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| Well, why wouldn't you press it? |
By Thomas M. Kester
You can buy tons of cool stuff at auctions: cop cars, finger traps, and the like, but be careful what you do buy. You don't want to be labeled a “genuine idiot” like Cary Grant. Within a split-second you can buy whatever is on the auction block. But be forewarned: you are now on the financial chopping block too, and hopefully in all the flutter and excitement of bidding you didn’t stretch yourself too thin.
Banks and lending institutions really like it when mortgage holders pay their debts, especially in a predetermined and consecutive nature for many years. What happens if you stop paying and get foreclosed upon? One possibility is that the property goes up for auction and the highest bidder gets to buy the property from the Bank. That’s what happened here but, like with a good martini, there is a little twist added.
Out of seven bidders, Buyer wins the property in question in September 2016. Thereafter, Buyer made the required deposit and signed an auction purchase and sale agreement (“P&S”). The P&S states that Buyer is obligated to purchase the property (pending the court’s confirmation) and the Bank has the “right . . . to request relief from the court in the event buyer fails to pay the balance of the purchase price.” The trial court confirms the sale by order and the confirmation order “names buyer and states that ‘the sale reported is hereby confirmed and title to the lands and premises shall be transferred to’” Buyer and the order also “refers to buyer by name and indicates buyer as the high bidder at the public sale” and also “listed the property’s sale price and confirmed buyer’s obligation to purchase the property.” Everything is going swimmingly and Buyer and Bank schedule the closing for February 10, 2017. Now would be a good time to start shaking up that martini (I like my martinis “dirty as the Hudson river” but you can concoct whatever you want).
Two days before closing, Buyer sends the Bank a letter stating: "It is with much regret that I need to inform you that I am not able to follow through with this transaction at this time” and Buyer’s “current investment group [had] decided that even at [the sale] price it [was] too risky to proceed with a new endeavor at this time.” Having been on the receiving end of such messages, it is not fun. There is a lot of paperwork generation, document searching, money moving, and federal regulations to adhere to for a usual closing to happen. Especially two days before the closing and, with this being a foreclosure sale, I can imagine the Bank had a pretty big headache.
The Bank filed a motion to enforce with the trial court asking it to enforce the confirmation order as Buyer “undertook an obligation to the court to purchase the property.” What the Bank is looking for is a remedy called “specific performance.” In the world of contracts, remedies typically serve to protect the injured party’s interests—expectation, reliance, and/or restitution—and remedies generally are monetary (“show me the money”), declaratory (“court says someone wins”), and, you guessed it, specific performance (“do something” or “don’t do something”). The “do something” in this case would be for the court to compel the Buyer to go through with the transaction.
Buyer doesn’t dispute that it defaulted on its obligation but argues that it is not a party to the foreclosure action and that the exclusive remedy for the Bank (per statute) is for the trial court to order Buyer to forfeit its deposit to Bank and vacate the confirmation order. Remember: the parties in the foreclosure action were probably the originally defaulting homeowners (or whoever guaranteed their loan) and the Bank; and when law uses the word “exclusive” that can mean “this and only this thing, and don’t even think about utilizing that zany common law where specific performance lives.”
Trial court heard oral arguments from both parties and granted the Bank’s motion to enforce. The trial court found “first that by bidding at a judicial sale, a bidder, such as buyer, subjects itself to the court’s oversight, becoming a ‘quasiparty’” and court-ordered specific performance was appropriate because it was “in furtherance of its statutorily mandated judicial obligation to oversee the foreclosure process.” As to the exclusivity of the remedy, the trial court held that the statute “requires” the court to order specific performance “only when a bank chooses that option” like it did here. Buyer appeals to the SCOV.
SCOV says that the Buyer—by being the highest bidder and the trial court confirming the foreclosure sale—“renders a buyer a limited party such that the court is authorized to issue orders directing the buyer’s action relative to the property’s purchase.” This is because the trial court has “continuing jurisdiction regarding the court’s own confirmation of the sale of a foreclosed property” and that can make Buyer a party subject to the trial court’s jurisdiction. The only squabble the SCOV has is the trial court’s use of “quasiparty” instead of “limited party.”
As to available remedies, the SCOV holds that the statute’s available remedies “are conditioned on a bank’s, or a plaintiff’s, request” for them and the statute’s use of “shall” “only requires a particular response by the court if a bank invokes the remedy by making the request.” Because the Bank didn’t ask for the statutory remedies, “the court was not limited to application of [the statutory remedies] and could consider the appropriateness of other remedies” like specific performance. The Buyer argues that Vermont case law says differently but the SCOV points out (in a foreclosure sale enforcement action) that even though a legal right exists in statute that the right “is not, in itself, a creature of statute” as “the legal right to an agreement’s completion does not arise exclusively from Vermont’s foreclosure statutes.” If you’re having trouble understanding this train of thought a second martini may be of aid. The Buyer also argues that the P&S agreement should govern the selection of remedies but the SCOV shoots that down as “[n]othing in the contract says the remedy [forfeiture of deposit and vacate confirmation sale] is mandatory or exclusive.”
The last issue is whether specific performance is an appropriate remedy in this case. SCOV points to caselaw that permits sellers to seek out specific performance. However, the trial court’s “decision was an abuse of discretion” as it didn’t undertake the required analysis. What was missing? Specific performance is “only [available] when there is no adequate alternative remedy, and the plaintiff has the burden to prove that alternative remedies are inadequate” and the trial court has to determine “whether there is an alternative plain, adequate, and complete remedy that could make the Bank whole, and then weigh that alternative remedy against the Bank’s argument regarding the insufficiency of that remedy.” Because that didn’t happen here, the SCOV reverses and remands the case back to the trial court.
Bottom line: be careful what you bid on. I recently bought the Brooklyn Bridge on this eBay listing. Maybe I should have said “sorry, can’t go through with the purchase” or “show me more proof you own it beyond a grainy photo of someone’s hand holding up a ‘For Sale’ sign” but it was a steal at 30 billion Zimbabwean dollars and the New York real estate market is only getting hotter.
The Bank filed a motion to enforce with the trial court asking it to enforce the confirmation order as Buyer “undertook an obligation to the court to purchase the property.” What the Bank is looking for is a remedy called “specific performance.” In the world of contracts, remedies typically serve to protect the injured party’s interests—expectation, reliance, and/or restitution—and remedies generally are monetary (“show me the money”), declaratory (“court says someone wins”), and, you guessed it, specific performance (“do something” or “don’t do something”). The “do something” in this case would be for the court to compel the Buyer to go through with the transaction.
Buyer doesn’t dispute that it defaulted on its obligation but argues that it is not a party to the foreclosure action and that the exclusive remedy for the Bank (per statute) is for the trial court to order Buyer to forfeit its deposit to Bank and vacate the confirmation order. Remember: the parties in the foreclosure action were probably the originally defaulting homeowners (or whoever guaranteed their loan) and the Bank; and when law uses the word “exclusive” that can mean “this and only this thing, and don’t even think about utilizing that zany common law where specific performance lives.”
Trial court heard oral arguments from both parties and granted the Bank’s motion to enforce. The trial court found “first that by bidding at a judicial sale, a bidder, such as buyer, subjects itself to the court’s oversight, becoming a ‘quasiparty’” and court-ordered specific performance was appropriate because it was “in furtherance of its statutorily mandated judicial obligation to oversee the foreclosure process.” As to the exclusivity of the remedy, the trial court held that the statute “requires” the court to order specific performance “only when a bank chooses that option” like it did here. Buyer appeals to the SCOV.
SCOV says that the Buyer—by being the highest bidder and the trial court confirming the foreclosure sale—“renders a buyer a limited party such that the court is authorized to issue orders directing the buyer’s action relative to the property’s purchase.” This is because the trial court has “continuing jurisdiction regarding the court’s own confirmation of the sale of a foreclosed property” and that can make Buyer a party subject to the trial court’s jurisdiction. The only squabble the SCOV has is the trial court’s use of “quasiparty” instead of “limited party.”
As to available remedies, the SCOV holds that the statute’s available remedies “are conditioned on a bank’s, or a plaintiff’s, request” for them and the statute’s use of “shall” “only requires a particular response by the court if a bank invokes the remedy by making the request.” Because the Bank didn’t ask for the statutory remedies, “the court was not limited to application of [the statutory remedies] and could consider the appropriateness of other remedies” like specific performance. The Buyer argues that Vermont case law says differently but the SCOV points out (in a foreclosure sale enforcement action) that even though a legal right exists in statute that the right “is not, in itself, a creature of statute” as “the legal right to an agreement’s completion does not arise exclusively from Vermont’s foreclosure statutes.” If you’re having trouble understanding this train of thought a second martini may be of aid. The Buyer also argues that the P&S agreement should govern the selection of remedies but the SCOV shoots that down as “[n]othing in the contract says the remedy [forfeiture of deposit and vacate confirmation sale] is mandatory or exclusive.”
The last issue is whether specific performance is an appropriate remedy in this case. SCOV points to caselaw that permits sellers to seek out specific performance. However, the trial court’s “decision was an abuse of discretion” as it didn’t undertake the required analysis. What was missing? Specific performance is “only [available] when there is no adequate alternative remedy, and the plaintiff has the burden to prove that alternative remedies are inadequate” and the trial court has to determine “whether there is an alternative plain, adequate, and complete remedy that could make the Bank whole, and then weigh that alternative remedy against the Bank’s argument regarding the insufficiency of that remedy.” Because that didn’t happen here, the SCOV reverses and remands the case back to the trial court.
Bottom line: be careful what you bid on. I recently bought the Brooklyn Bridge on this eBay listing. Maybe I should have said “sorry, can’t go through with the purchase” or “show me more proof you own it beyond a grainy photo of someone’s hand holding up a ‘For Sale’ sign” but it was a steal at 30 billion Zimbabwean dollars and the New York real estate market is only getting hotter.
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