Home > Real Estate > Recent Case Law: Lesson to Real Estate Investors

Recent Case Law: Lesson to Real Estate Investors

I represent a number of real estate investors, some of whom purchase and rehab distressed properties – before, at, or after a foreclosure sale has taken place.

Distressed properties are suited for entrepreneurs – they are “high risk, high reward” investments.

An investor can get a great deal at these sales. However, these sales are inherent with pitfalls – some of which can be costly for an unwary investor.

I was reminded of this today when I read a July 30, 2015 Michigan Court of Appeals case  – Hunter v BOA and Moma. You can check out the opinion here

Brief Facts:

There, Bank of America foreclosed on an approx. $200,000 mortgage.  BOA was the high bidder at the sale in March 2010.

The redemption period expired in September 2010 and Hunter, the mortgagor/ homeowner, failed to redeem. Thereafter Hunter sued BOA for unlawful foreclosure. The case was dismissed in 2011.

In 2012 BOA still had this property in its possession and sold it to Moma.

The lawsuit by Hunter against BOA was dismissed, so Moma is in the clear to pick up a good deal, right?

Not if Hunter has anything to say about it.

After purchasing the Property, Moma evidently noticed that mortgagor was still in possession of the Property and so in February 2013 Moma sued Hunter for eviction.

Hunter filed suit against BOA and Moma in Circuit Court alleging Moma has no rights to the Property because BOA fraudulently foreclosed.

The Circuit Court ended up dismissing Hunter/mortgagor’s lawsuit, and granting full ownership to Moma. The Court found, rightly, that since redemption had expired, the mortgagor had no interest in the Property and no standing to challenge the foreclosure. The Court of Appeals affirmed.

Lesson for Investors:

Certainly, a take away from this case is that investors need to do their due diligence when purchasing distressed property. Investors need to look at “red flags”. Here, the fact that the Bank was selling property that (a) was occupied (b) by someone who filed a lawsuit against the Bank should have been a red flag that purchasing this property could be costly.

Don’t hear me wrong – the investor, Moma, eventually got what he was entitled to. But at what cost?

Answer: Three years in litigation and who knows how much in legal fees.

To be sure, the Circuit Court did not think fondly of the mortgagor’s lawsuit. The Judge held:

I’m really quite frankly appalled by what’s gone on [in this case.] [Hunter] has failed at any turn here to establish any factual basis for the claims that are alleged. And the factual basis that is implied . . . is exactly the same as was previously decided by [the Oakland Circuit Court and the 46th District Court]

Be that as it may, mortgagor still maintained possession of the property for years after she was foreclosed on.

Distressed Property – high risk, high reward.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

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