text:
When Calling a Time-out Doesn't Stop the Clock
In re Delaware Sports Complex, LLC, Case No. 17-11175 (KG) Bankr. D. Del. 8-21-17
Summary by William J. Amann, Esq. BRAUCHER & AMANN, PLLC, Manchester, NH
Bankruptcy (the figurative, Time-Out) Doesn't Cure Commercial Lease Deficiencies. Whether a non-residential lease was terminated before the debtor's bankruptcy filing and whether the city's interest as landlord may be subordinated to the lien of the post-petition lender if required under the debtor's financing agreement.
Three men had a vision to develop a sports complex in Middleton, Delaware. They formed a limited liability company called, fittingly, Delaware Sports Complex, LLC (hereinafter "DSC").
DSC was eager to develop the 170 acre sports complex, perhaps too eager, because it entered into a Lease one (1) year before the LLC had been legally created. However, the Lease contained a term wherein DSC represented and warranted that it was a duly formed and created Delaware LLC.
The Lease provided an Early Termination clause, which the Town asserted in its notice of default. But the Debtor, even if there was a default, had an opportunity to cure the default. Pursuant to the Lease, the default must remain for thirty (30) days after the Debtor receives the default notice and after the expiration of those thirty (30) days, if the default is of "a nature that it cannot be cured within such thirty (30) day period," then as long as the Debtor is "proceeding to cure [the default] in good faith," the default is deemed not to continue. (emphasis mine).
The Town of Middleton cried foul and issued a notice of default of terms of the Lease to DSC and then commenced a summary possession action against DSC. The Town's notice of default was premised upon: (1) DSC not being listed with the State of Delaware's Secretary of State's Office; (2) DSC's failure to provide certain bonding and; (3) DSC's failure to execute a Recoupment Agreement with the Town and State's Department of Transportation. The Debtor had until March 8, 2017 to cure the alleged defaults.
First, the Debtor cured the formation issue by filing its Certificate of Formation on February 28, 2017.
Second, as to the second, alleged default, the bonding requirement, the Court found that the Debtor cured the default through his letters of credit commitment which equaled the Town's bonding request and that the Debtor acted in good faith and received no help from the Town. Therefore, the Debtor did was found not to have defaulted on the bonding requirement.
Third, the so-called Recoupment issue, basically required the Debtor to "promptly observe and comply with all present and future laws, ordinances, requirements, order, directive, rules and regulations of the Federal, State and local governments and all other governmental authorities affecting the Property or appurtenances thereto or any part thereof. . . .". In other words, Delaware was requiring that the Debtor either complete and submit a sull traffic impact study or participate in a Recoupment Agreement. Both choices would cost the Debtor in excess of $2,000,000.
But DSC called a figurative time-out by filing Chapter 11 in May 2017.
ISSUE ONE: Whether the Lease was terminated before Debtor's bankruptcy filing. In other words, whether the Lease was void ab initio because Debtor did not exist when it executed the Lease.
ISSUE TWO: Whether the Town's interest as landlord may be subordinated to the lien of the post-petition lender if required under the Debtor's financing agreement.
HOLDING ON ISSUE ONE: No. DSC's certificate of formation was not filed until after the Town sent its notice of Lease default. However, the Court found that DSC could enter into the Lease even though it was not legally created at that time. The Court ruled that when an agent contracts for a non-existent principal which is subsequently formed, the principal may assume the contract. Boulden v. Albiorix, Inc., 2013 WL 396254 (Del. Sup. 2013). The Debtor's original members were, in effect, promoters of the preformation entity. See also Lorillard Tobacco Co. v. Am. Legacy Found., 903 A. 2d 728, 744 (Del. 2006).
The Court also found that the Town was estopped from denying the existence of the Debtor, first, because it accepted Debtor as a limited liability company throughout; and second, because the Town conceded that Debtor's formation was sufficient to cure the default.
HOLDING ON ISSUE TWO: No. Debtor seeks to subordinate the Town's fee simple interest in the property to the Debtor's credit agreement (the "DIP"). The Lease provides that:
[Debtor] shall have the right to grant a leasehold mortgage or otherwise encumber this Lease or any sublease of all or any part of the Property and [Debtor] may assign its rights hereunder. Such leasehold mortgage shall encumber the leasehold interest created by this Lease; [the Town] agrees to execute a commercially reasonable Subordination and Non-Disturbance Agreement or similar agreement with [Debtor's] lender.
Lease, § 7.2. The Court's decision that the Lease was terminated makes it unnecessary to address the subordination issue.
It is the Debtors' failure to enter into a recoupment agreement that creates an uncured default. Debtor indicated at the Hearing that it may want to develop only six or so fields and because of the lighter traffic the recoupment agreement would not be needed. The Lease, however, makes the parties' expectations clear. The Debtor was in good faith to develop the leasehold as numerous fields and facilities. Although the Lease does not contain timelines for the development of the fields and buildings, the "time is of the essence" provision in the Lease establishes the Debtor's and the Town's expectation that the entire project would be accomplished and promptly. It is perfectly clear to the Court that had the parties to the Lease focused on their understanding and agreement that Debtor would fully develop the property promptly, they would have included time limits. The Debtor's failure to promptly enter into the recoupment agreement based on its intention to develop only a portion of the property and to fulfill only a portion of its plan is a default which Debtor failed to cure in a timely fashion. The default renders the Lease terminated.
The Debtor defaulted on the Lease and the Town's termination was proper.
In reDelaware Sports Complex, LLC2017 WL 3595495 Case No. 17-11175 (KG)Bankr. D. Del. 8-21-17
Summary by
William J. Amann, Esq.
BRAUCHER & AMANN, PLLC
The Lease provided an Early Termination clause, which the Town asserted in its notice of default. But the Debtor, even if there was a default, had an opportunity to cure the default. Pursuant to the Lease, the default must remain for thirty (30) days afterthe Debtor receives the default notice and after the expiration of those thirty (30) days, if the default is of "a nature that it cannot be cured within such thirty (30) day period," then as long as the Debtor is "proceeding to cure [the default] in good faith," the default is deemed notto continue. (emphasis mine).
ISSUE ONE: Whether the Lease was terminated before Debtor's bankruptcy filing. In other words, whether the Lease was void ab initiobecause Debtor did not exist when it executed the Lease.
HOLDING ON ISSUE ONE: No. DSC's certificate of formation was not filed until afterthe Town sent its notice of Lease default. However, the Court found that DSC could enter into the Lease even though it was not legally created at that time. The Court ruled that when an agent contracts for a non-existent principal which is subsequently formed, the principal may assume the contract. Boulden v. Albiorix, Inc., 2013 WL 396254 (Del. Sup. 2013). The Debtor's original members were, in effect, promoters of the preformation entity. SeealsoLorillard Tobacco Co. v. Am. Legacy Found., 903 A. 2d 728, 744 (Del. 2006).
United States Court of Appeals For the First Circuit - APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
in_re_hannon_v_abcd_dischargeability.pdf
NATIONAL BUSINESS INSTITUTE, INC. PRESENTS THE BANKRUPTCY CODE'S AUTOMATIC STAY, 11 U.S.C. §362
April 4, 2016, 11:00 A.M. EST to 12:30 P.M. EST
Via Teleconference Seminar (NBI Program # 72073)
THE PURPOSE OF THE AUTOMATIC STAY
11 U.S.C. § 362, known as the automatic stay, is one of the most powerful, if not the most powerful, provisions of the Bankruptcy Code. The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.
The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor's property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally. A race of diligence by creditors for the debtor's assets prevents that.
In addition to protecting relative positions of creditors, automatic stay is designed to shield Chapter 7 debtor from financial pressure during pendency of bankruptcy proceeding. In re Stringer (1988, CA9 Cal) 847 F2d 549, 17 BCD 1169, 19 CBC2d 233, CCH Bankr L Rptr P 72297.
Automatic stay is crucial provision of bankruptcy law and prevents disparate actions against debtors and protects creditors in manner consistent with bankruptcy goal of equal treatment of creditors by ensuring that no creditor receives more than equitable share of debtor's estate. Lincoln Sav. Bank, FSB v Suffolk County Treasurer (In re Parr Meadows Racing Ass'n) (1989, CA2 NY) 880 F2d 1540, 19 BCD 1125, CCH Bankr L Rptr P 73010, cert den (1990) 493 US 1058, 110 S Ct 869, 107 L Ed 2d 953 and (superseded by statute on other grounds as stated in In re Fischer(1995, BC MD Tenn) 184 BR 41, 27 BCD 569, 34 CBC2d 99) and (superseded by statute on other grounds as stated in Marc Stuart Goldberg, P.C. v City of New York(In re Navis Realty) (1996, BC ED NY) 193 BR 998) and (criticized in Marine Midland Bank v Bennett Funding Group, Inc.(In re Bennett Funding Group, Inc.) (1997, BC ND NY) 1997 Bankr LEXIS 2197) and (criticized in In re Bennett Funding Group, Inc.(1997, BC ND NY) 1997 Bankr LEXIS 2359) and (criticized in In re Marfin Ready Mix Corp.(1998, BC ED NY) 220 BR 148, 40 CBC2d 199) and (criticized in In re P.G. Realty Co. (1998, BC ED NY) 220 BR 773, 32 BCD 718) and (criticized in City of White Plains v A&S Galleria Real Estate, Inc.(In re Federated Dep't Stores, Inc.) (2000, BC SD Ohio) 243 BR 341, 43 CBC2d 906) and (superseded by statute on other grounds as stated in 229 Main St. Ltd. Pshp. V Department of Environmental Protection(In re 229 Main St. Ltd. Pshp.) (2000, DC Mass) 251 BR 186, 51 Envt Rep Cas 1188).
Primary purpose of stay is to afford debtors in Chapter 11 reorganizations opportunity to continue their businesses with their available assets. Small Business Admin. v Rinehart(1989, CA8 SD) 887 F2d 165, 19 BCD 1508, 21 CBC2d 917, CCH Bankr L Rptr P 73125 (criticized in In re Tillery(1995, BC WD Ark) 179 BR 576, 33 CBC2d 521).
Purpose of stay provisions of 11 USCS § 362, as regards Chapter 13 proceedings, is to allow trustee to have opportunity to inventory debtor's position before proceeding with administration of case and drafters intended § 362(a)(7) as mere stay of creditor's enforcement of setoff rights and not as evisceration of substantive rights to sell. In re Hammett(1983, ED Pa) 28 BR 1012, 9 CBC2d 98, CCH Bankr L Rptr P 69211, 83-1 USTC P 9336, 52 AFTR 2d 5394.
11 USCS § 362 requires that set of facts occurring prepetition and creating legal relationship be claim that must be stayed unless it is excepted in 11 USCS § 362(b); purpose of statute is to cover both those claims based upon fully accrued prepetition causes of action and those claims based on prepetition facts or relationships which may still be contingent or un-matured. Baldwin-United Corp. v Paine Webber(1985, SD Ohio) 57 BR 759, 14 BCD 374, 15 CBC2d 921.
Policy underlying 11 USCS § 362 as whole is to afford immediate relief to debtor from understandably importunate creditors, and also to prevent dissipation of debtor's remaining assets before orderly, equitable distribution to creditors may be effected. In re Compton Corp. (1988, ND Tex) 90 BR 798, app dismd (1989, Em Ct App) 889 F2d 1104 and (criticized in Minn. Corp. v First Alliance Mortg. Corp. (In re First Alliance Mortg. Corp.) (2001, CD Cal) 264 BR 634).
Automatic stay of 11 USCS § 362 is merely recognition of necessity for protection of estate from pending and additional actions by creditors to recover collateral or collect debts; orderly liquidation or rehabilitation is objective of such section, not dismemberment of assets of debtor. In re Feimster(1979, BC ND Ga) 3 BR 11, 6 BCD 131, 1 CBC2d 956.
In Chapter 11 context, purpose of automatic stay is not as end in itself but rather to facilitate reorganization; its function so far as secured creditors are concerned is to preserve their position, within equitable limits, during period between filing of case and confirmation of plan of reorganization. In re Mr. D Realty Co.(1983, BC SD Ohio) 27 BR 359.
One primary goal of automatic stay is to sort out creditors into order of priority untainted by post-petition jockeying for position; intended effect of stay, is to fix rights and priorities as of time of petition filing and to prohibit any further acts to advance those rights and priorities. In re Paul(1986, BC DC Mass) 67 BR 342.
Purpose of automatic stay is to preserve what remains of debtor's insolvent estate and to provide systematic equitable liquidation procedure for all creditors, thereby preventing chaotic and uncontrolled scramble for debtor's assets in variety of uncoordinated proceedings in different courts. In re Sparks(1995, BC ND Ill) 181 BR 341.
Manifest purpose of automatic stay provision is to act of debtor's shield from proceedings which may adversely affect its interest; this purpose will hardly be served by requiring indefinite suspension of debtor's attempt to be relieved of judgments with obvious effect of acting as debtor's sword against creditor's claims upon it. Shop in the Grove, Ltd. v Union Federal Sav. & Loan Asso.(1982, Fla App D3) 425 So 2d 1138.
Purpose of automatic stay provision is to prevent interference with debtor's property during involuntary bankruptcy proceeding. Bishop v Geno Designs, Inc.(1982, Tex App Tyler) 631 SW2d 581.
Subsection (a) defines the scope of the automatic stay, by listing the acts that are stayed by the commencement of the case. The commencement or continuation, including the issuance of process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the bankruptcy case is stayed under paragraph (1). The scope of this paragraph is broad. All proceedings are stayed, including arbitration, license revocation, administrative, and judicial proceedings. Proceedings in this sense encompasses civil actions as well, and all proceedings even if they are not before governmental tribunals.
The provision in this first paragraph prohibiting the issuance of process is designed to prevent the issuance of a writ of execution by a judgment creditor of the debtor to obtain property that was property of the debtor before the case, but that was transferred, subject to the judgment lien, before the case. Because the other paragraphs of this subsection refer only to property of the estate or property of the debtor, neither of which apply to this kind of transferred property, they would not prohibit pursuit of the transferred property by issuance of process. Thus, the prohibition in this paragraph is included and the judgment creditor is allowed to proceed by way of foreclosure against the property, but not by a general writ of execution (in the State court, or wherever the creditor obtained the judgment) against the debtor and all of the debtor's property.
The stay is not permanent. There is adequate provision for relief from the stay elsewhere in the section. However, it is important that the trustee have an opportunity to inventory the debtor's position before proceeding with the administration of the case. Undoubtedly the court will lift the stay for proceedings before specialized or nongovernmental tribunals to allow those proceedings to come to a conclusion. Any party desiring to enforce an order in such a proceeding would thereafter have to come before the bankruptcy court to collect assets. Nevertheless, it will often be more appropriate to permit proceedings to continue in their place of origin, when no great prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen forum and to relieve the bankruptcy court from many duties that may be handled elsewhere.
Paragraph (2) stays the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the bankruptcy case. Thus, execution and levy against the debtors' prepetition property are stayed, and attempts to collect a judgment from the debtor personally are stayed.
Paragraph (3) stays any act to obtain possession of property of the estate (that is, property of the debtor as of the date of the filing of the petition) or property from the estate (property over which the estate has control or possession). The purpose of this provision is to prevent dismemberment of the estate. Liquidation must proceed in an orderly fashion. Any distribution of property must be by the trustee after he has had an opportunity to familiarize himself with the various rights and interests involved and with the property available for distribution.
Paragraph (4) stays lien creation against property of the estate. Thus, taking possession to perfect a lien or obtaining court process is prohibited. To permit lien creation after bankruptcy would give certain creditors preferential treatment by making them secured instead of unsecured.
Paragraph (5) stays any act to create or enforce a lien against property of the debtor, that is, most property that is acquired after the date of the filing of the petition, property that is exempted, or property that does not pass to the estate, to the extent that the lien secures a prepetition claim. Again, to permit post-bankruptcy lien creation or enforcement would permit certain creditors to receive preferential treatment. It may also circumvent the debtors' discharge.
Paragraph (6) prevents creditors from attempting in any way to collect a prepetition debt. Creditors in consumer cases occasionally telephone debtors to encourage repayment in spite of bankruptcy. Inexperienced, frightened, or ill-counseled debtors may succumb to suggestions to repay notwithstanding their bankruptcy. This provision prevents evasion of the purpose of the bankruptcy laws by sophisticated creditors.
Paragraph (7) stays setoffs of mutual debts and credits between the debtor and creditors. As with all other paragraphs of subsection (a), this paragraph does not affect the right of creditors. It simply stays its enforcement pending an orderly examination of the debtor's and creditors' rights.
Subsection (b) lists five exceptions to the automatic stay. The effect of an exception is not to make the action immune from injunction. The court has ample other powers to stay actions not covered by the automatic stay. Section 105, of proposed title 11, derived from Bankruptcy Act § 2a(15), grants the power to issue orders necessary or appropriate to carry out the provisions of title 11. The bankruptcy courts are brought within the scope of the All Writs Statute, 28 U.S.C. 1651 (1970), and are given the powers of a court of law, equity, and admiralty (H.R. 8200, § 243(a), proposed 28 U.S.C. 1481).Stays or injunctions issued under these other sections will not be automatic upon the commencement of the case, but will be granted or issued under the usual rules for the issuance of injunctions. By excepting an act or action from the automatic stay, the bill simply requires that the trustee move the court into action, rather than requiring the stayed party to request relief from the stay. There are some actions, enumerated in the exceptions, that generally should not be stayed automatically upon the commencement of the case, for reasons of either policy or practicality. Thus, the court will have to determine on a case-by-case basis whether a particular action which may be harming the estate should be stayed.
With respect to stays issued under other powers, or the application of the automatic stay, to governmental actions, this section and the other sections mentioned are intended to be an express waiver of sovereign immunity of the Federal government, and an assertion of the bankruptcy power over State governments under the Supremacy Clause notwithstanding a State's sovereign immunity.
The first exception is of criminal proceedings against the debtor. The bankruptcy laws are not a haven for criminal offenders, but are designed to give relief from financial over-extension. Thus, criminal actions and proceedings may proceed in spite of bankruptcy.
Paragraph (2) excepts from the stay the collection of alimony, maintenance or support from property that is not property of the estate. This will include property acquired after the commencement of the case, exempted property, and property that does not pass to the estate. The automatic stay is one means of protecting the debtor's discharge. Alimony, maintenance and support obligations are excepted from discharge. Staying collection of them, when not to the detriment of other creditors (because the collection effort is against property that is not property of the estate), does not further that goal. Moreover, it could lead to hardship on the part of the protected spouse or children.
Paragraph (3) excepts any act to perfect an interest in property to the extent that the trustee's rights and powers are limited under section 546(a) of the bankruptcy code. That section permits post-petition perfection of certain liens to be effective against the trustee. If the act of perfection, such as filing, were stayed, the section would be nullified.
Paragraph (4) excepts commencement or continuation of actions and proceedings by governmental units to enforce police or regulatory powers. Thus, where a governmental unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay. Paragraph (5) makes clear that the exception extends to permit an injunction and enforcement of an injunction, and to permit the entry of a money judgment, but does not extend to permit enforcement of a money judgment. Since the assets of the debtor are in the possession and control of the bankruptcy court, and since they constitute a fund out of which all creditors are entitled to share, enforcement by a governmental unit of a money judgment would give it preferential treatment to the detriment of all other creditors.
Subsection (c) of section 362 specifies the duration of the automatic stay. Paragraph (1) terminates a stay of an act against property of the estate when the property ceases to be property of the estate, such as by sale, abandonment, or exemption. It does not terminate the stay against property of the debtor if the property leaves the estate and goes to the debtor. Paragraph (2) terminates the stay of any other act on the earliest of the time the case is closed, the time the case is dismissed, or the time a discharge is granted or denied (unless the debtor is a corporation or partnership in a chapter 7 case).
Subsection (c) governs automatic termination of the stay. Subsections (d) through (g) govern termination of the stay by the court on the request of a party in interest. Subsection (d) requires the court, on request of a party in interest, to grant relief from the stay, such as by terminating, annulling, modifying, or conditioning the stay, for cause. The lack of adequate protection of an interest in property of the party requesting relief from the stay is one cause for relief, but is not the only cause. As noted above, a desire to permit an action to proceed to completion in another tribunal may provide another cause. Other causes might include the lack of any connection with or interference with the pending bankruptcy case. For example, a divorce or child custody proceeding involving the debtor may bear no relation to the bankruptcy case. In that case, it should not be stayed. A probate proceeding in which the debtor is the executor or administrator of another's estate usually will not be related to the bankruptcy case, and should not be stayed. Generally, proceedings in which the debtor is a fiduciary, or involving post-petition activities of the debtor, need not be stayed because they bear no relationship to the purpose of the automatic stay, which is debtor protection from his creditors. The facts of each request will determine whether relief is appropriate under the circumstances.
Subsection (e) provides a protection for secured creditors that is not available under present law. The subsection sets a time certain within which the bankruptcy court must rule on the adequacy of protection provided of the secured creditor's interest. If the court does not rule within thirty (30) days from a request for relief from the stay, the stay is automatically terminated with respect to the property in question. In order to accommodate more complex cases, the subsection permits the court to make a preliminary ruling after a preliminary hearing. After a preliminary hearing, the court may continue the stay only if there is a reasonable likelihood that the party opposing relief from the stay will prevail at the final hearing. Because the stay is essentially an injunction, the three stages of the stay may be analogized to the three stages of an injunction. The filing of the petition which gives rise to the automatic stay is similar to a temporary restraining order. The preliminary hearing is similar to the hearing on a preliminary injunction, and the final hearing and order is similar to a permanent injunction. The main difference lies in which party must bring the issue before the court. While in the injunction setting, the party seeking the injunction must prosecute the action, in proceedings for relief from the automatic stay, the enjoined party must move. The difference does not, however, shift the burden of proof. Subsection (g) leaves that burden on the party opposing relief from the stay (that is, on the party seeking continuance of the injunction) on the issue of adequate protection.
At the expedited hearing under subsection (e), and at all hearings on relief from the stay, the only issue will be the claim of the creditor and the lack of adequate protection or existence of other cause for relief from the stay. This hearing will not be the appropriate time at which to bring in other issues, such as counterclaims against the creditor on largely unrelated matters. Those counterclaims are not to be handled in the summary fashion that the preliminary hearing under this provision will be. Rather, they will be the subject of more complete proceedings by the trustees to recover property of the estate or to object to the allowance of a claim.
Subsection (f) permits ex parte relief from the stay in situations in which irreparable damage might occur to the stayed party before there is opportunity for notice and a hearing under the usual procedure. The Rules of Bankruptcy Procedure will provide for a hearing soon after the issuance of any ex parte order under this subsection.
Reach of stay is intended to be quite broad, and therefore exceptions to stay should be read narrowly to secure broad grant of relief to debtor. In re Stringer(1988, CA9 Cal) 847 F2d 549, 17 BCD 1169, 19 CBC2d 233, CCH Bankr L Rptr P 72297.
The Automatic stay is fundamental to reorganization process and its scope is intended to be broad. Small Business Admin. v Rinehart (1989, CA8 SD) 887 F2d 165, 19 BCD 1508, 21 CBC2d 917, CCH Bankr L Rptr P 73125 (criticized inIn re Tillery(1995, BC WD Ark) 179 BR 576, 33 CBC2d 521).
11 USCS § 362 is extremely broad in scope and should apply to almost any type of formal or informal action against debtor or property of estate. Delpit v Commissioner(1994, CA9) 18 F3d 768, 94 CDOS 1745, 94 Daily Journal DAR 3125, 25 BCD 590, 30 CBC2d 1745, 94-1 USTC P 50127, 73 AFTR 2d 1409, 94 TNT 51-32 (criticized in Roberts v Commissioner(1999, CA11) 175 F3d 889, 99-1 USTC P 50511, 83 AFTR 2d 2282, 12 FLW Fed C 782) and (criticized in Spence v Brooks(2001, CA4 Va) 11 Fed Appx 175) and (criticized in Haag v United States(2007, CA1 Mass) 485 F3d 1, 2007-1 USTC P 50473, 99 AFTR 2d 1986).
The scope of automatic stay provisions is broad and applies to formal and informal proceedings against debtor; any action taken in violation of automatic stay is void. In re Smith(1988, WD Mich) 86 BR 92, affd in part and revd in part on other grounds (1989, CA6 Mich) 876 F2d 524, 19 BCD 1097, CCH Bankr L Rptr P 72936.
Legislative history reveals clear congressional intent that automatic stay be broadly enforced so as to preserve status quo as of petition date, insure orderly administration of bankruptcy estate, and prevent race among creditors. Pension Benefit Guar. Co. v LTV Corp.(In re Chateaugay Corp.) (1988, SD NY) 87 BR 779, 17 BCD 1089, 9 EBC 2209, affd (1989, CA2 NY) 875 F2d 1008, 19 BCD 913, 10 EBC 2425, 111 CCH LC P 11200, 16 FR Serv 3d 400, revd on other grounds, remanded (1990) 496 US 633, 110 S Ct 2668, 110 L Ed 2d 579, 20 BCD 1075, 22 CBC2d 1237, 12 EBC 1593, CCH Bankr L Rptr P 73423 and (Abrogated as stated in Cohen v JP Morgan Chase & Co.(2007, CA2 NY) 498 F3d 111).
Although scope of automatic stay is undeniably broad, it does not serve to stay all actions involving bankrupt party; rather, reach of automatic stay is limited by its purpose. Rett White Motor Sales Co. v Wells Fargo Bank (1989, ND Cal) 99 BR 12, CCH Bankr L Rptr P 72814.
Congress intended automatic protection afforded by automatic stay provisions of 11 USCS § 362 to be far reaching and to eliminate previously existing limited perimeters of Bankruptcy Code automatic stay; scope of protection under 11 USCS § 362 is broad and was designed to reach all proceedings, including license revocations, arbitrations, administrative and judicial proceedings, and its operation is no longer limited to civil action, but includes proceedings even if they are not before governmental tribunals. In re R. S. Pinellas Motel Partnership(1979, BC MD Fla) 2 BR 113, 5 BCD 1292, 1 CBC2d 349, CCH Bankr L Rptr P 67384, 53 ALR Fed 611.
Scope of automatic stay is broad and encompasses all proceedings, even those not before governmental tribunals. In re Elsinore Shore Associates (1986, BC DC NJ) 66 BR 723, 15 BCD 420, 15 CBC2d 1128, CCH Bankr L Rptr P 71553.
Automatic stay provision is very broad, and any exceptions to it must be strictly construed to further purposes of automatic stay. Gunther v Glabb(In re Glabb) (2001, BC WD Pa) 261 BR 170.
Chapter 7 debtors were entitled to recovery of their attorney's fees incurred in bringing motion for stay violation under 11 USCS § 362 by creditor's law firm, which was obligated to turn over funds garnished under Colo. R. Civ. P. 103 § 6(a)(1)to chapter 7 trustee under 11 USCS § 542(a), although debtors were not entitled to funds as cash collateral under 11 USCS § 363(a). In re Trujillo (2012, BC DC Colo) 485 BR 238.
Automatic stay provision is purposely broad in its reach so as to prevent dismemberment of debtor's estate in chaotic and uncontrolled scramble for debtor's assets in variety of uncoordinated proceedings in different courts. Stone v George F. Richardson, Inc.(1983) 169 Ga App 232, 312 SE2d 339 (ovrld in part on other grounds by State v Glover(2007) 281 Ga 633, 641 SE2d 543, 2007 Fulton County D R 488).
Automatic stay is broad in scope and applies in almost any type of action against debtor or property of estate; it stays collection efforts, harassment, and interference with debtor's assets. General Motors Acceptance Corp. v Yates Motor Co. (1981) 159 Ga App 215, 283 SE2d 74.
Automatic stay is critical protection of bankruptcy law and quite broad in its scope. Ramirez v Fuselier(In re Ramirez) (1995, BAP9 Cal) 183 BR 583, 95 CDOS 5397, 95 Daily Journal DAR 8390, CCH Bankr L Rptr P 76595, app dismd (1999, CA9 Cal) 201 F3d 444, reported in full (1999, CA9) 1999 US App LEXIS 26239.
CREDITOR STRATEGIES
Whether you represent creditors or debtors, it is valuable to know some basic strategies. With that said, I'll share with you what a more experienced debtor's counsel told me at a deposition in a complex chapter 11 case more than a decade ago. I was representing a secured creditor who had filed a motion for relief in order to foreclose on various parcels of real estate. Debtor's counsel told me (in his typical, threatening fashion) that I had "gone too far" in pressing my motion for relief. Well, I soon found out what he meant when the debtor filed a host of adversary proceedings against my client seeking to re-characterize the debt to equity and to otherwise subordinate our debt to other claimants. In the end, after years of protracted litigation, we obtained the property. But not without a fairly high cost in time and money.
So, the first thing to understand is what a moving creditor wants and whether there are other things which can be offered, in way of adequate protection or plan concessions (in a Chapter 11). Quite simply, if your case involves a personal debtor and you are dealing with consumer goods (be it a house, car, boat or other secured asset), the approach is simple. Is there something the debtor can offer to temporarily satisfy or placate the creditor? Is there equity in the asset? Can you offer a better alternative to foreclosure or repossession? Are there offensive maneuvers you can make if the creditor refuses to deal?
I am reminded of a small business case where I represented a small business owner (debtor) against a very aggressive creditor. The creditor took the position that the equipment contract (for the company's large manufacturing equipment) was a lease and under the Code, the debtor had to assume or reject and more importantly, had to get current if it wanted to retain the equipment. We took the position that the equipment contract was not a truelease (under the U.C.C.) but rather was a loan; a loan which could be crammed-down since the value of the equipment was far less than the outstanding balance due. We offered adequate protection, we offered additional cash collateral and we asked to re-write or modify the equipment contract. None of these offers were appealing to the zealous creditor. So, we filed an adversary proceeding to determine whether the equipment contract was a lease or a loan. We survived the creditor's motion to dismiss. Soon after that hearing, the creditor became remarkably receptive to a principal write down and adequate protection. Because of this, the company survived for several more years. The owner (who was an interesting character, had a Ph.D. And had a bush pilot's license) ultimately decided to close up shop and move to South America. Yet, knowing the right strategy to counter the motion for relief enabled him and his family to keep the business going, earn much needed money and divest themselves (legally) of debt-laden assets. The case converted to a 7, he received a discharge and I'd like to think he's happily flying a cargo plane over Brazilian skies.
Creditors typically take definite and predictable paths with motions for relief depending on the case chapter and how intricate the relationship between the debtor and creditor is.
In a consumer chapter 7 case with a bank mortgagee, there's usually little negation or creativity. The bank will seek relief almost immediately and just seek the return of its collateral.
In a chapter 13, if the creditor is a mortgagee, it will typically seek relief for any post-petition default such as delinquent post payments, unpaid real estate taxes or lack of insurance.
In a business case, usually a chapter 11 if a motion for relief is involved, there are a myriad of creditor approaches. Chapter 11 is beyond the scope of this discussion. However, it is wise to determine how aggressive, if you are representing a creditor, you can and want to be. While being aggressive is usually a smart move, you want to be careful not to "go too far". For example, in a chapter 11 case I am involved with now, I represent a creditor which holds a first mortgage on several rental properties. We are incredibly over-secured. Under § 506(b), the over-secured creditor is entitled to post-petition interest on their claim until payment of their claim or until the effective date of the plan. Rake v. Wade[508 U.S. 464], 113 S.Ct. 2187, 2190 [124 L.Ed.2d 424] (1993); In re Laguna, 944 F.2d 542, 544 (9th Cir.1991), cert. denied [503 U.S. 966], 112 S.Ct. 1577 [118 L.Ed.2d 219] (1992). The U.S. Supreme Court has held that the language of § 506(b) entitles holders of both consensual and nonconsensual over-secured claims to post-petition interest on their claim. U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235 [109 S.Ct. 1026, 103 L.Ed.2d 290] (1989). So, being over-secured means, in essence, that the creditor will eventually be paid in full. While my aggressive creditor client wants to foreclose and have its outstanding loan paid in full as soon as possible, there aren't any good grounds right now to file a motion for relief. Instead, we struck a very favorable post-petition interest rate for cash collateral payments and the debtor is either going to sell some or all of the properties or refinance. If that does not occur within the next six (6) months, we will likely move for relief then but until now we are being paid at 12% and will, in the context of either a Proof of Claim, §363 sale motion or an In re Tillmotion, seek repayment based upon the post-petition, default rate of 25%. And since we are over-secured, we are likely to win. And given that the debtor is currently paying us at 12% (with the other 13% accruing), it has a real incentive to sell or refinance quickly.
So, from a strategy standpoint, knowing one's relative position is critical. In this same case, the debtor is filing an adversary against the second position mortgagee claiming usury and taking aim at the perfection of the mortgage. By working with the debtor when advantageous and prudent, we avoid pushing the debtor into a corner, where they will most likely come out swinging.
DETERMINING VIOLATIONS
In re: A & J Auto Sales, Inc., d/b/a Wise Auto Sales, Debtor; A & J Auto Sales, Inc., d/b/a Wise Auto Sales v. United States of America, Civil No. 97-294-SD, 223 B.R. 839. In this bankruptcy appeal, appellant A & J Auto Sales, Inc., d/b/a Wise Auto Sales (A & J), seeks review of the bankruptcy court's order finding that the Internal Revenue Service (IRS) willfully violated the automatic stay, but declining to award damages for civil contempt under 11 U.S.C. § 105. The IRS cross-appeals, arguing that the bankruptcy court erred by finding the IRS willfully violated the automatic stay. This appeal raises three issues of unsettled law; i.e., the proper standard for determining whether a violation of the automatic stay is willful, whether corporations can recover damages pursuant to 11 U.S.C. § 362(h), and whether the court can award damages for a violation of the automatic stay pursuant to 11 U.S.C. § 105.
The court must first determine whether the IRS violated the automatic stay at all. The Bankruptcy Code provides that filing [**5] a bankruptcy pe-tition "operates as a stay, applicable to all entities, of . . . any action to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. § 362(a)(3). The bankruptcy court found that "the IRS's actions in removing the cars from the Debtor's premises and retaining them postpetition were actions to obtain possession of property of the estate or to exercise control over property of the estate.'" A & J Auto Sales, Inc., v. United States (In re A & J Auto Sales), 210 B.R. 667, 670 (Bankr. D.N.H. 1997). The IRS, however, argues that the seizure was completed prepetition when it served the debtor with notice of seizure and tagged the vehicles. And "the removal of vehicles from the lot after a valid prepetition seizure does not constitute a violation of the automatic stay." Appellee's Brief on Cross-Appeal and Reply [*842] to Appellant's Brief on Appeal (Appellee's Brief) at 15.
As an initial matter, the court notes that the vehicles remained property of the bankruptcy estate even after the IRS seized them. See Appellee's Brief at 17. Property of the estate is defined broadly to include any property to which the estate has some right. See 11 U.S.C. § 541; United States v. Whiting Pools, Inc., 462 U.S. 198, 204, 76 L. Ed. 2d 515, 103 S. Ct. 2309 (1983) ("Congress intended a broad range of property to be included in the estate"). Thus the United States Supreme Court has held that a "reorganization estate includes property of the debtor that has been seized by a creditor prior to the filing of a petition for reorganization . . . ." Whiting Pools, supra, 462 U.S. at 209. "The creditor with a secured interest in property included in the estate must look to [the Bankruptcy Code] for protection, rather than to the nonbankruptcy remedy of possession." Id. at 204. "The Bankruptcy Code provides secured creditors various rights, including the rights to adequate protection, and these rights replace the protection afforded by possession." Id. at 207. Furthermore, "the [IRS]'s in-terest in seized property is its lien on that property." Id. at 210. Thus the debtor retains an interest in property that has been seized by the IRS, making it property of the estate.
STAY'S AFFECT ON THE STATUTE OF LIMITATIONS
Bankruptcy Code § 108(c), among other things, extends state statutes of limitation on
claims by creditors who are prevented by the automatic stay from taking timely action to assert
those claims. The statute reads, in pertinent part as follows: [I]f applicable nonbankruptcy law ... fixes a period for commencing or continuing a civil
action in a court other than a bankruptcy court on a claim against the debtor, ... and such
period has not expired before the date of the filing of the petition, then such period does not
expire until the later of--
(1) the end of such period, including any suspension of such period occurring on or after
the commencement of the case; or
(2) 30 days after notice of the termination or expiration of the stay under section 362 ... of
this title ... with respect to such claim. Recognizing that a petition in bankruptcy could sometimes give a debtor unfair advantage
over a claimant by allowing the debtor to remain under the protection of the automatic stay
until the limitation period governing the claimant's action had expired, see Meyer v.
Cunningham, 196 Ark. 1097, 121 S.W.2d 90 (1938) (party's claim barred by the statute of
limitations even though limitation period ran during time that automatic stay prohibited
PARTY FROM BRINGING THE ACTION); AMERICAN WOOLEN CO. V. SAMUELSON, 226 N.Y. 61, 123
N.E. 154 (1919) (SAME) CONGRESS ACTED TO SOLIDLY PRESERVE THE RIGHTS OF A PARTY "STAYED FROM
COMMENCING OR CONTINUING AN ACTION AGAINST THE DEBTOR BECAUSE OF THE BANKRUPTCY CASE".
S.R.REP. NO. 95-989, 95TH CONG., 2D SESS. 30 (1978); H.R. NO. 95-595, 95TH CONG., 2D
SESS. 318 (1978), U.S.CODE CONG. & ADMIN. NEWS 1978, P. 5787. IT DID SO BY EXTENDING
THE PERIOD FOR "COMMENCING OR CONTINUING A CIVIL ACTION" AGAINST THE DEBTOR TO, AT A
MINIMUM, 30 DAYS AFTER TERMINATION OR EXPIRATION OF THE AUTOMATIC STAY. 11 U.S.C. § 108(C). MORTON V. BANK OF NEW YORK CITY (IN RE MORTON), 866 F.2D 561, 566 -67 (2D CIR. 1989) (EMPHASIS
ADDED). SEE ALSO SHAMUS HOLDINGS, 642 F.3D AT 266-67.
Nuts and Bolts of Bankruptcy Law 6/16/2014 - Manchester, NH
INTRODUCTION TO THE BANKRUPTCY CODE AND RULES
Various Bankruptcy Proceedings
CONDUCTING THE INITIAL CLIENT INTERVIEW
Bankruptcy Alternatives
How to Conduct and Analyze Intake Interviews
Must-Ask Questions in Follow-Up Interviews
Rules for Setting Up Retainer Agreements
Creating Correspondence Faster
Helping Your Client Determine Which Chapter to File
Clarifying Key Differences Between Chapters for Clients
THE BASICS OF CHAPTER 7 AND THE MEANS TEST
Information to Obtain From Debtors
The Means Test
Exempt vs. Non-Exempt Property
When to File Petition and Related Documents
The Trustee's Role
Automatic Stay
What to Expect From Creditors' Meetings
Spot Problems When Liquidating Remaining Assets
Control Distribution to Creditors and Discharge of Bankruptcy
THE BASICS OF CHAPTER 13
Compare and Contrast Chapter 13 and Chapter 7
Automatic Stay Provisions
The Trustee's Role as Administrator
Tips for Creating and Filing Repayment Plans
Easy Ways to Establish Priority of Claims
Avoid Mistakes When Confirming or Rejecting Plans
When Conversion to Chapter 7 is Applicable
Enforce and Modify Plans
Uncover Broader Discharge Options
ENSURING ETHICAL CONDUCT
Specific Provisions of the Bankruptcy Code on Ethics
Sanctions in Bankruptcy Proceedings
Ethics of Conflicts of Interest
BANKRUPTCY FORMS AND FILING PROCESS
Choose the Right Forms (Sample Forms Included)
What Schedules to File
Checklist of Filing Procedures
Do's and Don'ts When Filing Petitions
Pros and Cons of Electronic Filing
AUTOMATIC STAY LITIGATION IN A NUTSHELL
The Real Purpose of the Automatic Stay
Creditors Strategies for Terminating or Obtaining Relief From the Stay.
Determine Violations of the Stay
How the Stay Affects the Statutes of Limitation
Helpful Sample Forms
This basic level programis designed for professionals who want to learn the fundamentals of bankruptcy law and to maximize every opportunity during the filing process for alleviating debts. Those who should attend include:
Title Blurb
Adhere to the BAPCPA rules when helping clients effectively manage their financial obligations.
Give Clients Proper Debt Relief
Are you prepared to handle consumer bankruptcy claims? A solid understanding of fundamental bankruptcy law and procedures is essential to your confidence and effectiveness as a bankruptcy practitioner. With our practical program you will learn the technical skills needed to provide immediate protection to clients and help them establish a financially stable future. Enroll today!
Gain the fundamentals of various bankruptcy chapters and their subsequent procedures of filing and litigation.
Properly apply the means test and know the exemptions that are permitted.
Safeguard against potential liability with an understanding of the duties for debtor's counsel and rules governing bankruptcy petition preparers.
Create Chapter 13 repayment plans that satisfy creditors and get your clients back on track faster.
Determine when converting a Chapter 13 to a Chapter 7 is permitted - and learn the process.
Maximize client interviews: learn how to conduct and analyze intake interviews and identify must-ask follow-up questions.
Foreclosure and Loan Workout Procedures - March 18, 2014 - Manchester, NH - William J. Amann, Esq.
Curing Title Problems Prior to Commencing the Action
The familiar phrase, "Look before you leap" is, as it is in many situations, great advice in the foreclosure process as well. This may seem fundamental, however to most foreclosing mortgagees, time is money and so waiting to resolve what might appear as minor or technical title defects, let alone the additional expenses, is not a welcome issue. One of the first steps in any foreclosure is to order a title examination. The overall objective is to review instruments in the chain of title which demonstrates a reasonable probability of full title with no suggestion of substantive defects or matters that may warrant additional search or inquiry. SeeNH Title Standard 2-1. A title examination should, at a minimum, cover a period of thirty-five (35) years from a warranty deed. SeeNH Title Standard 2-2. If your chain of title does not include a warranty deed, NH Title Standard 2-3 suggests a fifty (50) year search from a quitclaim deed, a mortgage deed (if it was subsequently and properly foreclosed) or a fiduciary deed. And if your chain of title does not include any of the above-referenced instruments…lucky you; Title Standard 2-4 suggests an eighty-five (85) year search. Title examination costs and timeframes vary. Usually, an online search can be done for about $75 for an owner plus one search and can be accomplished within a couple of days but if someone is required to physically go to the registry of deeds, the cost is usually closer to $200.
The most common title issues most practioners encounter are a missing assignment to the foreclosing entity, seegenerallyDow v. Bank of NY Mellon Trust Co., 2012 Super. LEXIS 52 (Feb. 2012) or a missing homestead release (SeeNH Title Standard 5-2); Seealso, In re Schalebaum, 273 BR 1 (Bankr. D.N.H. 2001) and Stewart v. Bader, 154 NH 75 (2006). The standard FNMA mortgage includes a homestead waiver clause and that is why it is standard practice to have a spouse, even if not signing the promissory note, execute the mortgage to release his or her statutory homestead rights. If this is not done, a non-signing spouse can assert their statutory homestead rights as a defense to a foreclosure. This defense often takes the form of litigation. Nearly all residential mortgages held by lending institutions were issued along with a title insurance policy (lender). The good news is that the foreclosing mortgagee is usually covered by the title policy but this involves making a title claim which delays the foreclosure process. Proceeding with the foreclosure with unresolved homestead issues will result in a foreclosure on the signing spouse subject to the non-signing spouse's homestead rights. Depending on the value of the collateral and the total debt, this may not pose a problem (if there's equity above and beyond the homestead, the mortgagee can foreclose and tender the surplus of $100,000-the statutory homestead amount, to the non-signing spouse). However, as you can imagine this situation is increasingly rare with declining or flat home prices and will almost certainly require a quiet title petition to resolve title properly.
While a fair reading of the Dowcase seems to suggest that servicers or nominees, such as MERS, may foreclose on behalf of the holder of the note or mortgage (seeDow at p. 21 for a discussion on the concept of the necessity for the unity of the note and mortgage), no prudent mortgagee, in my opinion, would want to be overly susceptible to litigation on the issue in the form of an injunction petition due to the inherent cost, time and risk. Therefore, my humble suggestion is to have an assignment recorded into the holder of the note and mortgage (hopefully one and the same entity) who is going to initiate the foreclosure, before any foreclosure action (including demand and acceleration) is taken. This is the standard of practice in Massachusetts for example, that has evolved through a series of cases within the last several years. SeeUS Bank N.A. v. Ibanez, 458 Mass. 637 (2007) and Bevilacqua v. Rodriguez, SJC-10880 (SJC 2011). If, for whatever reason, this cannot be accomplished, I think it is imperative in New Hampshire, to be sure that any agent capacity, such as a servicer, is clearly delineated and that the named principal is in fact the holder of the note and mortgage. This should be done as early as possible in the foreclosure process. Seealsoand generally, Baril v. JP Morgan Chase Bank, NA, 2011 NH Super. LEXIS 48, July 20, 2011; Newitt v. Wells Fargo Bank, NA, 2011 NH Super. LEXIS 60, July 14, 2011 and Powers v. Aurora Loan Servs., 2011 NH Super. LEXIS 50, February 14, 2011.
B. Foreclosure Timeline
The truth is, you can hold a foreclosure sale in the Granite state within sixty (60) days. New Hampshire is a "non-judicial" process which simply means that a foreclosing mortgagee does not need to commence any legal action to foreclose its interest. With that freedom comes the requirement that a foreclosing mortgagee must strictly comply with the statutory foreclosure scheme (RSA 479:25, 26 and 27) assuming of course that the subject mortgage contains and grants to it the statutory power of sale. Most institutional mortgagees send the mortgagor(s) the necessary demand and acceleration letters before sending the file to foreclosure counsel. Therefore, your first job when receiving a file is to assemble all of the loan documents and correspondence and to review it for compliance with any notice requirements.
Once you are ready to send the notice of sale, keep in mind that the mortgagor is entitled to at least twenty-five (25) days' notice prior to the foreclosure date. RSA 479:25, II. I do not count the day of the sale. Lienholders are entitled to twenty-one (21) days' notice and the IRS, if there is a lien, gets twenty-five (25) days' notice. All notices should be sent first-class mail and registered, return receipt requested. Take care to keep meticulous records; I always include the USPO "Z" # on any certified mail correspondence in order to match the receipt with the corresponding letter. In essence, I do a certificate of service on notices of sale so that subsequently I can easily establish who got notice and when. The notice of sale must also be published in a newspaper of general circulation within the town or county where the property is situated at least three (3) times (21 days) prior to the sale. It is advisable to publish thirty (30) days ahead of the sale in case there are errors in the notice of sale that need to be corrected immediately. My practice, whenever possible, is to give any person or entity of record with an interest on title, thirty (30) days notice of the sale. By doing this, you'll meet all of the deadlines with room to spare. Below is a sample foreclosure checklist. In keeping with the, "look before you leap" theme, it's a good idea to choose your foreclosure date first and work backwards and adjust timelines and notices appropriately.
I. Pre – Sale
1) File Review, environmental site assessment?:
2) Demand Letter to Borrower & Guarantor:
3) Request Title Search (Owner + 1) & UCC Search:
4) Review Title Search (Title Claim? Y or N):
5) Determine FINO:
6) Request Appraisal or BPO:
7) Engage Auctioneer:
8) Set Foreclosure Date:
II. Notice of Sale (Calendar Sales Dates & All Interim Dates)
9) 29 Day Title Rundown Needed?:
10) Prepare Notice of Sale ("NOS"):
11) Send NOS to Auctioneer:
12) Send NOS to Mortgagor (26 days) R-R-R:
13) Send NOS to IRS (if applicable) (26 days) R-R-R:
14) Send NOS to Lien Holders (22 days):
15) Write Down NOS Publication Dates:
16) Determine any Real Estate or Condo Taxes / Dues:
17) Prepare Memorandumof Sale:
18) Establish Bidding Procedure:
19) Date of Sale (Check BK):
III. Post – Sale: Record Foreclosure Deed within 60 Days of Sale
20) Report Sale Results to Client:
21) Prepare Foreclosure Deed & Affidavit
Prepare DRA Forms
C. Demand Letter
Demand letters or acceleration of debt letters need not be elaborate but they must comply with the loan documents. It is preferable that the mortgagee itself send any correspondence that contains dollar figures or could be construed as debt collection. SeeLeDoux v. JP Morgan Chase, NA, 2012 DNH 194 (2012); Marley v. Bank of America, et al, No. 10-10885-GAO (D. Mass. 2012); Beadle v. Haughey, 2005 DNH 16 (2005). If you or your firm do undertake debt collection activities, bear in mind that the federal (15 U.S.C. § 1601) and corresponding state Debt Collection Practices Acts contain strict requirements regarding notices and disclaimers that must be sent to debtors and a recitation of "mini-Miranda" language if a debtor telephones your office. My practice has always been to avoid being a debt collector and instead focus on conducting a valid foreclosure sale; this is not always easy as debtors will sometimes contact you asking for reinstatement amounts. When that occurs, I notify my mortgagee client and ask them to send reinstatement figures directly to the mortgagor with a copy to me or send the reinstatement to the debtor on the mortgagee's letterhead.
D. The Foreclosure Action - Lis Pendens, Parties Named, Summons, Complaint
ALis Pendens is notice of a pending action, which gets recorded in the appropriate registry of deeds. Doing so without a court order is not a good idea. In Massachusetts for example, it is statutorily required to get a court order before recording a lis pendens. The standard required to record is simply having a colorable interest in the land; it is neither a lien nor an attachment. Furthermore, if you do so without a court order you run the risk of being sued for slander of title and/or having the notice stricken as invalid. SeeTopjian Plumbing & Heating v. Bruce Topjian, Inc., 129 NH 481 (1987) and RSA 511-A:8, III. If you are more concerned that the debtor may attempt to avoid the foreclosure by conveying the real property and perhaps valuable personal property, prior to sale (although the conveyance would still be subject to a properly recorded mortgage) then consider filing an ex partepetition for an attachment. If you hold the foreclosure and determine that property was already sold, the purchaser will have taken it subject to your mortgage, assuming it was duly recorded. Nonetheless, you'll also likely have solid grounds to unwind the sale by bringing a fraudulent transfer suit under RSA 545-A.
To use the phrase "foreclosure action" is a misnomer in New Hampshire since foreclosures are non-judicial.
E. Foreclosure/Sheriff's Sale - Notice Requirements, Bidding Process, Closing, Etc.
Title LIV (Executions, Levies, Bail and the Relief of Poor Debtors) is where you will find the law governing Sheriff's Sales. Sheriff's sales of personal property are governed by RSA 528 and of real estate by RSA 529. Since this course is geared towards real property, we'll focus on RSA 529. First, in order to conduct a 529 sale, you need to have a judgment. See RSA 529:1, which sates that such sales are authorized on, "All real estate, except the homestead right, may be taken on execution, and may be appraised and set off to the creditor at its just value in satisfaction of the execution and the cost of levying, except in cases where a sale of it is authorized by RSA 529:19." Also keep in mind sales are subject to homestead rights, seeRSA 480:4. Three appraisers must be appointed as well pursuant to RSA 529:2 and 529:3. If the real estate is jointly owned, the sale will only affect the debtor's interest. SeeRSA 529:8. If the property generates rent, a sale also attaches to the rent and tenants can be made to attorn to the creditor, failing which the tenant can be evicted. SeeRSA 529:11. The debtor has a one (1) year right of redemption, this is sometimes referred to as "clogging the equity" because a purchaser of the real estate, from a practical matter, cannot re-convey or improve the property within that time without the risk of the debtor redeeming the real estate. SeeRSA 529:19 and RSA 529:26. RSA 529:14 reads, "The extent shall be void if, within one year from the return day of the execution, the debtor shall pay or tender to the creditor the sum at which the real estate was set off, and all reasonable sums paid by him for taxes, insurance, repairs and improving the estate, with interest thereon from the times of levy and payments respectively, less the rents and profits received, or which might have been received, by him and with which he is justly chargeable." Notice of the sale is different than under the power of sale, in short, debtors are entitled to thirty (30) days' notice under RSA 529:20, 21 and the notice must be given to the debtor at his abode and posted at two (2) of the most public places in town. The creditor must advise the debtor of his homestead rights under RSA 529:20-a. Sheriff's sales are completed by a deed pursuant to RSA 529:23.
F. Pursuit of Guarantors
1.Before Foreclosure Sale?
A guaranty is a contract and is interpreted by courts as one. SeeFleet Bank of NH v. Christy's Table, 141 NH 285 (1996); Glick v. Chocura Forestlands Ltd P'ship, 157 NH 240 (2008) and Durgin v. Pillsbury Lake Water Dist., 153 NH 818 (2006). As a guaranty may be the primary factor in resolving the defaulted debt, one of the first questions in any loan default situation should be as follows: "Is there a guarantor for this loan?" If there indeed is, then the following issues should be addressed in workout or default situations.
a) Contract
As a guaranty is a contract under New Hampshire law, it is interpreted as such. See, Fleet Bank – NH v. Christy's Table, Inc., 141 N.H. 285, 287 (1996). Thus, Courts will look to whether there was a meeting of the minds or adequate consideration. A meeting of the minds is usually evidenced by the execution of the guaranty itself or the making of the loan. Thus, the vast majority of litigation centers upon the issue of adequate consideration, with a focus upon the lender's actions regarding the collateral securing the loan.
b) Language of the Guaranty
Should a Court find that a contract of guaranty exists, it will then review its language in order to determine the parties' intent, which is a question of law. See, BankEast v. Michalenoick, 138 N.H. 367, 369 (1994).
The parties' intent is determined from reviewing the contract as a whole, attributing to its language the common meaning of the words and phrases used by the parties. Id.
It is important to note that the guaranty's language often significantly limits the guarantor's defenses and provides the lender with a great deal of flexibility concerning the resolution of the matter.
c) Common Law Defenses
i. Good Faith and Due Diligence
New Hampshire law provides that a foreclosing mortgagee or lender has an obligation of good faith and due diligence that is basically that of a fiduciary. See, Murphy v. Financial Development Corp., 126 N.H. 536, 541 (1985). It should be noted that this duty extends to both the borrower / mortgagor and as well as to the guarantor. See, First NH Mortgage Corp. v. Greene, 139 N.H. 321, 323 (1995).
ii. Commercial Reasonableness
New Hampshire Courts have held that lenders have a duty to be commercially reasonable when liquidating collateral, securing the loan and in not impairing the guarantor's position.
iii. Waivers of Lender Liability
While many guarantees provide for waivers of the lender's liability regarding the handling of collateral, modification of the underlying debt or extension of terms and conditions, they may not be enforced where a lender affirmatively breaches its duties under Murphy v. Financial Development Corp., 126 NH 536 (1985).
iv. Statute of Limitations
In order to determine when the statue of limitations first begins to run, one should look to the note's and guarantee's language. Most guarantees are guarantees of the payment of the note, so if a payment is missed, the lender may make demand under the guarantee. However, some guarantees serve to guaranty only the collection of the money due under the note; in these cases, the statute does not begin to run until the lender cannot collect what is due under the notes.
Thus, one of the initial terms to review is whether a note has been accelerated by the borrower's failure to make a payment.
d) Uniform Commercial Code Defenses
i. Uniform Commercial Code
A number of defenses become available to a guarantor under the Uniform Commercial Code. That being said, the guaranty must first be subject to the provisions of the Uniform Commercial Code; in order to be so, the guaranty must be a negotiable instrument. See, Prime Financial Group, Inc. v. Smith, 137 N.H. 74, 76 (1993). In order to be considered a negotiable instrument, a guaranty must include, amongst other things, an "unconditional promise to pay a sum certain in money on demand or at a definite time. See, RSA 382-A: 3-104.
ii. Accommodation Party
When a guarantor is deemed to be an accommodation party (see, Cole v. Hobson, citing RSA 382-A: 3-419), a number of defenses become available, which include those provided under RSA 382-A: 3-605, which include, but are not limited to, losses suffered by the guarantor due to an extension of the due date of the note, a material modification of the note or the impairment of the collateral securing the note.
RSA 382-A: 3-419 defines an accommodation party as one who "signs the instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for [it]." There is a presumption that a party is an accommodation party if their signature is accompanied by words indicating that they are signing as a guarantor.
II. Lender Liability Issues & Workout
A. Circumstances with Most Risk of Lender Liability
Lender liability is the term used to describe the range of possible claims that may arise out of the loan relationship that borrowers may assert against lenders.
When Counsel is in the process of evaluating a lender's position, they should be aware of the broad categories of such claims as listed below.
B. Breach of Oral Agreement
In considering a lender's conduct, Counsel should look to see whether the lender has made oral representations to the borrower which go beyond the terms of the loan documents.
C. Breach of Contract
In considering a lender's conduct, Counsel should look to see whether the lender followed the terms and conditions of the contract between the parties.
D. Breach of Obligation of Good Faith and Fair Dealing
For more information on this issue, seeCentronics Corp., v. Genicom Corp., 132 NH 133 (1989); Griswold v. Heat, Inc., 108 N.H. 119 (1967) and Seaward Construction Company v. City of Rochester., 118 N.H. 128 (1978). Under an agreement that appears by word or silence to invest one party with a degree of discretion in performance sufficient to deprive another party of a substantial proportion of the agreement's value, the parties' intent to be bound by an enforceable contract raises an implied obligation of good faith to observe reasonable limits in exercising that discretion, consistent with the parties' purpose or purposes in contracting. A claim for relief from a violation of the implied covenant of good faith contractual performance potentially raises four questions: (1) Does agreement ostensibly give defendant a degree of discretion in performance tantamount to a power to deprive the plaintiff of a substantial proportion of the agreement's value? (2) If ostensible discretion is of that requisite scope, does competent evidence indicate that parties intended by their agreement to make a legally enforceable contract? (3) Assuming an intent to be bound, has the defendant's exercise of discretion exceeded the limits of reasonableness? (4) Is the cause of the damage complained of defendant's abuse of discretion, or does it result from events beyond the control of either party, against which the defendant has no obligation to protect the plaintiff?
E. Fraud
Also known as intentional misrepresentation, this requires materially false representation of fact or intention, expectation of reliance by the lender and reasonable reliance by the borrower thereon to their detriment.
F. Negligent Misrepresentation
This requires negligent misrepresentation of material fact by the lender, as well as reasonable reliance by the borrower thereon to their detriment. See, Ingaharro v. Blanchette, 122 N.H. 54, 57 (1982).
G. Best Practices for Avoiding Lender Liability
Counsel should advise their lender clients, they should make them aware of the above as well as ensure that its practices are within the range of normal lending practices in the particular jurisdiction. SeegenerallyBarrows v. Boles, 141 NH 382 (1996); McCabe v. Arcidy, 138 NH 20 (1993).
H.Working it Out-Sort of
Workouts - The Various Tools in the Toolbox for Working Out Troubled Real Estate Loans
a) Pre-Negotiation: Any smart negotiation starts with knowing what your position is relative to your opponent's position. So, knowledge is power. It's also important to know what perceptions are involved in your relationship. In other words, what your opponent thinks it knows, correct or not, is just as important as what it actually does know. Before you get into negotiating terms, I always define what each of the parties' goals is and are there alternative ways to get there? I think these concepts are fundamental and obvious to anyone who's negotiated at all quite frankly. Putting strategy theories aside, pre-negotiation starts with defining the parameters of the discussion: What's at stake? What are each of our respective strengths and weaknesses? What are the costs, financial and non-financial, involved? What are the risks to each side in not negotiating and just fighting? So, before you negotiate, I think you have to review your documents, know the applicable law, know your objectives and chances of getting there and then you can start communicating with your opponent.
b Forbearance: Forbearance often makes sense but only if there are definable, measurable milestones that the parties agree must occur to keep the forbearance in place. In other words, perhaps continuing payments is a condition that must be met, or insurance be maintained or the right to inspect accounts and property. I view forbearance as a cease fire and an opportunity to maintain the status quo with a plan to resolve the underlying problems. A standard forbearance agreement recites facts and the debt, usually includes mutual representations and warranties to each party and then proceeds to set out a payment schedule and language that preserves each other's rights. Defining terms of default and that strict compliance is commonplace. I tend to like specific language and terms over phrases that are more susceptible to interpretation. Of course it depends on your client's position. However, instead of defining a term as "30 days after X", I try to use specific dates. If a payment is required on a date certain, state that time is of the essence and require certified funds or a wire transfer. Be detailed and specific and preserve your client's rights in the event the forbearance doesn't work.
c) Deed in Lieu of Foreclosure: I am not a fan of DIL's mainly because they can be voided in a subsequent bankruptcy and they don't extinguish junior liens. If you must pursue a DIL, I recommend being aware of tax ramifications if you represent the Debtor and securing a vacant property if representing a creditor. Again, I shy away from DIL's but understand the desire, on both sides, to dispense with foreclosure and convey the property to avoid that or in exchange for a deficiency waiver.
d) Loan Modifications: Be prepared for a long, frustrating process. My experience with loan modifications is that the banks (typically) are slow, rigid and uncreative and misplace much of what is submitted to them for review. Again, if you're going to seriously pursue a loan modification, I think you must know under what program your client is trying to qualify. Is it HAMP? HOPE? HARP? A successful loan modification, at least for residential real estate, could yield better results than bankruptcy but again, I think it's imperative to know your client's position relative to the creditor (or vice-a-versa) and what the best alternatives are in the absence of modification.
e)Discounted Payoffs: Sometimes a return ofprincipal is better than a return onprincipal. I haven't seen a creditor accepting a discounted payoff other than in a short-sale where accepting a third-party sale at a price less than the payoff is a better option than foreclosing.
I.Post-foreclosure and Eviction
a) Eviction and Ejectment
b) Eviction Procedures and Issues
The eviction process in New Hampshire is governed by RSA 540. The procedure is initiated by serving a thirty (30) day notice to quit upon each adult occupant (RSA 540:3). For this reason, it is very important that the name of each adult occupant is known; therefore, at the time of the foreclosure sale, an effort should be made to ascertain the name of each adult occupant of the premises.
If the occupant fails to quit the premises on or before the "Quit Date" set forth in the notice, then it becomes necessary to have a Sheriff serve the occupant with a Landlord/Tenant Writ which shall assert that the occupant is in possession of the premises without right (RSA 540:13). This writ is returnable approximately two (2) weeks after being forwarded to the Sheriff for service; the occupant must be served at least seven (7) days before the return date. If either the occupant, or an attorney on his/her behalf responds by filing an Appearance on or before the return date, the matter will be scheduled for a hearing within
approximately two (2) weeks. Should the owner prevail at the contested hearing, it shall be entitled to a Writ of Possession unless the occupant, within seven (7) days of the date of the notice of judgment, files a Notice of Intent to Appeal to the Supreme Court (RSA 540:20). If a Notice of Intent to Appeal is not timely filed, the Writ of Possession is served by the Sheriff and typically within three or four (3 or 4) days of service, possession is recovered.
If a tenant leaves personal property behind after vacating the premises, the owner must reasonably store such personal property for seven (7) days. After seven (7) days, the owner may dispose of such personal property without notice to the occupant. (RSA 540:A:3 VII). This used to be twenty-eight (28) days.
c)Ejectment Procedures and Issues
d) Liability for Code Violations, Taxes, Homeowner Dues, Etc.
TITLE LV
PROCEEDINGS IN SPECIAL CASESCHAPTER 540-A
PROHIBITED PRACTICES AND SECURITY DEPOSITSProhibited PracticesSection 540-A:1 540-A:1 Definitions. – As used in this subdivision:
I. "Landlord'' means an owner, lessor or agent thereof who rents or leases residential premises including manufactured housing or space in a manufactured housing park to another person.
II. "Tenant'' means a person to whom a landlord rents or leases residential premises, including manufactured housing or a space in a manufactured housing park.
III. "Premises'' means the part of the landlord's property to which the tenant is entitled exclusive access for living or storage as a result of the rental or lease agreement.
Source. 1979, 305:1. 1985, 100:3, eff. July 9, 1985.
Section 540-A:2 540-A:2 General Prohibition. – No landlord shall willfully violate a tenant's right to quiet enjoyment of his tenancy or attempt to circumvent lawful procedures for eviction pursuant to RSA 540. No tenant shall willfully damage the property of the landlord or prevent completion of necessary repairs or willfully deny tenants their right to quiet enjoyment of their tenancies.
Source. 1979, 305:1, eff. Aug. 21, 1979.
Section 540-A:3 540-A:3 Certain Specific Acts Prohibited. –
I. No landlord shall willfully cause, directly or indirectly, the interruption or termination of any utility service being supplied to the tenant including, but not limited to water, heat, light, electricity, gas, telephone, sewerage, elevator or refrigeration, whether or not the utility service is under the control of the landlord, except for such temporary interruption as may be necessary while actual repairs are in process or during temporary emergencies.
II. No landlord shall willfully seize, hold, or otherwise directly or indirectly deny a tenant access to and possession of such tenant's rented or leased premises, other than through proper judicial process.
III. No landlord shall willfully seize, hold, or otherwise directly or indirectly deny a tenant access to and possession of such tenant's property, other than by proper judicial process.
IV. No landlord shall willfully enter into the premises of the tenant without prior consent, other than to make emergency repairs.
[Paragraph IV-a effective January 1, 2014.]
IV-a. Entry to make emergency repairs as authorized by RSA 540-A:3, IV includes, but is not limited to, entry by the landlord to evaluate, formulate a plan for remediation of, or engage in emergency remediation of an infestation of rodents or insects, including bed bugs, provided such infestation-related emergency entry took place within 72 hours of the time that the landlord first received notice of the infestation.
V. No tenant shall willfully refuse the landlord access to the premises to make necessary repairs, or to perform other reasonable and lawful functions commonly associated with the ownership of rental property, at a reasonable time after notice which is adequate under the circumstances.
[Paragraph V-a effective January 1, 2014.]
V-a. No landlord shall willfully fail to investigate a tenant's report of an infestation of insects, including bed bugs, or rodents in the tenant's rented or leased premises, within 7 days of receiving notice of such alleged infestation from the tenant or a municipal health or housing code authority, or fail to take reasonable measures to remediate an infestation.
[Paragraph V-b effective January 1, 2014.]
V-b. No tenant shall willfully refuse the landlord access to the premises to:
(a) Make emergency repairs as authorized in paragraphs IV and IV-a of this section; and
(b) Evaluate whether bedbugs are present after the landlord has received notice that bed bugs are present in a dwelling unit adjacent to the premises or a dwelling unit that is directly above or below the premises, provided the landlord gives the tenant 48 hours written notice of his or her need to enter the premises to evaluate whether bed bugs are present.
[Paragraph V-c effective January 1, 2014.]
V-c. No tenant shall willfully refuse to comply with reasonable written instructions from a landlord or pest control operator to prepare the dwelling unit for remediation of an infestation of insects or rodents, including bed bugs, provided that such instructions are given to an adult member of the tenant household such that the tenant household has a reasonable opportunity to comply, and in all cases at least 72 hours prior to remediation.
[Paragraph V-d effective January 1, 2014.]
V-d. Notwithstanding any other provision of this chapter, a landlord may only enter a tenant's dwelling unit without the consent of the tenant:
(a) To make emergency repairs pursuant to paragraphs IV and IV-a; or
(b) If the landlord has obtained an order authorizing the entry from a court of competent jurisdiction pursuant to RSA 540-A:4.
VI. No tenant shall willfully damage the property of the landlord.
VII. Other than residential real estate under RSA 540-B, a landlord shall maintain and exercise reasonable care in the storage of the personal property of a tenant who has vacated the premises, either voluntarily or by eviction, for a period of 7 days after the date upon which such tenant has vacated. During this period, the tenant shall be allowed to recover personal property without payment of rent or storage fees. After the 7-day limit has expired, such personal property may be disposed of by the landlord without notice to the tenant.
Source. 1979, 305:1. 1991, 373:2, eff. Jan. 1, 1992. 1998, 25:8. 2001, 277:2. 2003, 271:1, eff. Jan. 1, 2004. 2011, 247:1, eff. Jan. 1, 2012. 2013, 48:4, 5, eff. Jan. 1, 2014.
Section 540-A:4 540-A:4 Remedies. –
I. All district courts shall have concurrent jurisdiction with the superior court to enforce the provisions of RSA 540-A:2 and RSA 540-A:3.
II. Any tenant or landlord may seek relief from a violation of RSA 540-A:2 or RSA 540-A:3 by filing a petition in the district or county where the rental premises are located.
III. No filing fee shall be charged for a petition under paragraph II, and the plaintiff may proceed without legal counsel. Either a peace officer or the sheriff's department shall serve process under this section and the cost of such service shall be billed as directed by the court pursuant to paragraph X. Any proceeding under this subdivision shall not preclude any other available civil or criminal remedy.
IV. The clerks of the district courts shall supply forms for petitions for relief under this subdivision designed to facilitate proceedings.
V. The findings of facts shall be final but questions of law may be transferred to the supreme court in the same manner as from the superior court.
VI. The court shall hold a hearing within 30 days of the filing of a petition under paragraph II or within 10 days of service of process upon the defendant, whichever occurs later.
VII. Upon a showing of a violation of RSA 540-A:2 or RSA 540-A:3, I, II, or III, the court shall grant such relief as is necessary to protect the rights of the parties. Such relief may include:
(a) An order prohibiting the defendant from continuing the activity or activities which violate RSA 540-A:2 or RSA 540-A:3; and
(b) An award of damages to the plaintiff for the violations of RSA 540-A, breach of warranty of habitability, breach of the covenant of quiet enjoyment or any other claim arising out of the facts alleged in the plaintiff's petition.
VIII. Upon the showing of an immediate threat of irreparable harm, the court may issue such temporary orders as it deems necessary to protect the parties with or without actual notice to the defendant. If temporary orders are made ex parte, the party against whom such relief is issued may file a written request with the clerk of the court and request a hearing on such request. Such hearing shall be held no later than 5 days after the request is received by the clerk. Such hearings may constitute the final hearing described in paragraph VI.
IX. (a) Any landlord or tenant who violates RSA 540-A:2 or any provision of RSA 540-A:3 shall be subject to the civil remedies set forth in RSA 358-A:10 for the initial violation, including costs and reasonable attorney's fees incurred in the proceedings. Each day that a violation continues after issuance of a temporary order shall constitute a separate violation.
(b) Notwithstanding the provisions of subparagraph (a), a landlord who violates RSA 540-A:3, VII shall be subject only to an award of actual damages, plus costs and reasonable attorneys fees.
(c) The provisions of subparagraph (a) shall not apply to petitions brought in good faith by a landlord or a tenant to determine whether a request for entry under RSA 540-A:3, V is reasonable and lawful.
[Paragraph IX(d) effective January 1, 2014.]
(d) The provisions of subparagraph (a) shall not apply to any violation of 540-A:3, V-a, V-b, or V-c.
[Paragraph IX(e) effective January 1, 2014.]
(e) Landlord damages for any unlawful dispossession or lock-out of a tenant from the premises where the landlord has re-let the premises or has a new tenant in the premises shall not be less than $3,000. In the event the damages exceed the $3,000 minimum, the award shall not exceed the amount that would have been awarded pursuant to subparagraph (a).
X. If an action initiated under RSA 540-A:3 is found to be frivolous or brought solely for harassment, the plaintiff shall pay to the defendant the costs of said action including reasonable attorney's fees. If such frivolous action was brought by the tenant, he shall not be entitled to the protection of paragraph XI of this section.
XI. No action for possession may be maintained by the landlord against a tenant who proves a violation of RSA 540-A:3 except for nonpayment of rent, violation of a substantial obligation of the rental agreement or lease, or violation of this subdivision within 6 months of an action instituted under this subdivision by a tenant; nor shall the landlord take any other action in reprisal.
[Paragraph XII effective January 1, 2014.]
XII. Relinquishment of possession or abandonment of possession shall be an affirmative defense to an action brought pursuant to this chapter.
(a) Relinquishment of possession occurs when the landlord receives a statement signed by each adult tenant of a rented or leased premises stating that the tenant has relinquished possession of the rented or leased premises and has no intent to return.
(b) Abandonment of possession means all tenants have physically vacated the premises without the intent to return. There shall be a rebuttable presumption that the tenants have abandoned the premises if:
(1) The landlord provided all tenants with a written property abandonment notice, by leaving the notice at the rented or leased premises and by sending the notice by certified mail to the last known address of at least one adult tenant. The property abandonment notice shall also comply with subparagraph (d); and
(2) At least 2 of the following conditions were present:
(A) All adult tenants of the rented or leased premises have notified the landlord in writing of their intent to vacate the premises by a certain date and that date has passed, provided that the written notice of one adult tenant who has lawful possession to the premises pursuant to an order under RSA 173-B shall suffice.
(B) All keys to the rented or leased premises have been returned to the landlord, which shall include leaving all keys in the rented or leased premises.
(C) The tenant or tenants have removed from the rented or leased premises all or the majority of their personal property, and the only items remaining in the premises are inconsistent with the continued use of the premises.
(D) The tenant or tenants have failed or neglected to pay rent for the rented or leased premises for a period of more than 91 days, provided that during those 91 days the landlord, if requested to do so, provided ordinary and reasonable verification of rental information to any agency assisting the tenant or tenants, and that the landlord did not refuse to accept payment on behalf of the tenant or tenants by any agency offering assistance.
(c) The defense of abandonment does not abrogate the landlord's duty under RSA 540-A:3, VII to maintain and exercise reasonable care in the storage of the personal property of tenants who have vacated the premises for a period of 7 days after the date upon which such tenants have vacated the rented or leased premises. The 7 days shall begin the day after the landlord serves the written property abandonment notice.
(d) In providing the property abandonment notice required under subparagraph (b), the landlord shall use conspicuous language identifying, with specificity, the reasons the landlord deems the property abandoned. The notice shall also advise the tenant or tenants of their right to retrieve any personal property as well as their right to file an action under RSA 540-A. The notice must be signed by the landlord, or the landlord's agent. The use of the following notice language, in at least 12-point type, shall be deemed sufficient notice language:
NOTICE OF PROPERTY ABANDONMENT
This residence, known as __________________________, has been abandoned. I certify that, on this date, the property is believed to have been abandoned for the following circled reasons:
(1) You notified me in writing that you intended to vacate the premises.
(2) You have returned your keys to the premises.
(3) You have removed from the premises all or the majority of your personal property, and the only items remaining in the premises are inconsistent with the continued use of the premises.
(4) You have failed or neglected to pay rent for the premises for a period of more than 91 days.
Because you have abandoned the premises, we will retake possession of this property and the locks may be changed. We will store your personal property for 7 days from the date of the notice, and you have a right to get your personal property during that time.
If you disagree with any action we take, you should notify us immediately. You are also entitled to file what is called a "540-A petition'' at your nearest court. You may have other additional legal rights as well.
Signed: ________________________________________ Date: ____________________
Landlord's or Landlord's Agent's Mailing Address: ____________________
Landlord's or Landlord's Agent's Telephone Number: ____________________
Source. 1979, 305:1. 1985, 100:4, 5. 1990, 218:1. 2003, 271:2, eff. Jan. 1, 2004. 2010, 116:1, eff. June 1, 2010. 2011, 247:2, eff. Jan. 1, 2012. 2013, 48:8, 237:1, 2, eff. Jan. 1, 2014.
Security DepositsSection 540-A:5 540-A:5 Definitions. – As used in this subdivision:
I. "Landlord'' means a person and his or its employees, officers or agents who rents or leases to another person a rental unit, including space in a manufactured housing park as regulated by RSA 205-A and in manufactured housing, for other than vacation or recreational purposes. A person who rents or leases a single-family residence and owns no other rental property or who rents or leases rental units in an owner-occupied building of 5 units or less shall not be considered a "landlord'' for the purposes of this subdivision, except for any individual unit in such building which is occupied by a person or persons 60 years of age or older.
II. "Security deposit'' means all funds in excess of the monthly rent which are transferred from the tenant to the landlord for any purpose.
III. "Tenant'' means any person who rents or leases residential premises owned by another, including space in a manufactured housing park regulated by RSA 205-A and in manufactured housing, for other than vacation or recreational purposes.
IV. "Rental unit'' means each separate part of any residential premises which has full facilities for habitation, including contiguous living, sleeping, kitchen and bathroom facilities, which is held out for rental by the landlord.
Source. 1985, 100:6, eff. July 9, 1985.
Section 540-A:6 540-A:6 Procedure. –
I. (a) A landlord shall not demand or receive any security deposit in an amount or value in excess of one month's rent or $100, whichever is greater.
(b) Except as provided in subparagraph (c), upon receiving a deposit from a tenant, a landlord shall forthwith deliver to the tenant a signed receipt stating the amount of the deposit and specifying the place where the deposit or bond for the deposit pursuant to RSA 540-A:6, II(c) will be held, and shall notify the tenant that any conditions in the rental unit in need of repair or correction should be noted on the receipt or given to the landlord in writing within 5 days of occupancy.
(c) No receipt shall be required when the tenant furnishes a security deposit in the form of a personal check, a bank check, or a check issued by a government or nonprofit agency on behalf of the tenant. Regardless of whether or not a receipt is required, the landlord shall provide written notice to the tenant that a written list of conditions in the rental unit in need of repair or correction, if any, should be given to the landlord within 5 days of occupancy.
II. (a) Security deposits held by a landlord continue to be the money of the tenant and shall be held in trust by the person with whom such deposit is made and shall not be mingled with the personal moneys or become an asset of the landlord until the provisions of RSA 540-A:7 are complied with, but may be disposed of as provided in RSA 540-A:6, III.
(b) A landlord may mingle all security deposits held by him in a single account held in trust for the tenant at any bank, savings and loan association or credit union organized under the laws of this state in satisfaction of the requirements of RSA 540-A:6, II(a).
(c) A bond written by a company located in New Hampshire and posted with the clerk of the city or town in which the residential premises are located in an amount equivalent to the total value of a security deposit held by the landlord on property in that city or town shall exempt the landlord from the provisions of RSA 540-A:6, II(a) and (b).
III. (a) Any landlord who holds a security deposit shall turn the security deposit over at the time of delivery of the deed or instrument of assignment, or within 5 days thereafter, or within 5 days after a receiver has been qualified, to one of the following:
(1) his grantee upon conveying the premises in which the rental unit is located;
(2) his assignee upon assigning his lease to the rental unit;
(3) the receiver in a foreclosure action or other lien of record affecting the property in which the rental unit is located, upon the judicial appointment and qualification of the receiver; or
(4) the purchaser at a foreclosure sale or other lien of record, if a receiver has not been qualified, upon the conveyance to another person by the referee of the property in which the rental unit is located.
(b) The landlord shall notify the tenant by registered or certified mail of such turning over, including the name and address of the grantee, assignee, purchaser, or receiver who then holds the security deposit.
(c) Any landlord who turns over to his grantee, his assignee, a purchaser at a foreclosure sale, or the receiver in a foreclosure action the amount of such security deposit with interest due, if any, is thereby relieved of liability to the tenant for repayment of the deposit. The transferee of the security deposit is then responsible for the return of the security deposit to the tenant or licensee, unless, before the expiration of the term of the tenant's lease or licensee's agreement, he transfers the security deposit to another, pursuant to RSA 540-A:6, III(a) and gives the requisite notice pursuant to RSA 540-A:6, III(b). A receiver shall hold the security subject to its disposition as provided in an order of the court to be made and entered in the foreclosure action.
(d) RSA 540-A:6, III(c) shall not apply if there is an inconsistent agreement between the landlord and tenant or licensee.
IV. (a) A landlord who holds a security deposit for a period of one year or longer shall pay to the tenant interest on the deposit at a rate equal to the interest rate paid on regular savings accounts in the New Hampshire bank, savings and loan association, or credit union in which it is deposited, commencing from the date the landlord receives the deposit or from September 13, 1977, whichever is later. If a landlord mingles security deposits in a single account under RSA 540-A:6, II(b), the landlord shall pay the actual interest earned on such account proportionately to each tenant.
(b) Upon request, a landlord shall provide to the tenant the name of any bank, savings and loan association, or credit union where his security deposit is on deposit, the account number, the amount on deposit, and the interest rate on the deposit and shall allow the tenant to examine his security deposit records.
(c) Notwithstanding RSA 540-A:7, I, a tenant may request the interest accrued on a security deposit every 3 years, 30 days before the expiration of that year's tenancy. The landlord shall comply with the request within 15 days of the expiration of that year's tenancy.
Source. 1985, 100:6. 1988, 167:1. 1992, 184:4. 2006, 296:1, eff. July 1, 2006.
Section 540-A:7 540-A:7 Return of Security Deposit. –
I. Except as provided in RSA 540-A:6, IV(c), a landlord shall return a security deposit to a tenant and pay the interest due, if any, within 30 days from the termination of the tenancy. If there are any damages to the premises, excluding reasonable wear and tear, the landlord may deduct the costs of repair from the security deposit. The landlord shall provide the tenant with a written, itemized list of any damages for which the landlord claims the tenant is liable, which shall indicate with particularity the nature of any repair necessary to correct any damage and satisfactory evidence that repair necessary to correct these damages has been or will be completed. Satisfactory evidence may include, but not be limited to, receipts for purchased repair materials and labor estimates, bills or invoices indicating the actual or estimated cost thereof.
II. If the tenant is required under the lease agreement to pay all or part of any increase in real estate taxes levied against the property and becoming due and payable during the term of the lease, or if there is unpaid rent due, or if there are other lawful charges due under the lease which remain unpaid, the landlord may deduct such share of real estate taxes or unpaid rent or unpaid charges from the amount of the security deposit. The landlord shall provide the tenant with a written, itemized list of any claim for unpaid rent or share of real estate taxes or unpaid charges for which the landlord claims the tenant is liable, which shall indicate with particularity the period for which the claim is being made.
Source. 1985, 100:6. 1988, 167:2. 2006, 296:2, eff. July 1, 2006.
I. (a) Any landlord who does not comply with RSA 540-A:6, I, II or III shall be deemed to have violated RSA 358-A:2.
(b) Any landlord who does not comply with RSA 540-A:6, IV or RSA 540-A:7 shall be liable to the tenant in damages in an amount equal to twice the sum of the amount of the security deposit plus any interest due under this subdivision, less any payments made and any charges owing for damages, unpaid rent, or share of real estate taxes as specified in RSA 540-A:7.
II. Notwithstanding RSA 540-A:6, 540-A:7, and 540-A:8, I, a landlord shall not be liable nor forfeit any rights if his failure to comply with said sections and paragraph is due to the failure of the tenant to notify the landlord of his new address upon termination of the tenancy. Any deposits plus interest due on the deposit that remain unclaimed after 6 months from the termination of the tenancy shall become the property of the landlord, free and clear of any claim of the tenant, absent fraud.
III. Any provision in any lease or rental agreement by which the tenant is purported to waive any of his rights under this subdivision, except as provided in RSA 540-A:6, III(d), shall be void.
RULES OF THE CIRCUIT COURT OF THE STATE OF NEW HAMPSHIRE -- DISTRICT DIVISIONLANDLORD AND TENANT ACTIONSRule 5.1. Landlord and Tenant Writ.
The Clerk shall deliver blank writs for landlord and tenant actions to no one except attorneys who have been admitted to the Supreme Court or to individuals who shall elect to prosecute their own suit or to have a citizen of good character who is not an attorney of the Court prosecute their suit for them. Blank writs delivered to individuals not attorneys of the Court shall be entitled by the Clerk.
No attorney who has been admitted by the New Hampshire Supreme Court shall cause any blank writ to be used by any other person than himself or some attorney of the Court.
Rule 5.2. Return Day.
Return day for writs brought pursuant to RSA 540 shall be only on such days that the Court is open for business. There shall be no trial on the return day.
Rule 5.3. Entry of Actions.
A. Landlord and Tenant Writs shall be entered with the Court prior to service of process on the defendant. At the time of entry, the entry fee is payable to the Clerk of Court and the case shall be docketed. At the time of entry, the writ shall be accompanied by proof of service of the eviction notice. Proof of service must be shown by a true and attested copy of the notice accompanied by an affidavit of service, but the affidavit need not be sworn under oath. See RSA 540:5.
B. Writs may be accepted by the Court where a mailing address has been listed by the landlord, provided that the landlord also signs a statement on the writ attesting that the Court has jurisdiction over the action.
C. The return of service of process upon the defendant shall be filed by the plaintiff with the Court on or before the earlier of the following: (1) the day following the return day named in the writ; or (2) the time at which the hearing scheduled pursuant to RSA 540:13, V is scheduled to begin.
D. The Clerk may refuse to accept any pleading or motion that the Clerk determines does not comply with these rules. In the event an objection is made to such determination, a written motion may be made to the Court to rule on such determination.
Rule 5.4. Failure to Answer.
If the defendant does not file an appearance on or before the return day, a notice of default shall be issued that the plaintiff may recover possession of the demanded premises and costs; and, if the writ includes a claim for unpaid rent the notice of default may include the amount of unpaid rent claimed, not to exceed fifteen hundred dollars ($1,500.00) in addition to the costs. A writ of possession and notice of judgment shall also issue, but not until the expiration of at least three days after the Clerk's notice of default and upon the filing of a military affidavit and, if the writ includes a claim for unpaid rent, an affidavit of damages.
Rule 5.5. Appearance, Setoff and Counterclaims.
A. If the defendant files an appearance in an action which has been docketed prior to service of process in accordance with Rule 5.3(A), the matter will be set for trial to occur within ten days following the date of the filing of the appearance. If (1) service of process occurs prior to the action being docketed, (2) the Court waives the violation of Rule 5.3(A) and allows the action to be docketed, and (3) the defendant files an appearance prior to the action being docketed, then trial will be scheduled to occur within ten days following the date of the docketing of the action.
B. If the plaintiff claims unpaid rent, and if the defendant files any claim or counterclaim which offsets or reduces the amount owed to the plaintiff, then any such claim or counterclaim must be filed on or before the RETURN DAY set forth in the Landlord and Tenant Writ and a copy thereof shall be mailed or delivered to the plaintiff or plaintiff's attorney. No such claim or counterclaim shall be afterwards received except upon leave of Court for good cause shown and upon such terms as justice may require.
C. The Court may in all cases order either party to plead and also to file a statement in sufficient detail to give to the adverse party and to the Court, reasonable knowledge of the nature and grounds of the action or defense. Upon failure to comply with such order, the Court may take such action as justice may require.
Rule 5.6. Discovery and Continuances.
A. Both parties to a landlord and tenant action shall have a right to engage in discovery prior to the hearing on the merits, subject to the time frames set forth below:
1. All requests for discovery shall be made within five (5) days of the RETURN DAY.
2. Responses to interrogatories, requests for admissions and production of documents shall be made within fourteen (14) days after receipt of said requests.
3. Depositions shall be taken no less than three (3) days from the date of the notice of deposition and within no less than seven (7) days of the scheduled trial date.
B. Upon the request of any party, the Court may grant a continuance of the scheduled trial date to allow time to complete discovery. Landlord and tenant actions shall be given priority on the Court's docket and, whenever possible, rescheduled within thirty (30) days.
Rule 5.7. Writ of Possession and Judgment.
A. If the defendant fails to appear for trial, or if upon trial it is considered by the Court that the plaintiff has sustained the complaint, judgment shall be rendered that the plaintiff recover possession of the demanded premises and costs, and a writ of possession shall issue.
1. If the defendant failed to appear for trial, then the writ of possession and notice of judgment shall not issue until the expiration of at least three days after the Clerk's notice of default and, if the writ includes a claim for unpaid rent, upon the filing of an affidavit of damages.
2. If upon trial the plaintiff sustained the complaint, then the writ of possession shall not issue until the expiration of the seven day period for filing a Notice of Intent to Appeal set forth in RSA 540:20. If the defendant files a timely Notice of Intent to Appeal, then the writ of possession shall not issue until the expiration of the appeal period set forth in Supreme Court Rule 7, except as otherwise provided in RSA 540:25, I, or following an order from the Supreme Court dismissing the defendant's possessory appeal or deeming the defendant's possessory appeal waived for failure to comply with RSA 540:25, II.
B. In all cases in which a judgment for plaintiff is rendered where the action is based upon nonpayment of rent, the Court shall determine and set forth in its order the amount which must be paid into Court on a weekly basis in the event defendant appeals. This amount is equal to the actual weekly rent or the periodic rent converted into a weekly sum.
C. In all cases which include a claim for unpaid rent the Court's judgment shall include a money judgment on the plaintiff's claim and any setoff or counterclaim by defendant.
Rule 5.8. Damages.
A. The Landlord and Tenant Writ shall contain a space for the plaintiff to claim damages for nonpayment of rent and require a statement of the amount thereof.
B. In rendering judgment the Court is limited to a judgment of not more than fifteen hundred dollars ($1,500.00)
Rule 5.9. Notice Form.
The Landlord and Tenant Writ shall incorporate or have attached to it the following notice:
If you desire to be heard on the matters raised in these papers, you must notify the Court by filing an appearance form with the Clerk of Court on or before the date specified on this writ next to the words "RETURN DAY". (These forms are available at the Clerk's Office.) Once you have filed your appearance, a date for a hearing will be set by the court and you will be notified by mail. You do not have to physically appear in court on the RETURN DAY since there will be no hearing on that day. If the landlord claims unpaid rent and if you file a claim or counterclaim which offsets or reduces the amount owed to the landlord, you must file the claim or counterclaim on or before the RETURN DAY shown on this Landlord and Tenant Writ. Space is provided on the appearance form for making the claim or counterclaim. IF YOU DO NOT FILE AN APPEARANCE FORM, IT WILL BE ASSUMED YOU DO NOT WISH TO CONTEST THE ACTION, A DEFAULT JUDGMENT WILL BE ENTERED AGAINST YOU, WHICH MAY INCLUDE ANY UNPAID RENT CLAIMED BY THE LANDLORD, AND A WRIT OF POSSESSION MAY ISSUE.
Rule 5.10. Post Trial Motions and Appeals.
A. Post trial motions in all cases shall be filed within seven days after the date of the Clerk's Notice of Judgment.
B. Appeals are initiated by filing a Notice of Intent to Appeal with the Clerk within seven days after the date of the Clerk's Notice of Judgment. If the possessory action was based on nonpayment of rent and the defendant files a Notice of Intent to Appeal, the defendant must, at the time the defendant files the Notice of Intent to Appeal, pay into Court one week's rent as determined by the Court. The appeal shall otherwise be filed in accordance with Supreme Court rules.
C. At any time during the pendency of the appeal, the landlord may file a motion to the district court for recovery of the rent money that has been paid into court pursuant to RSA 540:25, I. The court may grant such motion unless the tenant objects and the court rules that the landlord is not lawfully entitled to the full amount of rent. If the court rules that the landlord is not entitled to the full amount of the rent, it shall release such portion of the rent to which the court deems the landlord is lawfully entitled, if any, and make specific findings in support of its decision to deny or partially deny the landlord's motion. The rent money retained by the court shall be apportioned between the landlord and the tenant upon final disposition of the appeal.
D. The filing of a post trial motion does not stay the running of the seven day period for filing a Notice of Intent to Appeal.
Rule 5.11. Dismissal of Appeals.
A. Possessory Action Instituted for Nonpayment of Rent
If the possessory action was instituted on the basis of nonpayment of rent, during pendency of the appeal, rent is payable to the Court on a weekly basis and is due on the same day of the week on which the Notice of Intent to Appeal was filed. If rent is not paid by the due date, the Court shall immediately mail a notice of default to the tenant and issue a writ of possession to the landlord. If, however, the tenant pays the Clerk the entire amount of rent due since the filing of the Notice of Intent to Appeal prior to the service of the writ by the sheriff, the writ of possession shall be recalled and the appeal shall be reinstated. Unless the appeal is reinstated, the District Court shall vacate the appeal and award the plaintiff the rent money that has been paid into Court. The District Court shall notify the Supreme Court of any such action.
B. Possessory Action Instituted for Reason Other than Nonpayment of Rent
If the possessory action was instituted for a reason other than nonpayment of rent, the defendant shall pay into the Court or to the plaintiff, as the Court directs, all rents or portions thereof becoming due from the date the Notice of Intent to Appeal is filed with the District Court. In any case in which the duty to pay rent or a portion thereof is in dispute, the defendant shall be required to pay such portions of the rents becoming due after the notice of intent is filed into Court, as the Court may direct, which amounts shall be held in escrow until a final decision is rendered. If the defendant fails to make a rental payment as it comes due, the plaintiff shall file an affidavit setting forth the defendant's failure to make timely payment along with a motion to dismiss defendant's appeal. A copy of the motion and affidavit shall be filed with the Supreme Court. The District Court shall file a written recommendation to the Supreme Court that the motion be granted unless, within five (5) days of the filing of plaintiff's motion, defendant files an affidavit setting forth that timely tender of payment was made or that defendant had a lawful reason for failing to tender payment. If defendant files such an affidavit in a timely manner, a hearing shall be scheduled on the motion within ten (10) days of the filing of defendant's affidavit. Following hearing, the District Court shall recommend in writing to the Supreme Court what action should be taken on the motion.
Rule 5.12. Dismissal of Writs After Sixty Days.
Whenever a Landlord and Tenant Writ has been entered with the Court, and neither an appearance nor the return of service of process has been filed with the Court within sixty days following the date of said entry, such action may upon motion or upon the Court's own motion be dismissed. The order of dismissal may be vacated upon motion after notice for cause shown upon such terms and conditions as the Court may impose. Any motion to vacate shall be filed within seven days after the date of the Clerk's Notice of the order of dismissal.'
Court Service Center
New Hampshire Circuit Court
LANDLORD AND TENANT CHECKLIST
To start this case type you must present the court with an expired Eviction Notice and Demand for Rent (if applicable). Expired means you cannot start a case until the day after you gave on the eviction notice.
The court will not sell blank writs to anyone except attorneys. Court staff will entitle the writ for you. It is your responsibility to fill out the rest of the writ, with the exception of the return day.
The writ may be filed in the court with jurisdiction over the town where the plaintiff or the defendant
resides or the property is located.
You may request up to $1,500 back rent on a landlord-tenant writ. Amounts owed in excess of this may be dealt with in a small claims action.
Refer to RSA 540 and District Court Rules 5.1- 5.12 for more information on this process.
Forms listed below are needed to start this action:
Eviction Notice and Demand for Rent: you may draft your own so long as the language complies with the law, or use the blank forms available in the Clerk's Office or online.
Landlord and Tenant Writ (NHJB-2333-DP): Available in Clerk's Office.
Affidavit of Damages and Statement of Claim: must be filed if seeking back rent. Available in Clerk's Office or online.
Affidavit of Ownership: you may be asked to fill out this form which indicates your relationship to the property. Available in Clerk's Office.
Affidavit as to Military Service (NHJB 2200-DFPS): Although it does not have to be filed at case entry, it must be filed prior to the issuance of any Writ of Possession. Available in Clerk's Office or online.
Other items that may be needed:
Photo identification is required if you want court staff to take your oath on the Affidavit of Damages or Military Affidavit.
Information needed to fill out the writ:
Mailing addresses for yourself and the defendant. Court name and address, information regarding
eviction notice and property address.
How much will this cost?
The landlord and tenant writ costs $1.00 and the filing fee is $125.00.
You will be responsible for sheriff's service fees as well. This fee varies. If you win the case, the
defendant can be ordered to pay this cost, but you must pay it up front.
Court staff will assign the case a docket number and return the original writ to you for service along with copies for yourself and the defendant. You must bring the original and defendant copy to the sheriff's department where the defendant resides for service.
The sheriff's department will instruct you what return day to enter on the writ.
After service, you must return the original writ and return of service to the court. The court has no way of knowing the return day until this is done.
The defendant has until the end of the return day to ask the court for a hearing by filling out an
appearance form. The return day is NOT a hearing date. If the defendant requests a hearing, one will be scheduled for a date within 10 days.
If the basis for the eviction is any other reason than non-payment of rent, the tenant has the right to have the case heard in the court for the town where the tenant lives. If the basis is non-payment of rent, the tenant may request a transfer, but it is not automatic.
If the defendant fails to file an appearance or appear for the hearing, a notice of default may issue. A writ of possession may issue in due course, on the date indicated on the notice.
The writ of possession is the document you take to the sheriff to have served to remove the tenant from the property and change the locks.
If the plaintiff fails to appear for the hearing, the case can be dismissed.
Parties reserve the right to work out an agreement prior to the hearing date.
If the case proceeds to trial, the judge will make an order for judgment for the plaintiff or the defendant.
Any notice of intent to appeal the Court's decision must be received within 7 days after the notice of the decision. The appeal must be filed with the Supreme Court within 30 days from the date of the notice of decision. If the defendant appeals a decision on a non-payment of rent eviction, all rent will be paid weekly to the court while the appeal is pending.
Forms and Instructions are available at any NH District Court
www.courts.state.nh.us/district/
Bar News - May 18, 2012
Real Property Law: A Primer on Leases and Evictions
By: Steven Slovenski
The landlord-tenant relationship is one of the most storied in the world of real property. Since the days of kings, knights and serfs, landlords and tenants have been defining and redefining their relationship.
In feudal times and early America, leasing real property was considered a conveyance of a real estate interest known as a "leasehold" interest. Today, leasing real property is considered less of a real estate conveyance than a matter of contract. As the New Hampshire Supreme Court noted in the landmark landlord-tenant case of Kline v. Burns, 111 NH 87 (1971), "the legal rules for leases should not be tied strictly to common law principles that were 'remnants of an ancient feudal system and anachronisms in our present society."
Based on the perceived abuses and imbalance in power and money between landlord and tenants, legislatures in New Hampshire and elsewhere began to pass laws in the 1970's and 80's which were more favorable to tenants. Those laws, enforced by the Courts, created due process procedures and placed limits on landlord evictions and provided tenants with new tools to require landlords to improve housing quality. The days when landlords could change the locks on a cold January night when a tenant did not pay their rent are long gone.
Unless the landlord and tenant enter into an agreement governing the essential terms of the tenancy, all tenancies or occupancies in New Hampshire are "deemed to be at will." RSA 540:1. Since a lease conveys an interest in real property, it must be in writing to be enforceable pursuant to the Statute of Frauds. RSA 506:1. The Statute's purpose is to promote certainty and to protect from fraud and perjuries in land transactions. Halstead v. Murray, 130 NH 560 (1988).
Although the intent of the parties is the key factor when courts interpret a lease, certain essential features are important to a well-drafted residential or commercial lease, including the names of the parties, description of the leased premises, the lease term (dates), the financial terms (including rent and utilities) and default provisions. Commercial leases should also include more specificity as to use of the premises, square footage, fit up costs, rent particulars and extensions. Regardless of whether the laws favor the landlord or tenant, the law must be obeyed and since modern landlord-tenant law in New Hampshire is primarily statutory, the law is strictly construed. Buatti v. Prentice, 162 NH 228, (2011). In New Hampshire, landlords can terminate a tenant's written or verbal lease for many reasons, but the most common are breach of a lease term, non-payment of rent, substantial damage to the premises, or good cause. If the landlord decides to evict the tenant, the landlord must follow the state law, RSA 540, which makes a distinction in tenancies between "Restricted property" and "Non-restricted property". RSA 540:1-a defines "Restricted property" as "all real property rented for residential purposes, except those properties listed in paragraph 1." The exceptions cited in Paragraph 1 include single family houses (if owner doesn't own more than three single-family houses), rental units in an owner-occupied building with fewer than four dwelling units and single family houses acquired through foreclosure.
The owner of non-restricted property pursuant to RSA 540:2 may commence termination of the tenancy by giving the tenant or occupant a written notice to quit. See RSA 540:3, Eviction Notice and RSA 540: 5, Service of Demand and Eviction Notice. However, the owner of restricted property may only commence eviction proceedings for one of the reasons cited in RSA 540:2, II,(a)-(f), including non-payment of rent, substantial damage to the premises, breach of a lease term, adverse tenant behavior or "other good cause", which includes "business reasons".
RSA 540:5 requires the landlord to serve a Demand for Rent on the tenant if the tenant has not paid the rent, prior to or simultaneously serving the Eviction Notice. The tenant can escape eviction by paying the past due rent within the demand period up to three times in a 12 month period. The Eviction Notice (formerly known as a Notice to Quit) shall include the same information as is requested and provided on the forms available from the Circuit/District Court clerks. Once the Eviction Notice is served on the tenant, and the notice periods have lapsed, the landlord can file a landlord—tenant Writ with the Court and a trial will be scheduled. If the tenant defaults or the landlord prevails at trial, the Court will then issue a Writ of Possession which will entitle the landlord, after the 7 day appeal period, to regain possession of the premises. If the tenant prevails, sometimes based on statutory defenses such as Retaliation (RSA 540:13-a) or Violation of Fitness (RSA 540:13-d), then the tenant will be entitled to remain in the premises. A landlord in a residential or commercial eviction, may be awarded up to $1,500 in a "money judgment", but will usually have to file a separate action in court to collect the balance of any money owed.
Landlord–tenant law, evictions and real property leases are relatively complex matters that are fraught with risk. For instance, there are significant penalties if a landlord commits a "prohibited act" as defined in RSA 540-A:3, or does not account or return the security deposit within the statutory time frame. This is one area of law where preventative lawyering is highly recommended.
Other landlord-tenant related topics beyond the scope of this article include the New Hampshire Security Deposit law (RSA 540-A:5-8), the Manufactured Housing "Bill of Rights" (RSA 205-A), and common law covenants, such as the covenant of quiet enjoyment.
Landlords as Cops: Tort, Nuisance & Forfeiture Standards Imposing Liability on Landlords for Crime on the Premiseshttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1161170
Barbara Glesner Fines
University of Missouri at Kansas City - School of Law
July, 16 2008
Case Western Reserve Law Review, Vol. 42, 1992
This article provides an exhaustive review of landlord liability and the trend toward broadening landlordliability for criminal activity on rental property. In particular, it reviews laws penalizing landlords through forfeiture of such property and considers the philosophical shift that has accompanied these legal developments. The article rejects the assumption that increased liability standards provide incentives for increased control by landlords for several reasons. First, from the landlord's perspective, the utility of these standards is doubtful. Practical enforcement methods would encourage landlords to violate other standards designed to protect tenants from discrimination, invasion ofprivacy and negligent maintenance. Further, the increased costs of heightened regulation is likely to reduce the availability of quality, affordable rental housing.
Second, from legal and societal perspectives, the assumption that these increased standards provide effective incentives entails costs in itself. While the new standards may increase the acceptability of hidden, private enforcement costs, little evidence suggests that they will actually decrease crime. Moreover, while these reactive standards create an image of effective crime control, they distract the community from more effective uses of tort, nuisance and criminal laws in the prevention of crime. While these standards seem to enhance important community involvement, the growth of community is an organic process which must be facilitated through nurturing, not intimidation or threats.
e) Property Preservation Problems
When dealing with residential property, always follow through the eviction process until you get a writ of possession or the tenant(s) abandon in writing. $1,000 per day damages were upheld against a landlord who locked out a tenant removed their personal belongings without process of law. SeeJohnson v. Wheeler, 146 N.H. 594 (2001). See also 1
In Greelish v. Wood, 154 N.H. 521, 527 (2006) the Court concluded that, "the time when the public interest required the existence of self-help for a purchaser at a foreclosure sale to recover possession from a tenant at sufferance has passed. Cf. Standish, 93 N.H. at 205."
The Court noted that RSA 540:12 provides in part that the purchaser at a mortgage foreclosure sale may recover possession thereof from a person in possession, holding it without right, after notice in writing to quit as prescribed in RSA chapter 540 and that an owner may terminate "any tenancy" by giving an occupant a notice to quit. Id. at 527 citing AIMCO Props. v. Dziewisz, 152 N.H. 587, 589, 883 A.2d 310 (2005) ("any tenancy" includes tenancies at sufferance).
The Greelish Court also remarked that the modern trend to evict versus exercising self-help eviction is, "'founded on the recognition that the potential for violent breach of the peace inheres in any situation where a landlord attempts by his own means to remove a tenant who is claiming possession adversely to the landlord.'" Citing Berg v. Wiley, 264 N.W.2d 145, 151 (Minn. 1978). In Evans v. J Four Realty, 164 N.H. 570 (2013) the Court rejected the argument of a successful purchaser at foreclosure that it was entitled to exercise self-help to evict and held, "[A] purchaser at a foreclosure sale may not use self-help to evict a tenant at
sufferance." citing Greelishat 527.
Is THE FORECLOSURE SALE COMPLETE
Notwithstanding Barrows v. Boles, 141 N.H. 382, 393 (1996)(holding mortgage loses legal and equitable title once the auctioneer's hammer falls and the memorandum of sale is signed), the Defendants did not become owners of the Premises at the foreclosuresale. Under New Hampshire property law, title and ownership generally pass through foreclosure upon the completion of a process which is not completed until the recording of the foreclosure deed and affidavit. See RSA 479:26, III and In re Beeman, 235 F.3d 519, 526 (Bankr. D.N.H. 1999).
BEWARE OF CONVERTING PERSONAL PROPERTY
The necessary elements of conversion, to wit, intentional exercise of unauthorized dominion or control over the Plaintiff's property that seriously interferes with the Plaintiff's right to the property. See generally Marcucci v. Hardy, 65 F.3d 986, 991 (1st Cir. 1995).
"Abandonment depends upon the occurrence of two (2) factors: (1) an intention to abandon or relinquish the use, and (2) some overt act of failure to act which carries the implication that the owner neither claims nor retains any interest in the use. The decisive test is whether the circumstances surrounding such cessation of use are indicative of an intention to abandon the use and bested rights therein." Lawlor v. Town of Salem, 116 N.H. 61, 62-63 (1976)(citations omitted).
National Business Institute Inc. Presents a National Teleconference on November 7, 2013 FORECLOSURE: APPRAISAL REVIEW
Section IV: USING APPRAISAL NEGLIGENCE/FRAUD AS A FORECLOSURE DEFENSE By: William J. Amann, Esq.
I. APPRAISAL FRAUD:
Black's Law Dictionary (5thEd. 1979) defines fraud as an, "intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right" and, "a generic term, embracing all multifarious means by which human ingenuity can devise, and which are resorted to by one to get advantage over another by false suggestions or by suppression of truth, and includes all surprise, trick, cunning, dissembling and any unfair way by which another is cheated."
In the most extreme foreclosure cases then, fraud may be an element in play. Yet, it is difficult to establish and must be plead with particularity pursuant to Federal Rule of Civil Procedure 9(b) which provides, "Fraud or Mistake; Conditions of Mind. In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally."
The particularity requirement of Federal Rule of Civil Procedure 9(b) applies to claims of mail and wire fraud. That rule provides specifically, "In all averments of fraudor mistake, the circumstances constitutingfraudor mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed. R. Civ. P. 9(b). "Thus, a complaint alleging fraudmust set forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof." Tal v. Hogan, 453 F.3d 1244 (10th Cir. Okla. 2006).
In Wood v. Wells Fargo Bank, N.A., 2013 U.S. Dist. LEXIS 152196 (D. Colo. Oct. 2, 2013)the court found thatmail fraudis not committed simply by sending false statements through the mail. Instead, the mails must have been used to further a scheme to defraud or obtain money or property through false pretenses. Atlas Pile Driving Co. v. DiCon Financial Co., 886 F.2d 986, 991 (8th Cir. 1989). General allegations that the mails were used in connection and in furtherance of the enterprise are insufficient to meet the particularity requirements of Rule 9(b). In Re Sattler's, 73 B.R. at 786. "[A] plaintiff asserting fraudmust also identify the purpose of the mailing within the defendant's fraudulent scheme and allege facts that give rise to a strong inference of fraudulent intent." Kashelkar v. Rubin & Rothman, 97 F. Supp.2d 383, 393 (S.D.N.Y. 2000).
However, all is not lost. There are cases where claims of fraud have survived. In the context of allegations concerning fraud of asset-back securities for example, Courts construing claims under the Fed. R. Civ. P. 8(a) (general rules of pleading requiring a pleading state, among other things, a short and plain statement of the claim showing that the pleader is entitled to relief) pleading standard have found similar allegations of appraisal fraudto be adequately tied to the securities at issue. In Plumbers' & Pipefitters' Local No. 562 Supplemental Plan & Trust v. J.P. Morgan Acceptance Corp. I, No. 08-1713, 2012 U.S. Dist. LEXIS 24106, 2012 WL 601448 (E.D.N.Y. Feb. 23, 2012), the plaintiff relied upon statements from confidential informants and a survey of appraisers. The district court acknowledged that the allegations were "not tied to specific individual loans underlying the Certificates" and characterized them as "not strong." Yet, it nonetheless held that the complaint "describes sufficiently widespread conduct to plausibly infer that Certificates at issue were affected." Id.
And in Capital Ventures International v. J.P. Morgan Mortgage Acquisition Corp., No. 12-10085, 2013 U.S. Dist. LEXIS 19227, 2013 WL 535320 (D. Mass. Feb. 13, 2013), the plaintiff performed an independent appraisal. The court found that while "general allegations about the [appraisal] industry would not state a claim on their own," the plaintiff had "supported its claims with specific allegations about the originators and loans at issue. Those allegations make its claim plausible." Recently, a New Jersey state court upheld a common-law fraudclaim concerning appraisal fraudbrought by Prudential, in part based on Prudential's similar "data analysis." See Prudential Ins. Co. of Am. v. J.P. Morgan, 242 N.J. Super. 638, 577 A.2d 1300 (N.J. Super. Ct. Law Div., 2013) [D.E. 60-1]. Moreover, in the Second Circuit a court has held that "loan-sampling results . . . are sufficiently suggestive of widespread inaccuracies in appraisalvalue to render plausible [plaintiffs'] claim that the LTV information reported in the offering materials was 'objectively false.'"Fed. Hous. Fin. Agency v. UBS Ams., Inc., 858 F. Supp. 2d 306, 328 (S.D.N.Y. 2012), aff'd, 712 F.3d 136 (2d Cir. 2013).
In Nevada, twenty-nine (29) residents alleged that Bank of America and other defendants including mortgage servicing companies, trustees and appraisal companies engaged in a scheme to inflate property values in Nevada through obtaining intentionally inaccurate appraisalsto increase the amount borrowers would need to borrow to purchase property. According to the Complaint, Defendants artificially inflated property values so Defendants could underwrite more loans at higher amounts, resulting in both greater fees and profits in originating the loan, as well as raising the secondary market value of the loans, which Defendants sold soon after the loans were originated. Plaintiffs allege that because Defendants sold the loans soon after origination, Defendants did not care whether the borrower could afford the loan because Defendants would pass the risk to investors who purchased the loans bundled into securities.
SeeGarner v. Bank of Am. Corp., 2013 U.S. Dist. LEXIS 140810 (D. Nev. Sept. 28, 2013). In that case, the Plaintiffs also claimed violations of appraiser independence under 15 U.S.C. §1639eand 12 C.F.R. § 225.65. Appraisal independence requirements under 15 U.S.C. § 1639egenerally make it unlawful in extending credit or in providing any services for a consumer credit transaction secured by the principal dwelling of the consumer, to engage in any act or practice that violates appraisal independence as described in or pursuant to regulations prescribed under the law. Acts or practices that violate appraisal independence shall include--
(1) any appraisal of a property offered as security for repayment of the consumer credit transaction that is conducted in connection with such transaction in which a person with an interest in the underlying transaction compensates, coerces, extorts, colludes, instructs, induces, bribes, or intimidates a person, appraisal management company, firm, or other entity conducting or involved in an appraisal, or attempts, to compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate such a person, for the purpose of causing the appraised value assigned, under the appraisal, to the property to be based on any factor other than the independent judgment of the appraiser;
(2) mischaracterizing, or suborning any mischaracterization of, the appraised value of the property securing the extension of the credit;
(3) seeking to influence an appraiser or otherwise to encourage a targeted value in order to facilitate the making or pricing of the transaction; and
(4) withholding or threatening to withhold timely payment for an appraisal report or for appraisal services rendered when the appraisal report or services are provided for in accordance with the contract between the parties.
The Garner court in Nevada stated that Nevada has not specifically addressed whether a borrower could pursue such a claim against an appraiser or lender for knowingly and intentionally providing a false appraisalto the borrower to induce the borrower to take out a larger loan than otherwise would be required to purchase the property. However, the court went on to state that Nevada follows the Restatement (Second) of Torts § 552, which sets forth a claim for negligent misrepresentation:
One who, in the course of his business, profession or employment, or in any other action in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. Barmettler v. Reno Air, Inc., 114 Nev. 441, 956 P.2d 1382, 1387 (Nev. 1998).
So, the Garner court concluded, at least in the context of Bank of America's motion to dismiss, that there is no basis to conclude that Nevada would hold that negligently providing misinformation would subject a defendant to liability, but knowingly and intentionally providing misinformation would. The Court denied the Defendants' Motion to Dismiss to the extent Defendants argue that a false appraisalnever may form the basis of a fraudor misrepresentation claim under Nevada law.
In West Virginia, a consumer sued Quicken Loans concerning a ten (10) year interest only loan and, among other things, claimed that the loan appraisal was intentionally inflated and not rationally tied to the then market prices. SeeHeavener v. Quicken Loans, Inc., 2013 U.S.Dist. LEXIS 79006, 18-20 (N.D. W. Va. June 5, 2013). The court found that the plaintiff did not meet the rule 9 standard for specificity and further found that when a plaintiff seeks to establish a claim of fraudunder West Virginia law, the plaintiff must prove (1) the alleged fraudulent act is that of the defendant, (2) the act was material, false, and the plaintiff justifiably relied upon it, and (3) the plaintiff suffered injury as a result of the act. Ashworth v. Albers Med., Inc., 410 F. Supp. 2d 471, 477 (S.D.W. Va. 2005) (citing Lengyel v. Lint, 167 W. Va. 272, 280 S.E.2d 66, 67 (W. Va. 1981)). In the Heavenercase, the Plaintiff alleged that the defendants obtained an appraisalindicating that the market value of the Plaintiff's property was approximately $193,000. Multiple defendants were involved and the Plaintiff failed to specify the defendants' role in the alleged fraudulent appraisal.Plaintiff did not say which Defendant ordered a fraudulent appraisal, and the allegations are insufficient to provide a defendant with fair notice of the claim. SeeHarrison, 176 F.3d at 789 ("The 'clear intent of Rule 9(b) is to eliminate fraudactions in which all the facts are learned through discovery after the complaint is filed.'") (citation omitted); see alsoJuntii, 993 F.2d 228, [published in full-text format at 1993 U.S. App. LEXIS 10345, at *5] (stating that aggregation of defendants "is insufficient either to provide a defendant with fair notice of the claim against him or to protect a defendant from harm to his reputation or good will."). The court also found that the Plaintiff stated that the misrepresentation of the market value of the home were intentional and material; however, Plaintiff did not allege what the property's actual market value was at the time of the fraudulent appraisalor plead facts otherwise indicating that the misrepresentation was intentional and material. Finally, Plaintiff did not state when the fraudulent activity took place. Plaintiff alleged that Defendant [Advanced Mortgage Company] arranged for the Defendant [Orth Appraisals]to conduct an appraisalof the Plaintiff's property; however, Plaintiff fails to allege which loan the appraisalwas obtained for, the 2005 loan or the 2007 loan. Additionally, Plaintiff failed to allege an approximate date or time period that the appraisalwas performed.
Conversely, the Sixth Circuit Court of Appeals reversed (in part) an order from the District Court for the Eastern Division of Kentucky where it found that the district court erred by granting summary judgment in favor of the lender (Midwest Fin. & Mortg. Services) based upon a lack of proximate cause in connection with alleged harm stemming from an appraisal in the context of a RICO claim. See Wallace v. Midwest Fin. & Mortg. Servs., 714 F.3d 414 (6th Cir. Ky. 2013).
II. APPRAISAL NEGLIGENCE:
The basic elements of negligence(under California law and in all districts of which I'm aware) are "duty, breach of duty, causation, and damages." Marlene F. v. Affiliated Psychiatric Med. Clinic, Inc.,48 Cal. 3d 583, 588, 257 Cal. Rptr. 98, 770 P.2d 278 (1989). Liability for negligent conduct may only be imposed where there is a duty of care owed by the defendant to the plaintiff or to a class of which the plaintiff is a member. A duty of care may arise through statute or by contract. Alternatively, a duty may be premised upon the general character of the activity in which the defendant engaged, the relationship between the parties or even the interdependent nature of human society. Whether a duty is owed is simply a shorthand way of phrasing what is the essential question—whether the plaintiff's interests are entitled to legal protection against the defendant's conduct. J'Aire Corp. v. Gregory,24 Cal. 3d 799, 803, 157 Cal. Rptr. 407, 598 P.2d 60 (1979).
In McGarvey v. JP Morgan Chase Bank, N.A., 2013 U.S. Dist. LEXIS 147542 (E.D. Cal. Oct. 10, 2013) the Court discussed the Nymarkrule (In re Nymark,231 Cal. App. 3d at 1093) which holds that a defendant bank owes no duty of care when that defendant's interactions with a plaintiff fall within the scope of a bank's conventional role as a lender of money, does not apply here. In Nymark,the plaintiff alleged the defendant's appraisalof his residence, undertaken as part of the defendant's loan process, was negligent because the plaintiff relied upon the appraisal'sinaccurate conclusion that the residence contained no serious construction defects. 231 Cal. App. 3d at 1093. In holding that the defendant owed the plaintiff no duty of care, the court reasoned that "defendant performed the appraisalof plaintiff's property in the usual course and scope of its loan processing procedures to protect defendant's interest by satisfying it that the property provided adequate security for the loan." Id.at 1096. Defendant did not conduct the appraisalto induce plaintiff to enter into the loan transaction; rather, defendant was simply "acting in its conventional role as a lender of money to ascertain the sufficiency of the collateral as security for the loan.
However, Nevada recognizes a claim for appraiser negligence in the context of a lender suing the appraiser it has hired and relied on to fund its transaction. Goodrich & Pennington Mortgage Fund, Inc. v. J.R. Woolard, Inc.,120 Nev. 777, 101 P.3d 792 (Nev. 2004). Nevada courts have not specifically dealt claims brought by a borrower against an appraiser that was hired by the lender. Courts in other jurisdictions are split on the issue. For example, in Decatur Ventures, LLC v. Daniel,485 F.3d 387, 390 (7th Cir. 2007), the court held that the appraiser owed no duty to the borrower, only to the lender. Some courts recognized economic realities and consider whether a buyer was aware of the appraisal when it purchased the property and whether a purchase agreement is contingent upon the appraisal, and permit borrowers who knew and or actually relied on an appraisal to file suit. See Sage v. Blagg Appraisal Co.,221 Ariz. 33, 209 P.3d 169, 170-176 (Ariz. Ct. App. 2009)(appraiser retained by a lender in connection with a purchase-money mortgage transaction owes a duty of care to the borrower/buyer);compare with Kuehn v. Stanley,208 Ariz. 124, 91 P.3d 346, 350 (Ariz. Ct. App. 2004)(Plaintiffs could not demonstrate reliance because they were contractually bound to purchase the property, contingent upon qualifying for funding, before they received the appraisal. Therefore, Plaintiffs have no claim.) Other courts, applying the foreseeability rules of the Restatement (Second) of Torts §522 (1977) hold that appraisers owe a duty to borrowers if the appraiser knew the information was intended to benefit the third party borrowers. See Soderberg v. McKinney,44 Cal.App.4th 1760, 52 Cal.Rptr.2d 635, 639-42 (1996)(a negligent misrepresentation claim was sufficient if the third party belongs to a particular group or class which the information was intended to benefit); see also Stotlar v. Hester,92 N.M. 26, 582 P.2d 403 (N.M. App. 1978)(same).
Generally, if there is no evidence of reliance by the Plaintiffs on theappraisals, then the negligenceand negligent misrepresentation claims fail. SeeWilliams v. United Community Bank,724 S.E.2d 543, at *6, 2012 N.C. App. LEXIS 209 (N.C.App. 2012)(summary judgment on negligence and negligent misrepresentation claims was affirmed because plaintiffs failed to show that they relied on the appraisals). Florida seems to follow the Nymarkrule, recently holding, "that Plaintiffs cannot show that they relied on the appraisalor that Regions Bank intended to induce them to do so. Meyers requested the cash-out refinance before the appraisalwas obtained and he did not see the appraisaluntil after the cash-out refinance was completed. Thus, his actions were not affected by the appraisal. Furthermore, the purpose of the appraisalwas to protect the interests of Regions Bank in extending the loan. The court agrees with the general rule, recognized in Nymark v. Heart Fed. Savs. & Loan Ass'n,231 Cal. App. 3d 1089, 283 Cal. Rptr. 53, 57 (Cal. 3d Dist. Ct. App. 1991), that a lender owes no duty of care to its borrower in appraising the borrower's collateral to determine if it is adequate security for the loan. "[A] financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money." Id.This rule is consistent with Florida law, which imposes no duty upon a bank in an arms length transaction to act for the benefit or protection of the borrower or to disclose facts that the borrower could discover by due diligence. Barnett Bank of W. Fla. v. Hooper, 498 So. 2d 923, 925 (Fla. 1986). Because the appraisalin this case was obtained within the scope of Regions Bank's role as a lender, not as a fiduciary, Plaintiffs cannot sustain a claim against Regions Bank based on the appraisal.
So it seems as though a fiduciary or special relationship between a borrower and bank needs to be established in order for a negligent appraisal count to survive a motion to dismiss. In Minnesota for example, courts have recognized a special relationship giving rise to a fiduciary relationship between a bank and its customers when (1) the bank knows or has reason to know the customer is placing trust and confidence in the bank and relying on the bank to counsel and inform him, see Klein v. First Edina Nat'l Bank, 293 Minn. 418, 196 N.W.2d 619, 623 (Minn. 1972); (2) confidence is placed on the bank which results in superiority and influence over the customer, see Midland Nat'l Bank of Minneapolis v. Perranoski, 299 N.W.2d 404, 413 (Minn. 1980); (3) combined with a confidential relationship, the bank has greater access to facts and legal resources, see May v. First Nat'l Bank of Grand Forks, 427 N.W.2d 285, 289 (Minn. Ct. App. 1988); or (4) the bank and the customer have disparate levels of business experience and the bank invites the customer to place his confidence in the bank, see Murphy v. Country House, Inc., 307 Minn. 344, 240 N.W.2d 507, 512 (Minn. 1976).
In Massachusetts (I practice in NH and MA) To prove a negligenceclaim, a plaintiff must show that a defendant owed him a duty, breached that duty, and that the defendant's breach was the but-for and proximate causation of some resulting harm to the plaintiff. Brown v. United States, 557 F.3d 1, 3-4 (1st Cir. 2009).
Under the so-called "economic loss" rule, when a party seeks to recover pecuniary or economic loss the party must have had a contractual relationship with the defendant. See Aldrich v. ADD Inc., 437 Mass. 213, 770 N.E.2d 447, 454 (Mass. 2002) ("It has been a long-standing rule in this Commonwealth, in accordance with the majority of jurisdictions that have considered this issue, that 'purely economic losses are unrecoverable in tort and strict liability actions in the absence of personal injury or property damage.'" (citation omitted)). But there is an exception to the economic loss rule fro losses stemming from negligent misrepresentation. Nota Constr. Corp. v. Keyes Assocs. Inc., 45 Mass.App.Ct 15 (1998).Although a pure negligenceclaim fails under the economic loss doctrine when it seeks recovery of pecuniary losses in the absence of a contractual relationship, courts have held that the tort of negligent misrepresentation may be used to recover economic losses by analogy to Restatement (Second) of Torts § 552. See, e.g., Nycal Corp. v. KPMG Peat Marwick LLP, 426 Mass. 491, 688 N.E.2d 1368, 1371-72 (Mass. 1998) (adopting the test from § 552 for claim of negligent misrepresentation brought against professional accountants). The Restatement notes that for liability to arise on the basis of information supplied for the guidance of others, there must be (1) justifiable reliance upon the information by a limited group of persons, (2) for whose benefit and guidance the appraiser (a) intends to supply the information, or (b) knows that the recipient intends to supply it. Restatement (Second) of Torts § 552.
III. CONCLUSION:
Perhaps surprisingly, it seems harder to bring a successful claim for negligent appraisal, due to the need of establishing a fiduciary or special relationship between the borrower and the appraiser than it is to bring a successful claim for fraud. All of these cases turn to the state's statutory and case law concerning fraud and negligence so it is critical to first understand and analyze any possible claims along these lines under your state's controlling case law and statutes. If you get that far then the next step is to test the claims under Rule 9(b) and the prevailing federal case law in your district.
UNITED STATES BANKRUPTCY APPELLATE PANEL FOR THE FIRST CIRCUIT - BAP NOS. PR 12-066, PR 12-067 - Bankruptcy Case No. 11-07492-EAG
carrion-v-rivera-in-re-rivera_[1st_circuit]__volo.abi.org_.pdf
Vendors Beware: The Risk of Debtor's Unauthorized Post-petition Payments For Post-petition Goods or Services
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