Good News: That Tenant You May Not Have Known You Had Is Not A Cloud On Title

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

AuctionIf you have ever been to a sheriff's sale in New Jersey then you are familiar with the litany of announcements that precede each sale — "This sale is made subject to easements of record," "The property is being sold on an 'as is' basis," etc. Sellers make these announcements because, under New Jersey law, they are required to disclose "any substantial defect in or cloud upon the title of the real estate sold, which would render such title unmarketable." If a seller intentionally or negligently fails to disclose any substantial defects or clouds on title, then a court may vacate the winning bid and return the winning bidder's deposit. For example, if a seller fails to reveal the amount of unpaid taxes on a property before a sheriff's sale, the sale can be vacated if the winning bidder discovers the amount and is unwilling to pay it.

Usually included in these announcements is something making clear that the property is being sold subject to the rights of tenants and occupants, if any. But what happens when, after the sale, the winning bidder visits the property and discovers a tenant, or at least someone claiming to be a tenant, occupying the property? Does that entitle the winning bidder to vacate the sale and get its deposit back?

This is exactly what happened in PHH Mortgage Corporation v. Alleyne. In that case, the winning bidder at a sheriff's sale moved to set aside its successful bid and compel a refund of the amount it tendered to the sheriff at the sale (winning bidders are generally required to put 20% of the bid price down at the sale and pay the balance within 30 days). The winning bidder argued that, after the sheriff's sale, it sent a representative to the property and he discovered an individual who "refused to give his name but asserted rights to possession of the property as a tenant." The winning bidder argued that (1) this tenancy was a cloud on title, therefore it should have been disclosed at the sale, and (2) the seller has an independent duty to inspect for tenants on the property before the sale. The trial court rejected these arguments and the Appellate Division affirmed.

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Ain’t No Stoppin’ Us Now . . . Third Circuit Affirms Arbitrators’ Ruling In Favor of Song Writing Duo

Aint no stoppin us now (pd)"Singer-songwriters John Whitehead and Gene McFadden were an integral part of the Philadelphia music scene in the 1970s." So begins the decision by the U.S. Court of Appeals for the Third Circuit in Whitehead v. The Pullman Group, LLC. (For the uninitiated, click here for a summary of the "Philadelphia Sound" to which this sentence refers and of which plaintiffs Whitehead and McFadden were a part.)

At issue in that case was Whitehead and McFadden's song catalog, which includes, among other things, the publishing rights to their biggest hit, "Ain't No Stoppin' Us Now." In 2002, defendant entered  into a contract with Whitehead and McFadden that gave him the exclusive right to purchase the catalog following a 180-day due diligence period. After this period, defendant had the right to terminate the contract upon written notice to Whitehead and McFadden. Defendant claimed that his due diligence revealed several tax liens that  diminished the value of the catalog. He claimed that he communicated this to Whitehead and McFadden over the phone. They responded that they would get back to him with more information, but instead contacted him and told him that they did not want to consummate the transaction, which defendant claimed was a breach of the agreement.

Several years later, after both Whitehead and McFadden died, their estates received an offer from Warner Chappell Music to purchase Whitehead and McFadden's song catalog. Shortly before the deal was completed, however, defendant wrote the estates and notified them of the existence of the 2002 agreement. (The estates were unaware of the deal with defendant prior to receiving this letter.) Shortly thereafter, Warner Chappell Music withdrew its offer. The estates then sued in state court seeking (1) a declaratory judgment that the 2002 contract was void, and (2) damages for defendant's alleged tortious interference with their deal with Warner Chappell Music. Defendant removed the lawsuit to federal court and counterclaimed for his own declaratory judgment and damages for the alleged breach of the 2002 contract. Both sides eventually agreed to arbitrate their disputes. 

 

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Borrowers Cannot Vacate Final Judgment Of Foreclosure Because They “Read Something Wrong”

Foreclosure (PD)
This might have seemed obvious, but the Appellate Division nonetheless recently confirmed that a borrower's claim that it "read something wrong" could not establish "excusable neglect" sufficient to vacate a final judgment of foreclosure.

In New Jersey Housing and Mortgage Finance Agency v. Wolinski, borrowers defaulted on their mortgage and their lender filed a foreclosure complaint. The first complaint named borrowers and "John Doe and Jane Doe 1-10 (Names Being Fictitious) Tenants/Occupants." This complaint was voluntarily dismissed against all parties, real and fictitious. The second complaint, filed approximately six months later, also named borrowers and "John Doe and Jane Doe 1-10 (Names Being Fictitious) Tenants/Occupants." This complaint was also voluntary dismissed, but only as to the fictitious defendants.

Borrowers never answered the complaint and the lender filed a request to enter default, and then obtained final judgment by default. The lender scheduled a sheriff's sale but the borrowers filed for bankruptcy protection. The lender moved to lift the bankruptcy stay. After this motion was granted, the borrowers moved to vacate final judgment. They argued: (1) that they misread the dismissal of the second foreclosure complaint to be, like the dismissal of the first one, a dismissal of all defendants, not just the fictitious ones; and (2) that the trial court abused its discretion when it allegedly miscalculated the amount due in the final judgment. The Appellate Division rejected both of these arguments.

 

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Neither Rain, Nor Sleet, Nor Snow . . . Will Allow You To Set Aside A Sheriff’s Sale!

 by:  Peter J. Gallagher (@pjsgallagher)

Although the snow is (hopefully) gone for a few months, the Appellate Division recently handed down a decision that brings us back to one of the many snowstorms we had to endure this winter. In Weiss v. Porchetta, homeowners moved to vacate the sheriff's sale of their home because they claimed that a major snowfall on the day of the sale deterred a bidder from attending. The homeowners claimed that they had been working with the snow-bound bidder on a deal that would have allowed them to stay in their home. Apparently they did not have the same deal with the winning bidder at the sale. The trial court denied the motion and the Appellate Division affirmed.

 

 

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Not A Holder In Due Course? Not Necessarily A Standing Problem

by:  Peter J. Gallagher

By now, all lenders have likely been faced with at least one situation where a borrower alleges that the lender lacked standing to sue on a note because the lender was not the holder of the note. While New Jersey courts have largely eliminated this defense, at least in the post-judgment context (see here), a recent decision from the Appellate Division reminds us that a lender can have standing to sue even when it is not a holder in due course.

In Lynx Asset Services, LLC v. Simon Zarour, National City Bank loaned defendant $190,000, and defendant executed a mortgage as security for the note. Thereafter, National City merged with PNC Bank. Sometime later, PNC Bank delivered the original note to Lynx Asset Services, LLC and issued an assignment of the note and mortgage, but did not indorse the assignment. Defendant eventually defaulted on the note and Lynx sued. Defendant admitted that he signed the note and mortgage and that he had stopped paying on the note. He nonetheless argued that Lynx lacked standing to sue because it did not have a signed assignment. The trial court rejected this claim, and the Appellate Division affirmed, holding that, although Lynx was not a holder in due course, it nonetheless had standing to sue on the note because it was a non-holder with the rights of a holder.

 

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