AUCTION!

            David Williams and Frank Hendrick own 32 acres of land. In May 2017, they decided to sell it using an auction process. Their advertisement required a non-refundable deposit of $5,000, balance due in 14 days after the auction, with no financing contingencies.

            John Janson attended the auction and bid $35,000. Williams told Janson that $35,000 was the highest bid. However, Williams informed Janson that the property would not be conveyed for that amount.

            So Janson sued Wiliams and Hendrick, asking the Court for a Judgment of specific performance requiring transfer of the land to Janson for $35,000. The trial court agreed with Janson and ordered conveyance of the land to Janson, upon payment of $35,000.

            Williams and Hendrick appealed.

            On appeal Williams and Hendrick argue that the trial court erred in categorizing the auction as “absolute.” According to Williams and Hendrick, neither the advertisement nor the pre-auction announcements explicitly identified the auction as absolute, so therefore the auction remained with “reserve.”

            Janson claims that the proper approach is to review the conditions of the auction to determine if it is absolute or not. In support of his position, Janson states that no minimum price was ever identified.

            The Appeals Court turned its attention to the difference between the two types of auction. In an auction with reserve, no offers are accepted unless the owner or its agent declares that the auction is completed. Until that time, the property can be withdrawn.

            Conversely, in an absolute auction the property is sold to the highest bidder regardless of the amount of the highest and last bid. Neither the owner nor the owner’s agent can withdraw the property after the first bid has been received in an absolute auction. Nor may they reject any valid bids or otherwise cancel the sale.

            The advertised terms of an auction dictate the type of auction that will be conducted. By default, an auction is with reserve unless expressly made otherwise. As well, the owner or its agent may make oral modifications and additions to the advertised terms before the sale is opened for bids.

            At trial Janson conceded that the auction, as advertised, was an auction with reserve because the advertisement did not state that it was an absolute auction. On appeal Janson instead focuses on the pre-auction announcements made by Williams regarding payment of a $5,000 deposit and that the buyer has 14 days to conclude the purchase.

            Williams never explicitly stated that the auction was absolute or without reserve. Consequently, the Appellate Court concluded that the auction was indeed made with reserve, allowing the owners to withdraw or stop the process at any time.

            Accordingly, no contract was formed between the parties because of Williams’ rejection of Janson’s $35,000 offer. The judgment of the trial court is reversed. Williams and Hendrick win; Janson loses. See Williams v. Janson; Supreme Court of Virginia; Record No. 210972; October 20, 2022: https://caselaw.findlaw.com/va-supreme-court/1972027.html.

            Questions / Issues:

1. It appears that the landowners elected to sell their property as a DIY auction, perhaps not fully understanding the risks inherent in doing so without a licensed auctioneer. Most States require education and licenses of auctioneers, perhaps to avoid exactly this type of problem.

2. Although not stated in the case, one might wonder if the primary goal of the landowners was to avoid real estate brokerage and auctioneer fees. One could then wonder what the owners spent in attorney’s fees to defend this lawsuit and appeal it to Judgment reversal, five years later.

 

                                                                                     Stuart A. Lautin, Esq.*

 

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

FED!

            In real estate law, FED does not relate to food. Or eating. No, FED is an abbreviation for Forcible Entry and Detainer. And, Forcible Entry and Detainer means eviction.

             In October 2019 Joshua and Jamie Scott rented an apartment from Xin Hickey, requiring a $1500 security deposit and rental of $850 per month. When Josh and Jamie moved in, they paid $525 and shortly after a third-party paid $1500 on their behalf.

             No further payments were made.

             In December 2019 Hickey issued a termination notice due to nonpayment of rent. The notice stated that Josh and Jamie owed $1700 in unpaid rent - $850 for October and $850 for November. When no other monies were paid, Hickey filed an FED action.

             The FED trial was held in January 2020. J&J claimed they owed no additional rent for October and November, stating that Hickey had received $2025 total but was owed only $1700 so Hickey had been overpaid by $325. Hickey replied that the first $525 received was “understood” to cover a $100 cleaning deposit and $425 in rent, and that the $1500 secondary payment was to be applied as a security deposit. Not monthly rent. And as a consequence, J&J owed rent.

             J&J requested a Judgment to the effect that they had paid all they owe, and then some more. Hickey requested an eviction Judgment.

             The trial court concluded that J&J were required to submit the amount stated in the termination notice. Since J&J failed to do so, Hickey is entitled to an eviction Judgment.

             J&J appealed.

             The Court of Appeals determined that J&J had two choices to avoid eviction: (1) pay the amount owing and contest the difference at trial; or (2) deposit the disputed amount with the registry of the court until the matter is resolved.

             Since J&J did neither, the Court of Appeals affirmed.

             J&J further appealed.

             The Supreme Court determined that only an exact statement of the amount due is satisfactory. If the notice is inaccurate, it is invalid and an eviction Judgment cannot be granted. Because Hickey did not issue a notice that stated the correct amount owing, the Court must dismiss the request for eviction Judgment.

             Hickey could then file another FED lawsuit after issuing proper notice.

             J&J win this round; Hickey loses. See Hickey v. Scott; Supreme Court of Oregon; Case No. S068647; July 28, 2022: https://cases.justia.com/oregon/supreme-court/2022-s068647.pdf?ts=1659022760.

             Questions / Issues:

1. The Opinion doesn’t state it, but this must be an oral Lease. Otherwise, presumably there would be no issues regarding the exact amount owing.
   

2. Even if this is a written Lease at issue, many jurisdictions allow oral amendments to written documents. Does your Lease have a provision prohibiting oral amendments and allowing only written modifications?
   

3. In my State, a landlord is permitted to demand that a tenant pay the delinquent rent or vacate. Perhaps demanding that tenant pay the delinquent amount is not the best practice, if there is a chance of a computation error. Instead, maybe best practice is simply an unequivocal demand to vacate, unless the Lease requires otherwise.
   

                                                                                      Stuart A. Lautin, Esq.*

 

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

 

RECEIVERS!

            Borrowers executed a loan agreement for $9.4 million to finance the purchase of Village Square Apartment, as well as another mortgage loan agreement for $29 million to purchase Liberty Village Apartments. The loans have similar default provisions.

            The properties were then sold to Westland Liberty Village, LLC, and Westland Village Square, LLC. Westland assumed responsibility for payment of both loans. Meanwhile, the loans were sold to Federal National Mortgage Association (Fannie Mae).

            The loan agreements contain covenants obligating the borrowers to pay maintenance expenses and repair the properties. The borrowers authorize lender to inspect, and if lender determines that the properties have deteriorated then lender may obtain a new property condition assessment (PCA) at borrowers’ expense.

            Additionally and subject to appropriate advance notice, lender may obligate borrowers to make additional deposits to the replacement reserve account or the repair escrow account. As well, lender has the right to require further repairs and replacements, then use borrowers’ funds to pay those expenses.

            Generally, lender has the discretion to demand such additional repairs and additional deposits without obtaining borrowers’ approval. Failure of borrowers to repair, replace, and fund, is an automatic event of default in the loan agreement.

            If an event of default occurs in the loan agreement, then lender may accelerate the loan balance, demand payment in full, and foreclose. Further, if borrowers trigger an event of default in the deed of trust, then lender may cause a receiver to be appointed by the court.

            Although unstated, presumably the deed of trust contains a provision stating that a default in the loan agreement is also an event of default in the deed of trust.

            After Westland closed the two deals, Fannie Mae observed a substantial decrease in occupancy rates and became concerned that the decline resulted from deterioration in the condition of the properties. Fannie Mae inspected and engaged a third party to prepare a PCA. The inspector determined that Village Square was in substandard condition while Liberty Village was in fair to poor condition.

            Village required repairs and replacements of $1.09 million; Liberty needed $1.75 million. Fannie Mae’s servicing agent sent Westland demand notices requiring an aggregate deposit of $2.8 million in escrow accounts. Westland resisted.

            Fannie Mae then petitioned the district court for the appointment of a receiver. Westland opposed.

            The district court found that Fannie Mae did not show that Westland ceased payments. And as a consequence, a receiver was not warranted.

            Fannie Mae appealed.

            On appeal, Fannie Mae argued that Westland defaulted in the loan covenants by failing to provide additional deposits, failing to maintain the properties, and refusing to allow Fannie Mae to inspect. And, that no default in the payment of principal and interest or escrow is required in order for Fannie Mae to successfully petition the court to appoint a receiver, due to the nature of the other defaults and Westland’s contractual agreement that receivership is an appropriate remedy.

            It did not take long for the appellate court to determine that the district court was entirely wrong. Fannie Mae had the right to inspect. Fannie Mae had the right to obtain a new PCA. Fannie Mae had the right to require repairs, replacements, and escrow deposits.

            When Westland refused to repair, replace, increase escrow, and allow inspections, Westland defaulted. One of Fannie Mae’s default remedies, as stated in the contracts and agreed to by Westland, is the appointment of a receiver.

            The district court abused its discretion in denying Fannie Mae’s request for a receiver, and the order declining to appoint a receiver is reversed. See Federal National Mortgage Association v. Westland Liberty Village, LLC and Westland Village Square, LLC; Supreme Court of Nevada; Case No. 82174; August 11, 2022: https://scholar.google.com/scholar_case?case=2734121237971392065&q=federal+national+mortgage+association+v.+westland&hl=en&as_sdt=6,44&as_vis=1.

            Question:

1. Why did this Nevada district court ignore the plain language of the loan documents? Answer: That was rhetorical; I have no idea why FNMA was on the receiving end of a wrong decision and was forced to appeal. If any of my readers know this answer, please share.
   

                                   

                                                                                    Stuart A. Lautin, Esq.*

 

 

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.