Appellate Division Quotes Lucinda Williams, Orders Trial Court To Take Closer Look At Whether Debt Was Fully Satisfied

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Lucinda WilliamsAdd this to the list of things you never want to hear a court say about your performance during a case: "defendants' presentation of evidence certainly gave voice to the song lyric, 'when nothing makes any sense, you have a reason to cry.'" (It is a lyric from a Lucinda Williams song if you were curious.) But this was the Appellate Division's conclusion in Brunswick Bank & Trust v. Heln Management, LLC, a case that was making its second appearance before the Appellate Division (after an earlier remand) and was sent back to the trial court for a third round.

The issue in Brunswick Bank was relatively straightforward. Plaintiff and defendants entered into five loans. The loans were secured by mortgages on several properties owned by defendants. After defendants defaulted on the loans, plaintiff sued and obtained a judgment against defendants. Plaintiff then filed foreclosure actions against defendants, seeking to foreclose on the mortgages it held against defendants' properties. It received final judgments of foreclosure in these cases as well. Some of these properties were then sold, which "provided rolling compensation for [plaintiff] against all defendants' obligations."

At some point during this "rolling" sale of mortgaged properties, defendants moved to stay all pending foreclosure proceedings, arguing that plaintiff was "over-capitalized" – i.e., it was going to collect more than it was entitled to collect under its judgment. Defendants then moved to have the judgment deemed satisfied, arguing that plaintiff had already recovered — through its collection efforts — the full amount of the judgment. The trial court granted the motion but held that two pending foreclosures could proceed. The trial court further acknowledged that it had the power to "prevent a windfall" to plaintiff, but that the record was "too muddled" to decide whether this was the case. 

Defendants appealed. The Appellate Division agreed with the trial court that the record was unclear, and therefore remanded the case back to the trial court "for illumination." It instructed the trial court to determine the amount owed to plaintiff and the amount paid to plaintiff through its collection efforts. The intent was to have "all the loans and payments against all the loans [ ] accounted for in a single proceeding so that [plaintiff] would not, as a result of the sequential manner in which collection was sought or occurred, come away . . . with a windfall."

On remand, the trial court "conducted as thorough an evidentiary hearing, over the course of four days, as the parties' presentation permitted and rendered written findings." After conducting the hearing, the trial court held that plaintiff had received, through its collection efforts, approximately $2.5 million of the $2.7 million it was owed. Plaintiff also obtained, through the foreclosure process, title to two of the mortgaged properties. The trial court concluded that defendants had "failed to introduce any competent evidence to establish the fair market value of these properties at the time of the sheriff's sale," therefore the fair market value of the properties was not credited against the amounts owed plaintiff.

Unfortunately, however, these written findings from the trial court still were not clear enough. The Appellate Division accepted the trial court's conclusion that plaintiff was owed approximately $250,000 after its collection efforts. But it disagreed with the trial court over how to deal with the two remaining foreclosed properties. Accordingly, it remanded (re-remanded?) the case back to the trial court with specific instructions on how to address this issue. 

First, the trial court must determine whether the fair market value of the first foreclosed property was greater than the $250,000 shortfall owed to plaintiff. If so, then plaintiff, by taking title to that property, "would have been fully compensated and no further right in equity would have existed to proceed against any other mortgaged property or any other assets of defendants." Notably, the court held that the "precise amount above the rounded shortfall of $250,000 . . . would be irrelevant since that is the type of windfall law and equity would allow [plaintiff] to recoup." In other words, if the fair market value of the first property was $1 million, plaintiff would be entitled to keep it, even though plaintiff was only owed $250,000. Some windfalls are different than others in the eyes of the court.

Second, if the fair market value of the first property was less than the $250,000 shortfall, then plaintiff could move to the second foreclosed property. Again, if the fair market value satisfied the remaining shortfall, then plaintiff would be done. If not, however, it could continue to pursue its collection efforts from other assets.

Finally, the Appellate Division noted that, if it could "answer these questions by resorting to the existing factual findings, [it] would spare the parties further expense and trouble and simply exert original jurisdiction to bring down the curtain on this matter." But, it could not do that because the record was not clear enough. Thus, the Appellate Division concluded: "The devil will be in the details but efforts to obtain a clear understanding of what transpired at the pivotal times so far has proven devilishly difficult."

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