Caveat Venditor (Let the Seller Beware?)

A residential real estate contract has a Disclosure Statement, which states in substance that the Seller does not make any representations or warranties concerning the property condition, and that the Buyers will acquire the property in “as-is” condition.   This should cover the Seller as to any property defects, right? Not necessarily.   The Virginia Supreme Court recently ruled that a seller’s concealment of a defect in the property was grounds for rescission of the real estate contract despite language in the contract that stated that the property was sold “as is”. As reported in the January 19, 2015 edition of the Virginia Lawyers Weekly, the Virginia Supreme Court in Devine v. Buki, et al., (Record No. 140301, January 8, 2015), in part upheld a finding of fraudulent inducement to perform the contract by the Northumberland County Circuit Court and an award of rescission of the contract to the purchasers. If a party conceals a fact that is material to the transaction, knowing that the other party is acting on the assumption that no such fact exists, the concealment is as much a fraud as if the existence of the fact were expressly denied, or the reverse of it expressly stated. The parties to the case entered into a real estate contract for the sale of a 200-year old house that the seller had purportedly fully restored. The contract contained a “Disclosure Statement” which stated that the owners made no representations or warranties as to the condition of the property and that the property was to be conveyed “as is” with all defects which may exist. Following the closing on the transaction, the purchasers discovered that the seller had actively concealed substantial rot and terminate damage to the home’s foundation, which had not been discovered by the purchasers’ pre-closing home inspection. The damage was so extensive that the home’s structural integrity was significantly compromised. The purchasers sued the seller for fraudulent inducement and sought rescission of the contract, claiming that the concealment of the damage to the foundation induced the purchasers to proceed to closing and purchase the property. The trial court ultimately agreed and granted rescission of the contract, plus consequential damages for the purchasers’ interest payments on their mortgage loan, real estate taxes, and property insurance. On appeal to the Virginia Supreme Court the seller argued that he had no duty to reveal the damage to the foundation because of the contract’s Disclosure Statement. The Court disagreed, finding that the seller may not rely upon and claim the benefits of the contract, and at the same time, contract against and relieve himself of the consequences of his fraud. Essentially, if a party conceals a fact that is material to the transaction, knowing that the other party is acting on the assumption that no such fact exists, the concealment is as much a fraud as if the existence of the fact were expressly denied, or the reverse of it expressly stated. The entire contract was rescinded as a result of the seller’s fraudulent inducement, including any language indicating that the sale of the property was made “as is.” Any case involving a claim of fraudulent inducement will most certainly revolve around the specific facts of each case. With this said, a prospective Seller and the Seller’s representative should always...

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Judgment Liens After Bankruptcy: Are They Threatening Your Real Estate Transaction?

Did you know that a judgment “lien” against real property may survive a bankruptcy discharge? The survival of this lien may impair title to the real property and make it difficult to sell property at a short sale, or even at a non-short sale. A judgment lien is not ordinarily released until the judgment debt has been satisfied. When a money judgment is entered against a person by a court, two things happen: (1) a judgment debt is created, and (2) a judgment lien attaches to any real property the judgment debtor owns in that jurisdiction. A judgment creditor can also record the judgment in other jurisdictions where the debtor owns property, thus creating a lien against that property as well. A judgment lien is not ordinarily released until the judgment debt has been satisfied. When a person files for bankruptcy, all of that person’s, or the debtor’s debts, including any judgment debts must be listed in the bankruptcy petition. If the debtor owns real property, any judgment liens must also be listed. When a discharge is entered, the underlying debt associated with the judgment is wiped out. HOWEVER, the judgment lien that attached to any real property survives unless the debtor takes steps to remove or “avoid” the lien through a motion filed with the bankruptcy court. The debtor may not even realize the lien survived until he or she tries to sell the real property after the discharge has been entered. Sometimes judgment liens are missed or the debtor may not understand that the lien has not been released when the debt is discharged because the necessary steps to avoid the lien in the bankruptcy were not taken. The debtor may not even realize the lien survived until he or she tries to sell the real property after the discharge has been entered. The survival of the lien against the real property creates a cloud on the title that must be removed in most circumstances if the debtor is to sell the property. Release of the lien usually requires the consent of the judgment creditor or the lien holder. Most judgment creditors will not voluntarily release a judgment lien without some payment of the judgment debt, which may not be feasible depending on the creditor’s demands and/or the availability of the debtor’s funds. There may be times when a closing date is approaching, and the judgment creditor’s cooperation is not forthcoming, placing the transaction in jeopardy. What can the debtor/seller do if payment of this debt is not possible? We recently assisted a seller with this very problem. Fortunately, there is a procedure in bankruptcy to remove or avoid the lien so that the sale can proceed. Here are the steps we followed: File a motion with the bankruptcy court to re-open the seller’s bankruptcy for the limited purpose of filing a motion to avoid the judgment lien. Once the case is re-opened, file a motion to avoid the judgment lien. The motion must be supported with copies of the following documents: deed to the real property an appraisal showing the value of the property at the time the original bankruptcy petition was filed an appraisal showing the current market value evidence of the balance of any mortgages when the original bankruptcy petition was filed, and evidence...

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Debt Collector Beware!

The collection of consumer debts is governed in part by a federal law known as the Fair Debt Collection Practices Act (15 U.S.C. §1692 et seq.) (the “FDCPA”). As demonstrated in a recent decision by the Richmond Division of the U.S. District Court for the Eastern District of Virginia, failure to adhere carefully to the FDCPA’s requirements can cause a debt collector to run afoul of the statute and give consumer debtors an opportunity to seek damages against the debt collector. In DeCapri v. Law Offices of Shapiro Brown & Ali, LLP (Civil Action No. 3:14cv201-HEH), a consumer filed a lawsuit seeking monetary damages against a debt collection law firm located in Virginia Beach, Virginia alleging multiple violations of the FDCPA arising from a collection letter sent by the law firm. As reported in the September 29, 2014 edition of the Virginia Lawyers Weekly, Judge Henry E. Hudson denied the law firm’s motion to dismiss the complaint finding that the complaint stated plausible claims for violations of the FDCPA. The notice must state that unless the consumer disputes the validity of the debt within thirty (30) days after receipt of the notice the debt may be assumed to be valid by the debt collector. The FDCPA was enacted by Congress with the purpose of eliminating abusive debt collection practices by debt collectors and applies only to consumer debts. Amongst the statute’s protections for consumers is a requirement that debt collectors provide a written validation of debt notice to consumers. This written notice to the consumer must set forth certain statements regarding the consumer’s rights to dispute the debt and to seek verification of the debt. The notice must state that unless the consumer disputes the validity of the debt within thirty (30) days after receipt of the notice the debt may be assumed to be valid by the debt collector. 15 U.S.C. §1692g(a)(3). The notice must also state that if the consumer notifies the debt collector in writing within that 30-day period that the debt is disputed, the debt collector will obtain verification of the debt and mail it to the consumer, and that until such verification is obtained and mailed, the debt collector must cease its collection efforts against the consumer. 15 U.S.C. §1692g(a)(4). The consumer loses these rights if the proper written notice is not given. In the DeCapri case, the court found that the §1692g(a)(3) notice in the collection letter in question did not include the words “by the debt collector” and simply said that unless the debt was disputed within thirty (30) days the debt would be assumed valid. The omission of the words “by the debt collector” made it unclear to the consumer about the entity making the assumption of the validity of the debt and for what purpose. Judge Hudson ruled that this omission stated a claim for violation of the FDCPA. It was further noted that the collection letter could also mislead the consumer to believe that if the debt was not disputed within the 30-day period, the right to dispute the debt at all was forfeited. Dispute of the debt under the FDCPA is optional, but may be done at anytime. Judge Hudson also found that the complaint stated a claim for violation of 15 U.S.C. §1692g(a)(4) because the collection letter...

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Wow! That Can’t Happen to Me … Can It? Part 2

A number of recent real estate scams underscore the need for diligence on the part of all parties to a real estate transaction, including real estate agents and settlement companies. Part two. This is a three part series on real estate scams and fraud.  Check out Part One if you haven’t already done so. The nephew hired an older woman, also well into her eighties, to impersonate his aunt. Another real estate scam we’ve seen in recent years involves mortgage fraud. Several years ago we were involved in a case where an elderly out-of-state woman owned a piece of residential property located in Northern Virginia that she leased to third party tenants. The owner was well into her late eighties and owned the property free and clear. A nephew of the woman, recognizing the potential for money-making at his aunt’s expense, took out a home equity mortgage on the property in his aunt’s name. The daringness of the young nephew reached new levels. The nephew hired an older woman, also well into her eighties, to impersonate his aunt. In doing so he prepared various fraudulent documents and supplied her with a fake driver’s license. He then accompanied the woman to a bank to apply for a mortgage in the aunt’s name. When the loan was closed, the imposter forged the aunt’s name on the loan documents, and the nephew pocketed the proceeds and promptly vanished. The property owner did not learn of the mortgage until the loan fell into arrears and a notice of foreclosure was served on her tenants. The real owner only received notice of the pending foreclosure and the perpetrated fraud within a few days before the scheduled foreclosure, at which time she retained our firm to address and correct the situation.   The property owner incurred significant legal fees to stop the foreclosure and to work with the bank to establish that the loan had been obtained fraudulently. Because her identity was stolen, the property owner must now constantly monitor her credit. The bank now has claims against the title company that closed the loan and against its lender’s title insurance policy. Part Three of our three part series on real estate scams and fraud will offers more example and lessons learned. Chung & Press, P.C. handles a diverse array of legal matters, including residential and commercial real estate transactions and closings, corporate and business transactions, bankruptcy, litigation, and intellectual property. Our experienced attorneys and staff provide  streamlined, cost efficient legal representation with a high-level of personal attention to all of our clients, from individuals, to entrepreneurs and small businesses, to large companies. We serve clients in Virginia, Maryland, and Washington, D.C., as well as handle matters throughout the United States and abroad. Please do not hesitate to contact us at (703) 734-3800 to discuss your legal...

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