$401,452.59 Surplus Moneys: The Extra Bit Left Over!

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In the typical mortgage foreclosure proceeding, the mortgage lender (or “mortgagee”) brings an action against the homeowner to foreclose on its mortgage against the real estate, generally because the homeowner (or “mortgagor”) failed to make payments on the loan. The mortgage is the legal document recorded by the mortgagee against the mortgagor property to provide the collateral for the making of the loan. In case of default in payment, the mortgagee has the right to sell the collateral to satisfy the remaining balance due on the loan (most foreclosure proceedings are judicial sales, where a court has authorized the sale, as opposed to ‘non-judicial’ sales in limited circumstances). Sometimes, in a foreclosure action, the plaintiff is not the holder of a mortgage but rather has another type of lien against the real estate, such as a tax lien for unpaid real estate taxes, mechanic’s lien (for building supplies or labor performed), or judgment lien.

Once the mortgagee or lienor has obtained a Judgment of Foreclosure and Sale, it can then sell the real estate. The mortgage foreclosure proceeding culminates with the public auction of the mortgagor’s real estate to the highest bidder. At that point, the property is sold to the bidder, who pays the sale price to a court-appointed referee.

Definition of Surplus Moneys:

If the amount paid by the successful bidder at the auction sale exceeds the amount due to the mortgagee according to the Judgment of Foreclosure and Sale, then there is created a special fund of the left-over purchase price called the “Surplus Moneys.” For example, if the mortgagee is due $200,000 and the property sold for $300,000, the remaining sale price of $100,000 is the surplus. According to Article 13 of New York’s Real Property Actions and Proceedings Law (RPAPL), there is a procedure for the former homeowner (and other junior lienors, such as second mortgagees, judgment creditors or other lienholders) to petition the court for the release of the surplus moneys.

Fighting over $401,452.59 Surplus Moneys:

In 2005, the owner of a building in Brooklyn failed to pay his property taxes. A foreclosure proceeding was brought based on the tax lien, and the building was sold at auction. The referee paid off the tax lien and then deposited the remaining surplus moneys of $401,452.59 into court. The building owner died, leaving his second wife and children as his survivors. He had been married previously and, as part of his and his first wife’s divorce case, had agreed to pay her half of the value of the building. The first wife and one of the owner’s children retained Richard A. Klass, Your Court Street Lawyer, to pursue the payment of their respective shares of the surplus moneys.

The various heirs to the estate of the owner, along with the first wife, filed motions in court to have a “surplus moneys referee” appointed to determine who would be entitled to what portion of the surplus moneys. The second wife alleged that the first wife was not entitled to any portion of the surplus moneys, claiming that she was previously paid by the decedent for her portion – but she could not find proof of the alleged payment. A hearing was held before the surplus moneys referee, who determined that the first wife should receive her half-share of the moneys of over $200,000, along with accrued interest.

The balance of the surplus moneys were to be distributed according to New York’s Estates, Powers and Trusts Law (EPTL) Section 4-1.1, which comes into play when someone dies without a Will. (This is the reason that making a Last Will and Testament is very important!) According to the EPTL, the balance of the surplus moneys were to be distributed as follows: (a) the first $50,000 plus half of the remaining balance paid to the second wife; and (b) the other half of the remaining balance paid to the surviving children, evenly divided among them.

After the completion of the hearing, the referee rendered a report, setting forth the manner of distribution. Then, an Order confirming the report and directing the distribution was signed by the Judge. At the conclusion, each of the clients received her fair share of the surplus moneys in full with interest.

 Richard A. Klass, Esq.

copyr. 2011 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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Announcement: Distinguished Service Award for Richard A. Klass

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Announcement:

On May 11, 2011, Richard A. Klass, Your Court Street Lawyer, was presented with the prestigious Distinguished Service Award by the Brooklyn Bar Association. This award, presented by Association President Andrea Bonina, recognized the accomplishments of Mr. Klass in founding the BBA’s Mentoring Committee. The Mentoring Committee was formed to assist lawyers in obtaining advice on the practice of law, including finding a job, starting a law firm, resumé building, and how-to help. It is with great honor that Mr. Klass serves to help the legal community in enhancing their opportunities and developing professionalism.

R. A. Klass
Your Court Street Lawyer

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Amendment to Bankruptcy Petition Worth Millions!

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A brother tried to help his sister, and it almost cost him millions of dollars. Based upon the brother’s good credit, his sister bought a house in Queens in his name. At some point, she was unable to keep up with the mortgage payments and the house fell into foreclosure.

On the eve of the foreclosure sale, the brother filed bankruptcy to “stay” the sale. In the mad rush to save the family home (which, unfortunately, is common these days!), the brother did not understand something very important: the personal injury lawsuit he filed years earlier, relating to a construction work-site injury in which he was severely injured, was an “asset” of his to be listed in his bankruptcy petition. Unfortunately, the Chapter 13 bankruptcy case was dismissed because the brother could not make the mortgage or bankruptcy plan payments. The house was later sold at foreclosure sale.

State Court Motion to Dismiss:

Subsequently, the defendants in the state court personal injury case asked the judge to dismiss the case based upon the failure of the plaintiff/injured person to list the pending lawsuit as a “contingent asset” in his bankruptcy petition. Substantial New York case law, going all the way up to the New York State Court of Appeals, has held that the failure to list the asset in the petition is fatal to the continuance of the personal injury case – every case on point says the injured person’s lawsuit gets dismissed without any recovery, no matter how grave the injury.

Uncharted Course to Be Taken:

Faced with this apparently insurmountable challenge, Richard A. Klass, Your Court Street Lawyer, was brought in to help save the man’s personal injury case. The strategy developed was to return to the Bankruptcy Court to seek to amend or fix the petition to reflect the existence of the personal injury claim. This was trail-blazing!

In determining that the debtor/personal injury plaintiff should be permitted to amend his bankruptcy petition to list the claim as an asset, Chief Bankruptcy Judge Craig stated: “This Court has not found any statute, rule or precedent that provides that a debtor’s right to amend expires upon dismissal of the case, or that the order dismissing the case must be vacated before schedules, statements or lists may be amended.” In re Severius Raggie, New York Law Journal 7/9/2008.

Interplay between “Closed” and “Closed”:

At first glance, the court noted that the bankruptcy case was marked “closed.” The judge was skeptical that an amendment to the petition could be made because Bankruptcy Rule 1009 provides that “a voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed.”

However, in relying upon the decision in In re Critical Care Support Services, 236 BR 137, it was pointed out that a case can only be “closed” when the assets of the bankruptcy estate have been fully administered. The term “closed,” as used in Bankruptcy Rule 1009 and Bankruptcy Code §350, does not encompass “dismissed” cases. Thus, an Order dismissing a case accomplishes a completely different result than an Order closing it would; essentially, upon dismissal of a bankruptcy case, all of the debtor’s rights in his property revert back to him.

Separately, the court also held that, as part of accepting the debtor’s amendment, it could reject the amendment when “the facts and circumstances presented indicate that the amendment was filed in bad faith, fraudulent or prejudicial.” Citing to In re Nye, 250 BR 46. In this case, Judge Craig held that there was no evidence of bad faith, fraud or prejudice; the state court defendants’ argument that granting the amendment would “reward” the debtor was not persuasive. In the absence of any evidence that the debtor deliberately omitted the personal injury claim from his schedules to defraud his creditors, permitting the debtor to amend did not reward wrongdoing.

After Judge Craig granted the debtor’s motion to amend his bankruptcy petition, the state court defendants in the personal injury lawsuit withdrew their motion to dismiss the case. The plaintiff’s case is now winding through the New York State Supreme Court towards a trial, in which his serious injuries will be considered by a jury.

Richard A. Klass, Esq.

 

©2008 Richard A. Klass. Art credits: Selbstporträt mit fünfzig Jahren, by Giovanni Fattori, 1884; Porträt der dritten Ehefrau, by Giovanni Fattori, 1905. Newsletter marketing by The Innovation Works, Inc.

copyr. 2011 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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$73K Buys $200,000 House, Thanks to Debtor’s “Hat Trick” Screw-up.

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The foreclosure auction of the defendant’s Staten Island house came up on a Wednesday at 9:30AM. The courtroom was packed with people ready to bid on the house. The Referee announced the sale of the house, took bids, and struck down the sale at $73,000 to the successful bidder.

Moments later, the Referee informed the successful bidder that one of the two owners of the house had filed bankruptcy at 9:26AM; therefore, the foreclosure sale was invalid and the bidder should take back his bid deposit. At that moment, the successful bidder called Richard A. Klass, Your Court Street Lawyer about whether the sale was indeed invalid.

Automatic Stay Operates as a “Stop” Sign:

People normally file for bankruptcy protection for one or both of two reasons: (1) to discharge debt; and (2) to “stay” (or stop) proceedings against the debtor, such as foreclosures, lawsuits, repossessions, evictions, etc.

Under Bankruptcy Code §362(a), the filing of a bankruptcy petition with the United States Bankruptcy Court imposes an automatic stay upon creditors from taking certain actions, including specifically auctioning off the debtor’s house (Note: there are exceptions which may apply). Generally, actions taken after the filing of the bankruptcy petition are null and void, as if they never occurred. In this particular situation, the foreclosure auction happened 4 minutes after the bankruptcy filing. Under normal circumstances, the automatic stay would have voided this sale and the successful bidder would have merely gotten back his bid deposit, without getting the house.

Before the drastic changes to the Bankruptcy Code in 2005 (under the Bankruptcy Abuse Prevention and Consumer Protection Act [BAPCPA]), debtors would go in and out of bankruptcy to prevent their houses from being sold. Since BAPCPA, it has gotten more difficult for debtors to get the benefit of the “Stop” sign – the first filing will trigger a stay, the second filing a briefer stay, and the third filing no stay unless requested. These “Stop” signs begin to feel like a “Hat Trick,” where one player scores three times.

Searching for Details:

The first step in trying to salvage the foreclosure sale for the successful bidder was reviewing every document filed in the bankruptcy case. This included the “bare bones” petition and the “Credit Counseling Certificate.” This Certificate states that the debtor completed a credit counseling course within six months before the bankruptcy filing, which must be done in order to be eligible to file bankruptcy. Upon very close review, it appeared that the debtor simply took the old, expired Certificate from her prior bankruptcy case the year before (more than 6 months old) and filed the same one again – a big but little-noticed “no-no.”

Upon further digging, it appeared that the co-owner of the house had previously filed bankruptcy and there was an order terminating the stay a year earlier. Also, the debtor had both unsuccessfully filed a bankruptcy before and had filed the current one without complying with the rules, including paying the court’s filing fee.

Validation of Post-Petition Foreclosure Sale:

The Court found that grounds existed to warrant the annulment or termination of the automatic stay and validation of the foreclosure sale. Citing to several cases, the court identified various factors that should be considered in determining whether to validate a post-petition foreclosure sale, including whether:

  1. the creditor had actual or constructive knowledge of the bankruptcy filing and, therefore, of the stay;
  2. the debtor has acted in bad faith;
  3. there is equity in the property of the estate;
  4. the property is necessary for an effective reorganization;
  5. grounds for relief from stay exist and a motion, if filed, would have been granted prior to the violation;
  6. failure to grant retroactive relief would cause unnecessary expense to the creditor;
  7. the creditor has detrimentally changed its position on the basis of the action taken;
  8. the creditor took some affirmative action post-petition to bring about the violation of the stay; and
  9. the creditor promptly seeks a retroactive lifting of the stay and approval of the action taken. In re Campbell, 356 BR 722 (WD Mo.2006); In re Williams, 257 BR 297 (Bankr.WD Mo. 2001).

Reviewing the facts of the particular situation, the Court found “ample support” for annulling the stay retroactively and validating the post-petition foreclosure sale. These facts included the bare bones petition filed by the debtor with the expired Certificate, her case being filed on the same date as the auction sale, her significant prior experience in bankruptcy, and the negative effect to the successful bidder’s (an independent third party) rights.

In granting the successful bidder’s motion, the Bankruptcy Judge determined that the “debtor’s failure to act in good faith in this case warrants the annulment of the automatic stay and the validation of the petition day foreclosure sale.” In re Annie Williams, US Bankruptcy Court, Eastern District of New York, Case No. 1-09-44856-dem [Decision dated January 27, 2010]. Since the Bankruptcy Court validated the foreclosure sale, the successful bidder achieved his desired result – the purchase of the Staten Island house, valued at more than $200,000, for $73,000.

by Richard A. Klass, Esq.

Credits:
Image by artist August Macke (1887-1914).
Photo of Richard Klass by Tom Urgo, 2008.
Law firm business communications services provided by
The Innovation Works, Inc.

copyr. 2011 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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How the “ Continuous Representation ” Doctrine Helps Injured Clients.

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In legal matters, there is an attorney-client relationship from the moment that the attorney is consulted by the client until the matter concludes. If, during the term of this relationship, the attorney was negligent or commits malpractice in the matter, the client may have a claim against the attorney for legal malpractice. Sometimes, the malpractice is committed at the early stages of litigation and not at the conclusion; for instance, an action may have started in Year 1, malpractice was committed in Year 2, and the action concludes in Year 6. The question then becomes whether or not the client may pursue a claim against the attorney for the malpractice committed in Year 2, when the statute of limitations period may have already passed.

CPLR 214(6) provides that “an action to recover damages for malpractice, other than medical, dental or podiatric malpractice, regardless of whether the underlying theory is based in contract or tort” must be commenced within 3 years.

The cause of action for malpractice accrues at the time of the act, error or omission. See, Julian v. Carrol, 270 AD2d 457 [2d Dept. 2000]; Goicoechea v. Law Offices of Stephen Kihl, 234 AD2d 507 [2d Dept. 1996]; Shumsky v. Eisenstein, 96 NY2d 164 [2001].

In order to protect clients The Court of Appeals has held that a cause of action for legal malpractice accrues against the attorney when the statute of limitations expires on the underlying action for which the attorney was retained. See, Shumsky v. Eisenstein, supra.

The Continuous Representation Toll

The accrual of the three-year statute of limitations is tolled during the period of the lawyer’s continuous representation in the same matter out of which the malpractice arose under the theory that the client should not be expected to question the lawyer’s advice while he is still representing the client. See, Lamellen v. Kupplungbau GmbH v. Lerner, 166 AD2d 505 [2d Dept. 1990]; Shumsky v. Eisenstein, supra. Under the continuous representation doctrine, there must be clear indicia of an ongoing, continuous, developing, and dependent relationship between the client and the lawyer. See, Kanter v. Pieri, 11 AD3d 912 [4 Dept. 2004]; Lamellen v. Kupplungbau GmbH v. Lerner, supra; Clark v. Jacobsen, 202 AD2d 466 [2 Dept. 1994].

by Richard A. Klass, Esq.

copyr. 2008 Richard A. Klass, Esq.
Art credits: [art critic] Diego Martelli in Castiglioncello by Giovanni Fattori, 1865-1867.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

R. A. Klass
Your Court Street Lawyer

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