February 2013 Archives

Bank Not Entitled to Recover Expenditures for Marketing a Foreclosed Property

February 25, 2013

After defendant defaulted on a $1.3 million mortgage and note, the bank foreclosed. Despite the appointment of a receiver, during the pendency of the foreclosure action, the bank incurred a host of expenses. One of those was $40,000 for marketing commissions to a real estate marketing company. After the auction, a surplus in excess of $250,000 remained. In reviewing the expenses submitted by the bank, the court initially rejected them all finding that the receiver should have addressed them, but later allowed the bank to recover taxes and insurance (without interest).

On appeal, the court agreed that the loan documents allowed the bank to pay the assorted expenses in maintaining the property throughout the foreclosure and to recover those costs when the property was sold. It disagreed, however, that the marketing costs were recoverable, notwithstanding that such marketing may have resulted in higher auction bids. As far as costs for appraisals and environmental assessments, the appellate court agreed with the trial judge in finding that once a receiver is in place, the receiver acts to maintain the property, including paying its expenses. Once the bank successfully installed the receiver, it no longer had any authority to pay for any expenses. Furthermore held the court, the receiver would in any event not have been permitted to pay these expenses as they were incurred not to maintain the property, but like the marketing costs, incurred to maximize the bids. This held true even if the bids were maximized, something that would benefit both the bank and the borrower.

It is important to remember that when banks foreclose, especially when the property is "above water" with equity, the property owner is entitled to recover that excess. Often, however, and unlike this case, if the owner does not object, the bank's demands are agreed to by the court. Vigilance is crucial at this point especially if there has been no meaningful opposition to the foreclosure action. Please contact us if this issue is relevant and you have any questions.

The Bridesmaids Had No Dresses-but Were the Damages Sought Speculative?

February 20, 2013

Defendant failed to complete eight bridesmaids dresses until two hours after the ceremony was scheduled to begin, when they were delivered by the groom. As a result of this delay, plaintiff incurred a host of delays for which she incurred expenses, including a delay in the bride's appearance from the rented limousine, so as not to break the tradition of not being seen by the groom or guests before the ceremony. For these expenses, the court awarded plaintiff damages. However, for the wedding parties' inability to have pictures taken in the scenes scheduled and for the bridesmaids wearing different clothing in different pictures, no award would be made as no amount could be reasonably fixed as damages for these items. The court also rejected damages for emotional distress, finding that plaintiff "failed to meet the high threshold required in proving" this claim because defendant's failure to deliver the dresses was "not so outrageous in character and extreme in degree that it exceeds all bounds tolerated by a decent society which is of a nature calculated to cause, and does cause, serious mental distress."