s name here on this platform, but I would be happy to provide it to you privately.
In a long awaited ruling pitting condominium associations against mortgage lenders backed by the Federal Housing Finance Authority, the Supreme Judicial Court has upheld the so-called “rolling” super-priority lien for unpaid condominium fees. What this means for condominium associations in Massachusetts is that they are able to seek super-priority liens for successive 6 month periods of unpaid condominium fees, rather than be limited to one six month period. The super-priority lien takes priority over the first mortgage on the delinquent unit, thereby giving the condominium association a powerful tool to collect unpaid condo fees.
Thomas Moriarty, Esq. of Marcus, Errico, Emmer and Brooks, who represented the condominium association told me that “we are pleased with the results and we believe that this leaves condominium associations with the power to ensure payment of condominium fees as was intended by the Massachusetts legislature when it enacted the priority lien provisions of the statute 23 years ago to deal with the emergency created by unit owners not paying condominium fees to pay for essential services.”
The SJC recognized that the non-payment of condominium fees can have disastrous consequences upon a condominium association, especially smaller projects. The super-priority lien was established by the Legislature in reaction to the real estate recession in the early 1990’s where many condominium associations were financially devastated by non-payment of condo fees. Among other protections, the super-priority lien enables an association to leverage the mortgage lender to pay up to 6 month’s worth of outstanding condominium fees on behalf of the delinquent owner. The “rolling” lien practice developed by condominium attorneys where the outstanding balance exceeded 6 months worth of fees. Two years ago, the Appeals Court ruled that the rolling lien procedure was not permissible, leaving condominium associations in limbo regarding their ability to collect unpaid fees.
Led by Tom Moriarty and Alan Lipkind of Burns & Levinson, condominium associations successfully persuaded the SJC that the Legislature intended for associations to have the protections of the “rolling” lien. The justices reasoned that “our interpretation of the statute is consistent with the Legislature’s long-standing interest in improving the governance of condominiums and strengthening the ability of organization of unit owners to collect common expenses, thereby avoiding a reemergence of the serious public emergency that developed in the early 1990”s.”
This is a major victory for condominium associations who should all be having collective sigh of relief. If you have any questions about this ruling or need assistance collecting unpaid condo fees, please contact me at [email protected] or 508-620-5352.
The Massachusetts Condominium Act gives condominium associations the ability to file a “super-lien” for unpaid monthly condominium fees, six months of which is given priority over a first mortgage against the unit. The super-lien has proven to be a very effective method for condominiums to collect delinquent fees because lenders will often pay off the super-priority amount so as not to affect their mortgage priority.
But what happens when a unit owner owes more than six month’s worth of condo fees? In that situation, innovative condominium attorneys have developed a practice of filing multiple lien lawsuits to create a “rolling” lien for successive 6 month periods. Unfortunately for condominium associations, the Appeals Court recently put the kibosh on this practice in the case of Drummer Boy Homes Association v. Britton(Nov. 7, 2014).
Rolling Lien Practice
In the Drummer Boy case, the unit owner withheld payment of condo fees in a dispute with the condominium trustees over parking rights and fines. (Note, this is a big “no-no” as the law provides that a disgruntled unit owner must pay fees under protest). The condominium lawyers filed three separate and successive lawsuits asserting a super-lien over 18 months worth of unpaid fees. The lawsuits were all consolidated. A district court judge ruled, however, that the association had a super-priority lien over only the first 6 months before the first lawsuit, not the 18 months’ worth claimed.
Court: Super-lien Limited To 6 Months Of Fees
On appeal, the Appeals Court likewise held that the association’s super-lien only covered the initial 6 month period, not the 18 month period claimed. The Court reasoned that the Mass. Condominium Act was modeled after the Uniform Condominium Act which clearly provided that the maximum amount of a super-priority lien was 6 months worth of fees, and that this was a fair balance between the interests of lenders and condominium associations. Of course, the condominium association is free to collect all of the outstanding fees from the unit owner and sell the unit at auction, but the first mortgage will have priority over all of the fees except for 6 months plus attorneys’ fees, so it’s essentially a Pyrrhic victory.
As the condominium attorneys over at Perkins|Ancil are saying, this ruling may be appealed to the SJC and going forward associations will likely be forced to avail themselves of the remedy of foreclosure sooner rather than later in order to fully protect their financial interests. Failing that, condominium associations will have to lobby the Legislature for a change in the super-priority lien amount over above the 6 month cap. This remains a case to watch!
Rejects “In For One, In for All” Theory in Title Insurance Coverage
One little mistake in drafting and recording legal documents during a refinance can result in a huge problem for a lender — such as the lender having no legal ability to enforce the mortgage! (A slight problem..) GMAC Mortgage learned this the hard way last week at the Supreme Judicial Court in GMAC Mortgage v. First American Title Insurance Company (SJC-11161), where the court found in favor of First American Title Insurance Co., in a dispute over coverage under a lender’s title insurance policy.
A Doozy of a Mistake
As title defects go, this is a doozy, because it was easily preventable, and yet wrecked so much legal havoc in its aftermath. Elizabeth Moore and her husband, Thomas Moore, lived in a home in Billerica, the title to which was in Mr. Moore’s name. In 2001, for the purpose of refinancing the property, Mr. Moore executed a note and a mortgage to GMAC’s predecessor corporation (which obtained a lender’s title insurance policy from an agent of First American). Mr. Moore also signed a deed conveying the property from himself to himself and his wife as tenants by the entirety, as his plan was for both of them to hold title jointly as husband and wife. Under the “first in time” rule, in order for the mortgage to properly attach to the property, it should have been recorded before the deed went on record. However, the closing attorney mistakenly recorded the instruments in the wrong order, so the mortgage only attached to Mr. Moore’s 1/2 interest in the Property. Mr. Moore died in 2007. After his death, record title to the property vested solely in Mrs. Moore, and GMAC was left with no ability to enforce its mortgage against her or the property.
GMAC sued Mrs. Moore to enforce its mortgage rights, and she countersued for a slew of wrongful foreclosure and consumer protection claims. GMAC and Mrs. Moore wound up settling out of court, but GMAC tried to recoup all its legal fees and losses against the lender’s title insurance policy issued by First American.
Court Rejects Complete Defense Doctrine for Title Insurance
Unlike commercial general liability policies, which courts have ruled must provide coverage to all claims in a lawsuit if merely one claim is covered — the “in for one, in for all” theory — the SJC ruled that title insurance policies do not provide such wide-ranging coverage. Reaffirming the notion that a policy of title insurance is merely an indemnification policy and not a guaranty of perfect title, the justices ruled that First American’s duty was only to cover the aspects of Mrs. Moore’s claims affecting title, and not her wrongful foreclosure and consumer protection claims. This ruling will mostly affect the relationship between the large banks and lenders and title insurance companies, but provides a good reminder about what title insurance does and what it doesn’t cover.
Title Insurance Coverages Often Misunderstood
As a former outside claims counsel for a leading title insurance company, I have found that most insureds and claimants do not fully understand title insurance coverages. And why would they? It’s complicated stuff.
Most regular folks think that title insurance provides a full and complete guaranty and assurance that title to their home is pristine and clean. While title insurance gives an ordinary homebuyer “max coverage” available for title defects, it does not provide a 100% warranty that every conceivable problem affecting legal ownership of a home will be covered.
Subject to various exclusions and exceptions noted on the policy, a title insurance policy provides coverage for loss or damage sustained by reason of a covered risk as of the time of the closing. What are those covered risks? Some risks such as forgeries, improper legal descriptions, and recording errors are covered. Other risks such as certain encroachments, boundary line disputes, wetland issues, and zoning issues are not covered. Defects or liens arising after the issuance of a policy are likewise not covered, unless a new policy is issued. Also, the new enhanced policies provide for more expanded coverages than the older standard policies. It’s best to consult an experienced title insurance attorney for a complete explanation of what a title policy covers.
Richard D. Vetstein, Esq. is an experienced Massachusetts title insurance claims and coverages attorney who was previously outside claims counsel to a leading title insurance company. You can reach him at [email protected] or 508-620-5352.
With the economy and housing market on the upswing, builders are finally building again. I’ve seen a definite uptick in new construction purchases. Buying a new construction home, however, is very different and much more involved compared to buying a previously owned property. In this post, I want to cover the various aspects of purchasing a new construction home, from selecting a builder, financing, legal, through construction and to the closing. As the Beatles song goes, I also have a little help from my Realtor friends in this post who have graciously offered some of their expert guidance. Follow our advice, and hopefully you will avoid becoming Tom Hanks and Shelley Long in the hilarious movie, The Money Pit!
Selecting and Working with a Builder
Choosing the right builder is obviously critical. You can search for builder licenses and state disciplinary history at the Mass.gov site here. (Search under Construction Supervisor). If the builder is not a licensed Construction Supervisor, they may be licensed as a Home Improvement Contractor (HIC) which can be searched at the Office of Consumer Affairs website here. If they hold neither license type, that’s a red flag. Also, look up the builder’s name in the Mass. Land Records site, and check whether they have any mechanic’s liens filed against them. That is another red flag indicating they may be undercapitalized and don’t pay their subcontractors.
Get a list of the last 5 homes the builder has constructed, and try to talk to those homeowners. Don’t rely on the builder’s list of references as no intelligent builder would give out a bad reference.
Hire A Buyer’s Agent
Besides conducting a town-wide survey, one of the smartest things you can do is hire an independent buyer’s real estate agent, preferably one with lots of experience in new construction. While buyers today can do a lot of their own due diligence and research on prospective builders, an experienced Realtor knows all the local builders in town and knows who builds castles and who builds shanty-shacks. A buyer’s agent will also provide a much-needed buffer between the builder’s sales agents and listing agent, many of whom unfortunately engage in high-pressure sales tactics and fast-talking. As buyer agent, Marilyn Messenger advises,
“Many buyers don’t realize that if they visit a new construction site without a buyer agent, they run the risk of having to work directly with the builder’s agent whose job is to work in the best interest of the builder. A buyer’s agent will watch out for the buyer’s interests.”
Amenities, Allowances & Upgrades
The builder should provide you with a detailed specification sheet with a standard panel of features and options for flooring, appliances, paint, trims, HVAC, and lighting, etc. These will be built into the purchase price. Most builders also have allowances for things like additional recessed lighting, upgraded stainless steel appliances, decking, and fancy hardwood floors. As Cambridge area Realtor Lara Gordon notes, the buyers’ ability to select design elements is one of the major advantages of new construction.
It’s imperative that all allowances be spelled out in writing and attached to the purchase contract documents, which I will discuss later. Change orders are common during the construction process, and these too should be memorialized in writing. They will be added to the purchase price or paid in advance.
Contract Documents
New construction purchases in Massachusetts follow the same basic legal process as already-owned homes. The parties first execute an Offer to Purchase which spells out the very basics of the transaction: down payment and purchase price, closing date, and financing contingency. A lot of builders ask for more than the standard 5% deposit, but I would push back on that in this market.
After the offer is signed, the parties will sign the Purchase and Sale Agreement. As a buyer, the detailed specifications, amenities and agreed upon allowances must be incorporated into the contract, along with the floor and elevation plans, if any.
The proposed purchase and sale agreement will likely track the so-called “standard form,” but the builder will typically add a detailed rider, which is completely different than the usual seller rider seen in existing home contracts. The builder rider will have provisions dealing with how change orders are handled, that the builder is not responsible for cracking due to climatic changes, and may attempt to hold the buyer’s feet to the fire with respect to getting his financing in place. A lot of builders will try to limit the availability of holdbacks at closing. I would push back on this important item of leverage for buyers. Some of the large national builders such as Pulte will even claim that their contracts are “non-negotiable.” This is nonsense. Everything is negotiable these days.
Hiring an experienced real estate attorney will tip the balance back to the buyer, and the attorney should have a comprehensive buyer rider in place to protect you in case there are title issues or you suddenly lose your financing. Because there are often delays with new construction, one of the most important rider provisions for buyers is a clause which will give buyer’s protection in case they lose their rate lock due to a delay.
Mortgage Financing
Most new construction buyers in Massachusetts will take out a conventional mortgage loan, with the builder responsible for financing the actual construction through his own construction loan. Some builders, especially national ones, will have their own mortgage lending for their projects, but they often don’t offer the best rates and terms. Sometimes, buyers will finance the construction through a construction loan under which the borrower pays interest only through the construction process, and is then converted to a conventional mortgage once the home is completed. I would counsel buyers to avoid taking on the financial responsibility of a construction loan. As with all lending, shop around and compare apples to apples.
Inspections & Warranties
For new construction, home inspections must necessarily be delayed from the usual timeframe (7-10 days after accepted offer) where the home is not yet completed, and buyers should absolutely reserve their right to perform the usual comprehensive home inspection prior to closing. (If the home is already done, get in there with the home inspector). During the construction phase, builders don’t want buyers on the construction site, for obvious liability (and annoyance) reasons, so resist the urge to buy your own hard-hat and hang out with the construction guys. Metrowest area agent Heidi Zizza of mdm Realty retells a funny story about a Natick woman who literally broke a window trying to gain entry into her under-construction home.
Contrary to popular belief, Massachusetts law does not require a 1-year builder’s written warranty for new construction, however, most builders will provide one, albeit littered with exceptions to coverage. Fairly recent Massachusetts case law does impose a 3 year “implied warranty of habitability” for certain undiscovered construction defects. Again, selecting a reputable builder in the first place is “the ounce of prevention worth the pound of cure.”
Punch-Lists and Closing
There will inevitably be unfinished items right up to the closing. I’ve rarely seen a new construction transaction without a punch-list at closing. Some unfinished items will be serious enough to warrant an escrow holdback at closing (remember, I had said push back on this during P&S negotiations). Some lenders, however, will not allow a holdback, so the parties will have to negotiate and be creative at closing to ensure that all unfinished work is completed within a reasonable time after closing. If the home is part of a larger project/subdivision, this is usually not an issue. However, for “one-off” single site projects, getting the builder to come back and finish punch-list items after closing can be like pulling teeth. Again, having a real estate lawyer on your side and in control of the funds will give you leverage here.
Once papers are passed, the closing attorney will lastly ensure that there are no outstanding subcontractor liens on the property, which is one of most common hiccup at closings. For this reason and many others, it is imperative that buyers obtain their own owner’s title insurance policy, to ensure that title is clear, marketable and free of undiscovered defects and liens.
Buying new construction is often a long, drawn out, and stressful process for new buyers. Do your research. Be patient. And hire the best professionals on your side. Good luck!
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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney who often handles Massachusetts new construction home purchases. If you need assistance with a new construction purchase or sale, please contact him at 508-620-5352 or at [email protected].
All of the Massachusetts registries of deeds now offer free online document search capabilities. The main portal for most registries is www.masslandrecords.com operated by the Secretary of State’s Office. Other registries have their own systems.
Here is a handy list of all registries liked to their online search portals:
In the basic search form, you input the property owner’s last name and first name and hit search. For common names, this will often generate too many names results as the search function is not limited to town.
2. By Name/Advanced
In the basic search form, click the Advanced button on the right side. The search will expand to the screenshot above. This is the optimal search method as you can limit the search by town and document type. I usually leave the search on “all document types.”
3. By Book and Page
Massachusetts Registry of Deeds documents are organized by “book and page.” Before electronic records, land records were recorded in actual thick book volumes. The “book” reference refers to the volume number and the page refers to the page number. Each recorded instrument has its own unique book and page reference at the top of the document’s first page. Even with the proliferation of electronic records, the book and page reference is still in operation in Massachusetts.
4. By Property Address
A newer functionality, you can also search by street address. In my experience, however, the results are often inaccurate so I would not rely on this search method.
Search In Action
So, let’s give this a try. Find your registry where you live. Use the Registry County Map if you don’t know. In the basic search form, click advanced. Input your first and last name and click your town in the drop down menu. Press Search. Voilá, there’s a list of all recorded instruments on your title. For viewing and printing, click any of the documents. The details will appear on the right side of the search page. Click View Images and the image will appear in a new window. You can print from there.
Please note that the above is not a substitute from a full title exam by a qualified title examiner and should not be relied upon for any purchase, sale or refinance transactions. A statutory title certification covers a 50 year period and also checks bankruptcy and probate records.
Banker and Tradesman is reporting that Bristol, Plymouth and Norfolk County Registrars of Deeds plan to file a class action suit against Mortgage Electronic Registration System (MERS), aiming to recoup land recording fees they believe they are owed. B&T reporter Colleen Sullivan reports that:
The counties are being represented by Bernstein Liebhard LLP, a New York firm specializing in class actions which has already brought a similar suit on behalf of all the counties of Ohio. John Mitchell, a Bristol County commissioner, said the board considered pursuing a claim last year, but decided to hold off until the national mortgage settlement between the banks and the states’ attorneys general was resolved. But as it became clear that the vast bulk of the funds in that settlement would go towards foreclosures and loan modifications, he said the county decided to pursue the matter. Bristol County officials estimate the county may have lost out on millions of dollars in fees over the past decade because of the alleged use of MERS as a kind of private registry among large banks. A rough calculation prepared by county officials last year came up with a figure of between $3.1 million and $6.5 million lost, using a conservative estimate of one or two additional non-recorded assignments per MERS- registered property.
“Over the last month, we were approached by [Bernstein Liebhard] and other firms….they already had Norfolk and Plymouth, and we thought it made sense to get as many counties together,” Mitchell told Banker & Tradesman. Mitchell said he wasn’t sure if the remaining Massachusetts counties with county-level governance would join the suit. The relatively small size of counties like Nantucket and Dukes would mean far smaller sums at stake.
County-level governance was abolished in Massachusetts in eight of the state’s 14 counties around the turn of the century. Only Barnstable, Bristol, Norfolk, Plymouth, and Dukes retain county boards; Nantucket has a combined city-county government. The remaining boards retain the right to bring independent actions in court.
“We’re familiar with their claims, and there’s no merit to them,” said Janis Smith, spokeswoman for MERS. Smith said that by registering under the MERS name, banks fulfill the purpose of having a registry, that is, alerting the public of any existing leins on a property. “MERS does not eliminate or replace county records, and the recording fees are paid,” she said. “The MERS business model is legal in all 50 states and has been affirmed by Massachusetts courts.”
“I commend the counties,” said John O’Brien, the registrar of deeds in Essex County, who has been an active critic of MERS for the past two years. O’Brien was the first public official in Massachusetts to calculate how much the MERS system may have cost the state in allegedly lost recording fees, coming up with a figure of $22 million for his county alone. “If I had the authority, I would have filed this suit two years ago.”
The other registries fall under Secretary of State William Galvin’s jurisdiction. O’Brien said he plans to petition the legislature to recover his ability to bring suit on behalf of Essex County as one of its elected officials.
The Registrars are reportedly incensed that the MERS private recording system has deprived them of millions of recording fees. We will keep tabs on this important case.
For most folks, litigation and courtrooms are as foreign as Belgium. When a new clients comes to me with a potential litigation matter, I spend most of our first consultation discussing the process of litigation and how it works. Then inevitably we have to talk about the cost and expense, which for most lawsuits is a lot more than people expect. In this post, I wanted to provide you with a summary of what happens when you decide to file a Massachusetts real estate litigation and lawsuit, or if you have to defend yourself against one.
First Steps: Filing Or Answering The Complaint & Selecting A Venue
The first step in every Massachusetts lawsuit is the filing of the Complaint, along with a filing fee ($285 in Superior Court). The Complaint sets forth the factual allegations of the lawsuit, along with the formal legal claims such as breach of contract, zoning appeal, adverse possession or fraud.
Most real estate litigation cases where the damages exceed $25,000 are filed in either the Superior Court or the Land Court. (For smaller matters under $25,000 you can file in the local District Court; small claims cases are for $7,500 or less).
The Land Court is a specialized court with expertise in real estate disputes. I’ve written about the Land Court here. The Superior Court is the “jack of all trades” trial court, and hears just about every type of civil and criminal dispute at the trial level. Depending on the facts of the case, there are strategic advantages to filing in either Superior or Land Court.
After the complaint is filed, a Summons is issued which must be formally served by constable or sheriff on the “defendants” in the case. The attorney will arrange for service of the summons and complaint to be made and a sheriff will show up at the defendant’s home or business with the legal papers. Defendants have 20 days to “answer” the complaint. The Answer is a formal response to the Complaint, and the defendants can also assert any “counterclaims” he or she may have against the plaintiff.
Pre-Judgment Remedies
Many real estate litigation cases involve asking the court for some type of relief or action during the initial stages of the lawsuit. This is called “pre-judgment relief.” In many real estate cases, a litigant will ask the court for a lis pendens on property, which is a formal notice of the claim recorded on title. In other cases, a litigant will ask for an injunction or restraining order stopping a landowner from building or taking other adverse action which would injure their property.
Asking a court for such pre-judgment relief requires filing motion papers, legal memoranda and often multiple court hearings where the lawyers will argue the issues before the judge. This will add another level of expense on the case, often quite a bit. I usually give clients a ballpark figure of $5,000 for taking a case through the pre-judgment relief stage–could be less, could be more, depending on the response from the other side.
Often cases can be won or lost at these early stages as a lis pendens can stifle a potential sale or an injunction can shut down a construction site, thereby forcing a favorable settlement. Thus, it is very important to have an experienced and savvy Massachusetts real estate litigation attorney work up the case properly and argue the case forcefully during a pre-judgment remedy proceeding. There are certain ways to increase your chances of success at this stage and even obtain relief without the other side even knowing you are going to court, called ex parte relief, if the situation warrants. (Ex parte in Latin means “from (by or for) one party.”)
Phase 2: Discovery
For cases on the normal track, once the answer is filed and all factual allegations and legal claims are raised in the case, it moves to the next stage: discovery. Discovery is the process where each side shares information about the case with each other. Litigation is not supposed to be a cat-and-mouse-hide-the-ball game.
This is a good time to discuss how long it takes to get to a trial in a Massachusetts lawsuit. With huge budget cuts in the courts, it is taking up to 2+ years for most civil cases to reach trial. Yes, you read that correctly. It can take even more time in some cases. I’ve had a case in Norfolk County (Dedham) ready for trial 3 different times, only to get bumped at the last minute, each time costing the client thousands of dollars in legal fees and months of delay. There is really nothing a litigant can do about these delays (save for settling the case out of court).
The discovery stage is the most labor intensive and expensive part of the case, with lawyers taking depositions of witnesses and filing and answering formal written questions, called interrogatories, and responding to requests for document production. There are often disputes and motions which have to be resolved in this stage. Depositions can easily cost $1,000 each, and discovery in a fairly involved case can run easily up to $10,000 + in legal fees.
Joe Paterno Conveys Home to Wife For $1, “Love and Affection”
For topical reasons, I have had no reason to post about the despicable Penn St. child abuse scandal on this blog. Until now — when I came across an interesting New York Times article on Joe Paterno’s recent real estate activity. The Times reports that this summer “Joe Pa.” transferred title to his State College home to his wife for $1 and “love and affection.” Some say the transfer was intended to avoid the inevitable fallout from the Penn St. child abuse scandal and legal action brought by victims of the scandal. Joe Paterno’s attorney, however, says that this transfer was part of the Paternos’ long standing estate plan.
Fraudulent Transfers
The debate centers over what’s known legally as a fraudulent transfers. Fraudulent transfers are property conveyances made with the specific intent to place the property outside the reach of creditors, or made where “the debtor received less than a reasonably equivalent value in exchange for the transfer and made it while insolvent.” The latter definition, in plain English, means the owner was broke and received less than market value for the sale of the property. Fraudulent transfers can be undone by the courts so creditors can tap into a home’s equity to satisfy legal judgments.
In Joe Paterno’s case, the $1.00 stated consideration for the transfer to his wife typically raises a red flag as a potential fraudulent transfer. If Paterno can prove that the transfer was indeed made as part of a legitimate estate plan, then he could avoid a fraudulent transfer determination. If the transfer is determined to be fraudulent so as to avoid liability for the child abuse scandal, the transfer to his wife can be undone by his creditors with the help of the court. And this is true even if Joe were to file bankruptcy. Moreover, the look-back period for fraudulent transfers is rather long–as long as 4 years under the Massachusetts Uniform Fraudulent Transfer Act, and even up to 10 years in the case of conveyances into trusts (where the debtor holds the beneficial interest) under 2005 bankruptcy law amendments.
Also, fraudulent transfers are typically excluded from coverage under owner’s title insurance policies. So if you purchased a property which later becomes the subject of a fraudulent transfer lawsuit, you may be on your own, which is a scary proposition.
Asset Protection, Homesteads and More
There’s nothing wrong or illegal about protecting your assets for the future. There are a myriad of legal and safe methods from protecting your property. But, if you wait until there is a problem, it’s usually too late to fix it. The same is true for asset protection planning. Simply put, do it as early as possible, well before creditors are chasing you down.
The first choice should almost always be to declare homestead protection on your principal residence. We’ve written about the new, enhanced Massachusetts homestead protection quite a bit. In a nutshell, a homestead will protect up to $500,000 in equity from most creditors. It’s a relatively simply form recorded with the county registry of deeds.
For more sophisticated asset protection devices such as trusts, family limited partnerships, LLC’s, and even offshore vehicles, I would recommend a reputable estate planning attorney. My friends at Pabian & Russell in Boston are a good place to start.
No Easy Fix For Defective Foreclosure Titles After U.S. Bank v. Ibanez Ruling
The Massachusetts Supreme Judicial Court issued its opinion today in the much anticipated Bevilacqua v. Rodriguez case considering property owners’ rights when they are saddled with defective titles stemming from improper foreclosures in the aftermath of the landmark U.S. Bank v. Ibanez ruling last January. (Text of case is embedded below). Where Ibanez consider the validity of foreclosures plagued by late-recorded or missing mortgage assignments, Bevilacqua is the next step, considering what happens when lenders sell defective foreclosure titles to third party purchasers. Previously, I discussed the oral argument in the case here and detailed background of the case here.
The final ruling is mix of bad and good news, with the bad outweighing the good as fixing defective Massachusetts foreclosure titles just got a lot harder and more expensive. But, contrary to some sensationalist headlines, the sky is not falling down as the majority of foreclosures performed in the last several years were legal and conveyed good title. Bevilacqua affects those minority percentage of foreclosures where mortgage assignments were not recorded in a timely fashion under the Ibanez case and were otherwise conducted unlawfully. Importantly, Bevilacqua does not address the robo-signing controversy, which may or may not be considered by the high court in another case.
The Bad News
First the bad news. The Court held that owners cannot bring a court action to clear their titles under the “try title” procedure in the Massachusetts Land Court. This is the headline that the major news outlets have been running with, but it was not a surprise to anyone who has been following the case. Contrary to the Daily Kos, the court did not take the property away from Bevilacqua. He never held good title it in the first place–and you can blame the banksters for that. If you don’t own a piece of property (say the Brooklyn Bridge), you cannot come into court and ask a judge to proclaim you the owner of that property, even if the true owner doesn’t show up to defend himself. It’s Property Law 101.
The Good News
Next the good news. The court left open whether owners could attempt to put their chains of title back together (like Humpty-Dumpty) and conduct new foreclosure sales to clear their titles. Unfortunately, the SJC did not provide the real estate community with any further guidance as to how best to resolve these complicated title defects.
Background: Developer Buys Defective Foreclosure Title
Frank Bevilacqua purchased property in Haverhill out of foreclosure from U.S. Bank. Apparently, Bevilacqua invested several hundred thousand dollars into the property, converting it into condominiums. The prior foreclosure, however, was bungled by U.S. Bank and rendered void under the Ibanez case. Mr. Bevilacqua (or presumably his title insurance attorney) brought an action to “try title” in the Land Court to clear up his title, arguing that he is the rightful owner of the property, despite the faulty foreclosure, inasmuch as the prior owner, Rodriguez, was nowhere to be found.
Land Court Judge Keith Long (ironically the same judge who originally decided the Ibanez case) closed the door on Mr. Bevilacqua, dismissing his case, but with compassion for his plight.
“I have great sympathy for Mr. Bevilacqua’s situation — he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title — but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied,” Long wrote.
Given the case’s importance, the SJC took the unusual step of hearing it on direct review.
No Standing To “Try Title” Action In Land Court
The SJC agreed with Judge Long that Bevilacqua did not own the property, and therefore, lacked any standing to pursue a “try title” action in the Land Court. The faulty foreclosure was void, thereby voiding the foreclosure deed to Bevilacqua. The Court endorsed Judge Long’s “Brooklyn Bridge” analogy, which posits that if someone records a deed to the Brooklyn Bridge, then brings a lawsuit to uphold such ownership and the “owner” of the bridge doesn’t appear, title to the bridge is not conveyed magically. The claimant in a try title or quiet title case, the court ruled, must have some plausible ownership interest in the property, and Bevilacqua lacked any at this point in time.
The court also held, for many of the same reasons, that Bevilacqua lacked standing as a “bona fide good faith purchaser for value.” The record title left no question that U.S. Bank had conducted an invalid foreclosure sale, the court reasoned.
Door Left Open? Re-Foreclosure In Owner’s Name?
A remedy left open, however, was whether owners could attempt to put their chains of title back together and conduct new foreclosure sales in their name to clear their titles. The legal reasoning behind this remedy is rather complex, but essentially it says that Bevilacqua would be granted the right to foreclosure by virtue of holding an “equitable assignment” of the mortgage foreclosed upon by U.S. Bank. There are some logistical issues with the current owner conducting a new foreclosure sale and it’s expensive, but it could work.
That is if the SJC rules in the upcoming Eaton v. FNMA case that foreclosing parties do not need to hold both the promissory note and the mortgage when they foreclose. An adverse ruling in the Eaton case could throw a monkey wrench into the re-foreclosure remedy–it would also be an even bigger bombshell ruling than Ibanez, as it would throw into question the foreclosure of every securitized mortgage in Massachusetts.
In Bevilacqua’s case, he did not conduct the new foreclosure sale, so it was premature for the court to rule on that issue. Look for Bevilacqua to conduct the new foreclosure and come back to court again. The SJC left that option open.
Other Remedies & What’s Next?
The other remedy to fix an Ibanez defect, which is always available, is to track down the old owner and obtain a quitclaim deed from him. This eliminates the need for a second foreclosure sale and is often the “cleanest” way to resolve Ibanez titles.
Another option is waiting out the 3 year entry period. Foreclosure can be completed by sale or by entry which is the act of the foreclosure attorney or lender representative physically entering onto the property. Foreclosures by entry are deemed valid after 3 years have expired from the certificate of entry which should be filed with the foreclosure. It’s best to check with a real estate attorney to see if this option is available.
The last resort is to demand that the foreclosing lender re-do its foreclosure sale. The problem is that a new foreclosure could open the door for a competing bid to the property and other logistical issues, not to mention recalcitrant foreclosing lenders and their foreclosure mill attorneys.
Title insurance companies who have insured Ibanez afflicted titles have been steadily resolving these titles since the original Ibanez decision in 2009. I’m not sure how many defective foreclosure titles remain out there right now. There certainly could be a fair amount lurking in titles unknown to those purchasers who bought REO properties from lenders such as U.S. Bank, Deutsche Bank, etc. If you bought such a property, I recommend you have an attorney check the back title and find your owner’s title insurance policy. Those without title insurance, of course, have and will continue to bear the brunt of this mess.
Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous foreclosure title defect matters & cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.
Unpaid condo fees and special assessments can be a real thorn in any condominium’s side, especially smaller condos. Not only do unpaid condo fees threaten the financial health of a condominium, but a high delinquency rate can run afoul of Fannie Mae/Freddie Mac and FHA condominium lending guidelines, thereby hindering the sale of a unit.
Fortunately, the Massachusetts Condominium Act, General Laws Chapter 183A, provides condominium trustees and managers with a fair amount of ammunition to recover those unpaid condo fees and special assessments. The law provides that condominium common expense assessments (monthly condo fees) are a lien against condominium units from the date each assessment becomes due, and that unit owners are personally liable for their share of condominium common expenses, including late charges, fines, penalties, interest, and all costs of collection. Ultimately, the condominium trust can foreclose its lien and sell the unit at foreclosure auction.
Massachusetts Super-priority Condo Lien
The real teeth of the Condominium Act is the “super-lien” provision. A properly filed condo lien has “super-priority” over the first mortgage on a unit for up to 6 months worth of unpaid condo fees, plus all attorneys’ fees and collection costs. Required 60 and 30 day statutory notices must be sent to the mortgage lender and unit owner prior to filing the lien. Typically, the mortgage lender will not want to allow a condo lien to negatively affect the priority of its mortgage, so it will pay the unpaid condo fees and other charges, then charge them back to the borrower/unit owner. Even in the case of foreclosure of a unit, the super-lien will continue to roll-over (up to 6 months worth).
6d Certificate
For all sales of Massachusetts condominiums, Mass. General Laws Ch. 183A, sec. 6(d) requires that the condo trustees sign a certificate verifying the outstanding condo fees assessed against the unit, if any. The term “6d” certificate refers to that statutory section of the Condominium Act, section 6(d). Lenders and their closing attorneys will require a “clean” 6d which states there are no unpaid fees. The recording of a clean 6d certificate will prevent the association from ever filing a lien against that unit.
No Right to Withhold
Another favorable aspect of the lien law is that a unit owner is not allowed to withhold payment even if he disputes the charges. There is no right to set-off. If the unit owner is unhappy or disputes the validity of the assessment, that’s too bad. He must pay the fees under protest, and file a suit challenging the legality of the assessment.
Collection Against Tenants
Another helpful remedy in the case of absentee unit owners is that the condo trust has a right to collect rents from tenants of non-paying unit owners. The condominium association will notify the tenants in writing that they are required to forward all future rent payments to the condo trust until the unpaid balance is satisfied. This typically gets the prompt attention of the unit owner.
A mechanic’s lien is somewhat of a misnomer. It has nothing to do with auto mechanics. Rather, it’s a type of lien that general contractors, subcontractors and construction materials suppliers are allowed to record against a homeowner’s property to secure the payment of services, labor or materials. A mechanic’s lien creates a cloud on the title of real estate where their work, material, or services were provided.
Unlike most other liens, a mechanic’s lien does not require court approval. That’s why it is a very powerful tool for construction professionals to ensure that they are paid for their work, labor and supplies.
Mechanic’s Lien Requirements
The critical requirement to obtain a mechanic’s lien is that the contractor must have a written contract with the homeowner. Without a written contract in place, there is no entitlement to a mechanic’s lien.
The process of filing and recording a mechanic’s lien is very strict, and should be done under the guidance of an attorney. There are several notices and documents that must be recorded under strict time deadlines. Any misstep will result in a dissolution of the lien.
Who can obtain a Mechanic’s Lien In Massachusetts?
The mechanic’s lien law has been in existence in Massachusetts since the 1800’s, but lawmakers substantially overhauled it in 1997. The following types of construction professionals can file a mechanic’s lien:
general contractors
subcontractors and sub-subcontractors
machine rental companies
materials suppliers
lumber companies
demolition contractors
landscapers
utility contractors
site excavators
painters
civil engineers and architects
construction project managers.
How Does A Homeowner Remove A Mechanic’s Lien?
If the homeowner believes that the mechanic’s lien is improper, the mechanic’s lien law provides a summary procedure in the Superior Court or District Court to discharge a lien. Consult an experienced attorney in this type of situation.
If the parties can come to an agreement on what’s owed, the contractor can voluntarily dissolve the mechanic’s lien.
Owners can also “bond off” mechanic’s lien by procuring a lien bond from a surety company.
I Paid My Contractor, But His Subcontractor Just Filed A Mechanic’s Lien, What Do I Do?
Although subcontractors do not have a direct contract with an owner, they are nonetheless entitled to a mechanic’s lien for unpaid services/supplies. It doesn’t matter if the general contractor failed to pay his subcontractor. A subcontractor who attempts to file a mechanic’s lien, however, is subject to even stricter requirements under the new Massachusetts mechanic’s lien law, so consult an attorney to verify whether they have followed all the rules. Also, a subcontractor/supplier’s right to recovery is limited to the amount due under the prime contract at the time of the lien. Thus, the longer a subcontractor waits to assert a mechanic’s lien, the less money may be available to satisfy its lien. This can be overcome by serving a written notice of identification, which is a form set forth in the statute letting the owner and general contractor know the sub is on the job.
I always put indemnification/liability shifting provisions in construction contracts which make the general contractor responsible for any claims or liens asserted by any subcontractor. But that doesn’t necessarily prevent a subcontractor from filing a mechanic’s lien. If the lien is valid, you may have to bite the bullet and pay (twice) the subcontractor to release the lien. There is also a lien waiver mechanism where general contractors and subcontractors release lien rights upon progress payments, but they are infrequently used in residential projects.
Consult An Attorney
The Massachusetts mechanic’s lien process is extremely complicated, especially for the average homeowner and even for the experienced construction professional. While it provides a powerful tool for persons seeking payment for their securities in improving real estate, one seeking to enforce the mechanic’s lien must strictly comply with the statute requirements. The wise choice is to consult an experienced real estate attorney with respect to mechanic’s lien issues.
A lis pendens is Latin for “a suit pending.” Under the Massachusetts lis pendens law, a lis pendens is a notice endorsed by a judge certifying that there is litigation pending involving the title or occupancy rights to a property. Where real estate deals go sour, a court will often issue a lis pendens where a buyer seeks “specific performance” of a real estate contract in order to force a seller to go through with a transaction. Lis pendens are also common in other real estate cases such as boundary, title, zoning, and ownership disputes. The lis pendens is recorded at the registry of deeds against the property and its owner(s), creating a serious cloud on the title to the affected property. A lis pendens will, in many cases, effectively prevent the owner from selling the property until the claim is resolved–thus, earning its well-deserved reputation as dangerous arrow in a real estate litigator’s quiver.
Heavy Ammunition For Buyers
Since the Massachusetts Supreme Judicial Court held in 1998 that the standard Greater Boston Real Estate form Offer To Purchase is a binding contract, buyers have used the lis pendens with great success against sellers who unjustifiably try to back out of Offers to Purchase and Purchase and Sale Agreements. Aggressive buyer attorneys would often obtain a lis pendens without prior notice to the seller (called ex parte relief), and this would give buyers a huge advantage and effectively derail any pending sale of the property until the judge resolved the claim.
Recent Changes To The Law
In response to complaints that litigants were abusing the law with frivolous claims for lis pendens’, lawmakers amended the law in 2003. Now, claimants seeking ex parte relief must show there is a clear danger that the seller, if notified in advance, will convey, encumber, damage or destroy the property. Sellers also have a new remedy to stop frivolous claims: a “special motion to dismiss” which carries with it an award of attorneys’ fees and costs. The playing field is a bit more leveled now, yet the lis pendens remains a powerful tool for real estate attorneys.
Dealing With A Lis Pendens
Dealing with a meritorious lis pendens remains very difficult. Standard owner’s title insurance policies do not insure against them. Further, most title companies hesitate to affirmatively insure a lis pendens as they would effectively be underwriting the ultimate success of the lawsuit. Sometimes, however, coverage can be obtained for an additional premium and/or with some form of indemnification or security. In the absence of insurance, a lis pendens will remain a cloud on title until the claim is ultimately resolved in the courts, which these days can take many years. Given the high cost of litigation, a financial settlement is often the only way to resolve the matter in a cost-effective manner.
As an experienced real estate litigator who has obtained and defended scores of lis pendens’, please contact me with any questions about a Massachusetts lis pendens.
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Richard D. Vetstein, Esq. is an experienced and creative Massachusetts real estate litigator who loves to help property owners defend their contract or property rights in court. Please contact him at [email protected] or 508-620-5352 for a no-obligation consultation.
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With over 25 years in practice, he is a four time winner of the "Top Lawyer" award by Boston Magazine, a "Super Lawyer" designation from Thompson/West, and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.
Overview: Lis Pendens, Latin for “A Suit Pending”
