Statute of Limitations

Feeling a Million Bucks Better!

Posted on by

Bad economic times over the past few years have seen the foreclosure of tens of thousands of properties across New York State (as well as around the country). One corporate landlord had two commercial rental buildings located in Brooklyn. Spread across those two buildings was a ‘blanket’ mortgage of $1.1 million (the term ‘blanket mortgage’ refers to one mortgage recorded against two or more properties). The buildings fell into foreclosure as a result of the landlord’s inability to pay the mortgage loan and the general economic downturn in the area. The corporation that owned the buildings and the individual owner who signed a personal guaranty of the mortgage loan were sued in the mortgage foreclosure proceeding.

On September 30, 2010, the two buildings were sold at the foreclosure auction sale by the court-appointed Referee as one combined lot for $574,000. The mortgage lender’s attorneys prepared the Referee’s Report of Sale and Statement of the balance due to the lender on the mortgage loan after the auction sale (the “deficiency”), which was computed as follows: Total due Plaintiff: $1,408,111.61. Amount of Bid: $574,000. Deficiency: $834,111.61.

After the foreclosure auction sale, the plaintiff-mortgage lender filed a motion with the court, asking the judge to grant a Deficiency Judgment against the corporation and the individual owner based upon his personal guaranty. The defendants did not receive notice of the motion. The motion was granted and the court entered a Deficiency Judgment against them for $902,506.17.

The individual guarantor (and now judgment debtor), came to Richard A. Klass, Your Court Street Lawyer, for legal advice to challenge the Deficiency Judgment.

Deficiency Judgment:

Mortgage foreclosures in New York are governed by Article 13 of the Real Property Actions and Proceedings Law (RPAPL). The normal flow of a mortgage foreclosure proceeding is: (a) filing and serving the Summons and Complaint; (b) having the court appoint a referee to determine how much is due to the lender on the mortgage loan; (c) granting the Judgment of Foreclosure and Sale, allowing the mortgage lender to “foreclose” the mortgage upon its collateral (security for the loan) – the house; and then (d) conduct an auction sale of the house to satisfy the debt owed.

Many times, the foreclosure auction sale of the property does not sell for enough money to pay off the debt due to the mortgage lender/bank. When a property is worth less than the amount due on the mortgage, the property is considered “underwater.” If, after the sale, the lender is still due money for its debt under the Judgment of Foreclosure and Sale, the lender may bring a request for the judge to award a judgment for the balance of the money due for its debt – it is asking for a Deficiency Judgment to be entered against the person or people liable under the mortgage note (the term “deficiency” referring to the remaining shortage due to the bank). The procedure for requesting the Deficiency Judgment is laid out in RPAPL Section 1371, and it must be strictly followed.

Attacking the Validity of the Deficiency Judgment:

At the stage that the client retained Richard A. Klass, Your Court Street Lawyer, to help, a game plan to attack the Deficiency Judgment had to be formulated and put into action. The entire file in the mortgage foreclosure proceedings, including all of the pleadings, motions, and court orders had to be obtained from court and reviewed to see whether every step taken by the mortgage lender was proper – in other words, did the mortgage lender cross every “t” and dot every “i”?

Motion made after 90-day time limit.

The Referee’s Deed from the auction sale was dated October 9, 2010. The date that the motion was served upon the defendants, January 11, 2011, exceeded the 90-day time limit specified in RPAPL 1371(2) by four days. New York case law has held that the 90-day time period in which to request that a deficiency be granted is considered a “ statute of limitations ” and, if not made within this period, it is time-barred. Thus, it was argued that the plaintiff-mortgage lender made the motion too late.

Improper calculation of the deficiency.

In RPAPL 1371(2), it states that the deficiency is the amount owing less “the market value determined by the court or the sale price of the property whichever shall be the higher.” The plaintiff calculated the deficiency based upon the lower sale price ($574,000) instead of the higher appraised fair market value ($675,000), which would have resulted in a lower deficiency amount (by over $100,000).

Both properties were sold together as one combined lot.

For some reason, the plaintiff opted to lump together two separate and distinct properties into one foreclosure sale. By conducting the sale of both properties at the same time, it was argued the plaintiff waived the right to claim a deficiency against the defendant. In Sanders v. Palmer, 68 NY2d 180 [1986], the Court of Appeals held that “there shall be separate sales of the security in such order as the court may fix, and an application after each sale and before the next occurs for determination of the deficiency resulting from the sale, for otherwise what remains due and payable from the additional security provided cannot be known.” Here, the plaintiff decided to sell both properties as a “package deal” without selling each property separately; therefore, the proper deficiency could not have been determined.

The personal guaranty was “limited” to $55,000.

But, perhaps, the most glaring mistake in the foreclosure proceedings was that the personal guaranty of the individual owner (attached to the Complaint) stated on its face that it was limited to only $55,000 of the mortgage debt plus the legal expenses and costs associated with protecting the collateral. This was not brought to the attention of the judge when the plaintiff made the motion for the deficiency.

Based upon the several errors in the motion and procedures taken to obtain the Deficiency Judgment, the plaintiff-mortgage lender agreed to vacate and dismiss the Deficiency Judgment against the individual guarantor. Instead of owing the bank close to $1 million, he wound up owing $0!

by Richard A. Klass, Esq.

copyr. 2011 Richard A. Klass, Esq.
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.

Credits:
Photo of Richard Klass by Robert Matson, copyr. Richard A. Klass, 2011.
Newsletter marketing by The Innovation Works, Inc.
Image at top: The Merry Fiddler, 1623, by Gerard van Honthorst (1590-1656). This image is in the public domain because its copyright has expired. This applies to Australia, the European Union and those countries with a copyright term of life of the author plus 70 years. This image is in the public domain in the United States. This applies to U.S. works where the copyright has expired, often because its first publication occurred prior to January 1, 1923.

R. A. Klass
Your Court Street Lawyer

Next post
Previous post

Who Are You and Why Are You Suing Me?! The Debt Buyer Phenomenon.

Posted on by
He got the Summons and Complaint from a process server in 2007. The name of the plaintiff suing the defendant was “New Century Financial.” He had never heard of the plaintiff and did not know why it was suing him. The Complaint claimed that the defendant had a Providian credit card account and owed money on the account. He remembered having an account with Providian a long time ago and also remembered making his last payment to Providian in the Fall of 2000. Many people still remember the fall-out of the Savings and Loan crisis in the 1980s, and the take-over of bank assets by the FDIC and RTC, including hard assets (such as buildings) and monetary instruments (such as promissory notes); those assets were sold to third party investors and collected upon by them. In the 1990s, an offshoot of that industry began in full force – the purchase of credit card charge-offs, auto loan deficiencies and other debts owed by consumers. Debt brokers began buying nationwide and statewide portfolios of debt, and selling them to debt buyers in every imaginable stratification. When the defendant in this case got sued by New Century Financial, he turned to Richard A. Klass, Your Court Street Lawyer, for legal assistance to defend himself against this debt buyer’s claims.

Statute of Limitations:

In almost every type of case that a person may bring against someone, there is a time in which that case may be brought, and once that time has passed, the “ statute of limitations ” for that type of case prohibits a late case from being brought. There are various reasons for this rule, including failing memories, loss of evidence, and fairness to litigants. According to New York State law, in Civil Practice Law and Rules (CPLR) Section 213(2), the statute of limitations to sue someone for breaching a contract is six years from the date of breach. In this case, one of the defenses put forth by the defendant was that his last payment to Providian was made in the year 2000, and the lawsuit was filed by New Century Financial in the year 2007; seemingly, the six-year statute of limitations period in which to bring the case had already passed. Since the defendant did not have records of all of his payments to Providian, there was an issue as to whether the last payment was, in fact, made in the year 2000.

Who are you and why are you suing me?!

More importantly, a much more compelling defense was asserted by the defendant that New Century Financial lacked “standing” to bring the case. The defendant admitted that he may have previously owed a balance on his credit card bill due to Providian; he even saved some of the old dunning letters that he received from Providian. But why was someone he never heard of before suing him for that balance. In addition to the statute of limitations, there is another fundamental of law, the issue of standing. When someone brings a lawsuit against another, he has to prove that he may legally do so; in other words, that he owns the claim he is bringing. One of the common problems in these so-called “debt buyer” cases is that the plaintiff cannot prove that it is the rightful owner of the debt allegedly owed by the defendant.

The defendant took a very simple legal position – if Providian showed up to collect its debt, it may be due; but, the plaintiff cannot show it owns the debt. This called into question an evidentiary issue as to whether New Century Financial could prove the chain of title from Providian to itself. After pressing for disclosure of the purchase agreements and other evidence of the alleged assignment of the credit card account from Providian to New Century Financial, the debt buyer finally capitulated. New Century Financial agreed to discontinue the lawsuit WITH PREJUDICE (meaning that it cannot bring the lawsuit against the defendant again in the future).

Changes developing in the law:

Across the country, various governmental agencies have been busy trying to address the problems encountered between debt buyers and consumers. The federal Fair Debt Collection Practices Act (FDCPA) prohibits many forms of harassment and abuse by debt collectors who collect debts owed by consumers to creditors. In recent years, the FDCPA has redefined the term “debt collector” to include “debt buyers” to curb their abuses. The New York City Administrative Code, which requires the licensing of debt collection agencies with the Department of Consumer Affairs, was amended to include debt buyers.

By the directives of the Chief Clerk on May 13, 2009, new requirements came into action in the New York City Civil Court system to directly address two common problems with debt buyer cases. The first one is that, when a plaintiff applies to the clerk for entry of a default judgment against the defendant, the papers must include an affidavit from the plaintiff or its attorney that it has “reason to believe that the statute of limitations has not expired.” The second one is that, when a plaintiff applies to the clerk for entry of a default judgment against the defendant, the papers must include (a) an affidavit of sale from the original creditor and not an agent; (b) an affidavit from any intermediaries who owned the debt before assignment to the plaintiff; and (c) an affidavit from the plaintiff attesting to the chain of title from the original creditor to it.Without doubt, the changes being put into effect, coupled with the difficulties of debt buyers in obtaining documents and witnesses from the original creditor, will tilt the scales of justice towards consumers for some time.

by Richard A. Klass, Esq.
©2009 Richard A. Klass. Art credits: page one, Porträt eines Mannes mit Hellebarde (4th quarter of the 17th century). Artist: Aert de Gelder. 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.com with any questions.
Prior results do not guarantee a similar outcome.

How the “ Continuous Representation ” Doctrine Helps Injured Clients.

Posted on by

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

Next post
Previous post

The Wrong Side of the Tracks Costs Law Firm $800,000.

Posted on by

The Long Island Railroad (LIRR) leased one of its old rail yards in Queens to a recycling company. One of the recycling company’s employees was working the late shift on a rainy evening in 2003. That rainy night, he was assigned the task of welding on a portion of the metal fence surrounding the yard with an acetylene torch. He got up on a ladder, climbed up several rungs, and started to weld. At that point, the injured worker got a shock from the welding equipment. The ladder then shifted in the mud and he fell to the ground, suffering severe injuries. Since that incident, he was unable to work, having become disabled, and having had several surgeries to his back and knee.

The injured worker hired a law firm to bring a personal injury claim against the owner of the yard under New York’s Labor Law Section 240 known as the “Scaffolding Law.” That law firm brought a petition to file notices of claim against the MTA (Metropolitan Transportation Authority) and the LIRR. The Supreme Court Justice dismissed the petition, indicating in his decision that, as to the MTA, the reason for the late notice of claim was not meritorious and, as to the LIRR, no notice of claim was needed and that the law firm merely needed to timely commence a lawsuit under New York’s Public Authority Law. Needless to say, the time within which the injured worker needed to commence the lawsuit against the LIRR had already passed by the time of that decision. The injured worker retained Richard A. Klass, Your Court Street Lawyer to sue the personal injury law firm for legal malpractice.

Time-barred by the Statute of Limitations:

The concept of a “ Statute of Limitations ” is that people are afforded a certain amount of time to take action concerning a legal claim they may have; if that period of time passes without taking action, then the ability to pursue the legal claim has been waived. Most people are familiar, for instance, that in New York State the statute of limitations period within which to file most personal injury cases is three years from the date of accident. In this particular case, though, the Statute of Limitations period within which to sue the potentially liable parties was shorter (to a period of one year and thirty days) because the personal injury claim was against the LIRR, a governmental authority under a special statute.

Once the judge had dismissed the injured worker’s lawsuit, thus leaving him without recourse to recover monetary damages for his injuries, the law firm was exposed to the legal malpractice claim brought against it because it was alleged to have “blown” the statute of limitations by neglecting to timely file the lawsuit against the LIRR.

In legal malpractice cases, the statute of limitations in which to sue an attorney is three years from the date of malpractice under New York’s CPLR Section 214(6). Since many times in litigation, attorneys who have committed malpractice continue representing their clients for months or years afterward, there is also a concept of “ continuous representation. ” This means that the statute of limitations “clock” does not start to tick until the attorney has stopped representing the client in the matter.

Proving the underlying case under Labor Law Section 240:

A legal malpractice case is a very difficult type of litigation for one particular reason: Assuming that the lawyer ‘screwed up’ as much as possible, doing everything as wrong as could be done or failing to do any of the right things, it still might not matter — the ultimate question for purposes of liability for legal malpractice will be whether there was any merit to the underlying case that the lawyer was hired to handle. Rephrased: Would the client have won “but for” his lawyer?!

New York’s Scaffolding Law provides that owners of real estate, such as the LIRR, are “strictly liable” for injuries suffered by workers who fall from a ladder or scaffold under almost all circumstances, with limited exceptions, such as if there was a lack of adequate safety devices. This basically means that the landowner is responsible to pay for all of the worker’s damages for his injuries, including medical bills, lost wages, and pain and suffering. An exception to holding the landowner strictly liable under the Scaffolding Law is where the injured worker is found to have been the “ sole proximate cause ” of his injuries. In this case, the law firm being sued for legal malpractice argued that, in the event the LIRR had been sued, the injured worker would not have prevailed anyway because this exception to the Scaffolding Law would have applied because he knew not to weld in the rain. In response, the injured worker claimed that his employer at the yard instructed him to weld in the rain and that he was not going to be insubordinate.

Separate and apart from the Scaffolding Law issue, the law firm argued that there was no proof of exactly where the fall occurred to establish that it happened on the LIRR’s property. In response, a surveyor was retained to survey the area surrounding the old rail (now recycling) yard, and Deeds dating back to the 1800s were obtained. These documents were produced to establish the legal ownership of the location where the fall took place. This was a necessary element of the case in order to prove that the LIRR would have been liable for injuries to workers on its property under the Scaffolding Law.

The legal malpractice case came up for a pre-trial conference. Attorneys Richard A. Klass and Stefano A. Filippazzo appeared at the conference on behalf of the injured worker. The law firm being sued for legal malpractice finally settled with the injured worker for $800,000 to settle the action and pay for his injuries and extensive medical lien.

by Richard A. Klass, Esq.

copyr. 2011 Richard A. Klass, Esq.

Art credits: page one, Hjørring – Hirtshals Line in Northern Denmark. Photograph by Tomasz Sienicki, 2003.

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.

Marketing by The Innovation Works, Inc.

R. A. Klass
Your Court Street Lawyer

Next post
Previous post

What Is a “Traverse” Hearing and Why Is It Important

Posted on by

Recently, I had the opportunity to successfully represent a client at a traverse hearing in the Civil Court. This article will illustrate the purpose and effect of such a hearing.

A ” traverse ” is a hearing conducted by a judge to determine whether the defendant was properly served with the Summons in the action. The ultimate result of such a hearing will be a determination that either the defendant was properly served and, therefore, must answer the Complaint, or that the defendant was not properly served and the action is deemed dismissed. Sometimes, this is the critical part of a case, especially where the time to commence a new action against the defendant has passed by virtue of the applicable statute of limitations.
 
In PRA III LLC v. Weisel, I represented the defendant, who claimed that the first time he learned of the existence of the case was when he received a copy of the judgment from the plaintiff’s counsel. Importantly, he claimed that he was never served with the Summons and Complaint by a ” process server, ” or someone authorized to serve such papers. [A “process server” in particular is someone who serves more than five Summonses within a year].
 
At the hearing, the process server was called to testify about his prior affidavit where he claimed that he served the Summons upon my client. The process server indicated on the affidavit he posted the Summons on the outer door of the defendant’s house, which may be permissible according to the statute. However, the defendant testified that he resided in the second floor apartment of a three-apartment house, and that the bells outside the common door are clearly marked with the occupants’ names. Service by posting the Summons on the outside door was deemed insufficient in this situation.
 
The service was also challenged in two other ways, which proved successful:
 
Firstly, process servers are required to maintain a “log book,” in which they note where and when they served process (or attempted to serve process unsuccessfully). Here, the process server’s log book did not contain any entry for the date of the alleged service of process.
 
Secondly, the defendant resided on a block in Boro Park, Brooklyn, which the process server conceded was a heavily Sabbath-observant Jewish neighborhood. By law, service of process on a Saturday upon someone whom the process server knows or should know to be Sabbath-observant is deemed defective.
 
The end result of the traverse was that the service of the Summons was not sustained as valid, and the action was dismissed. Now, the plaintiff is required to commence a new action if it wants to attempt collection of the debt (perhaps with a more diligent process server!).
 
by Richard A. Klass, Esq.
“Your Court Street Lawyer”
Copyright 2005
 
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 RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.
 
 

License Information

What Is a “Traverse” Hearing and Why Is It Important by Richard A. Klass, Esq. is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. For permissions beyond the scope of this license, please contact Mr. Klass (email: RichKlass@CourtStreetLaw.com). Insert the words “reprint permission request” in the subject line of the email.
 

Publishing Guidelines

Permission is granted to publish this article electronically in free-only publications, like a website or ezine (print and non-free publications require permission) as long as the resource box is included without any modifications. All links must be active. A courtesy copy is requested on publication (email: RichKlass@CourtStreetLaw.com).
Article Title:
What Is a “Traverse” Hearing and Why Is It Important
Article URL is here.
Author Name:
Richard A. Klass, Esq.
Contact Email Address:
RichKlass@CourtStreetLaw.com
Word Count:
450 words
[This resource box must be included in any publications.]
* * *

Resource Box

About the Author:
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 by phone at (718) COURT-ST [(718) 268-7878)] or RichKlass@courtstreetlaw.com with any questions. Prior results do not guarantee a similar outcome.
Read the original article in context here.
Back issues from Mr. Klass’ quarterly newsletter, Law CURRENTS are available on the firm’s website.
Articles from Law CURRENTS may be available for reprint. Please see individual articles for license information.
* * *

 

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

Next post
Previous post