Thursday, July 28, 2011

It is important to keep track of the bad guys, and here is one operating in Baltimore City.

I just obtained a $31,000 judgment against a fellow who has been "title squatting" in Baltimore City. Take a look at the complaint that was filed in the circuit court and you'll see a very simple scheme, particularly in an economy where so many properties are being abandoned by their record owners. Another lawyer has been chasing him for the same conduct, and so I share the facts of my case and an outline of the scheme to alert those of you handling claims in Baltimore City to this type of fraud.

Here's the scheme, step-by-step:
  • True owner of the property, "Good Realty LLC" allows its charter to lapse with the Maryland State Department of Assessments and Taxation.
  • Mr. Kutchera, the title squatter, identifies the property and forms a new entity, called "Good Realty, LLC."  Notice the slight change in the name, by adding a comma after "Realty."
  • Mr. Kutchera entices a settlement company to assist in the transfer of title to the property from "Good Realty" into his other entity, Acuity Real Estate Investments, LLC.
  • Mr. Kutchera and Acuity then sell the property to an unsuspecting purchaser, who intends to renovate the property and place it on the rental market.
  • Mr. Kutchera and Acuity take back owner financing for all but closing costs and the purchaser's deposit.
  • True owner wakes up and sues buyer, alleging that she bought nothing from a thief. And he's right.
It's a close call on whether the settlement company should have caught this scheme on the sale from Mr. Kutchera to the innocent buyer.  Because he had already conducted a sham transaction to transfer title into his longstanding Acuity entity, it was not expected that the settlement company would go back to a prior transaction to investigate the bona fides of the limited liability company.

What was particularly galling about this case was Mr. Kutchera's early demands for payment under the owner financed deed of trust, and his threats of foreclosure. It didn't take much to demonstrate the true fraud to Mr. Kutchera's lawyer, who then withdrew from the engagement.

I suspect that this form of fraud is not limited to this case, and the one being handled by another lawyer.  And if Mr. Kutchera is doing it, then there are surely others engaged in the same scheme.

Be vigilant.

Monday, July 25, 2011

The Debt Collection system is not broken, it just needs lawyerly attention.

A July 24th article in the Baltimore Sun  decries the glut of debt collection cases in Maryland’s District Court, where far too many claims are passed through the system with little scrutiny. Judge Clyburn is quoted as saying that 200,000 judgments by default are granted each year, and that two-thirds of that sum involve debt collection. The actual statistics for the District Court are available, here, , but they are not broken down so precisely that defaults granted in certain types of civil cases can be identified.

It is no surprise to active bar members that many, many cases result in default judgment simply because a defendant failed to plead or appear at the affidavit trial. This is an entirely appropriate result when a defendant is properly served, and then fails to engage in the process. The author, however, points to the many evils resulting from this process: judgments based on scant or absent documentation of debt ownership; judgments based on mistaken or wrongly stated accounts; judgments on claims falling outside the statute of limitations; and judgments on debts discharged in bankruptcy.

But who is signing off on each default affidavit? A judge. As counsel for a creditor, I don’t get a judgment against the defendant unless the court signs my proposed order. And if I give the court flimsy evidence, then the court should withhold that signature.

The system does not require much to address these perceived or real harms. Try these on for size:
  • Amend the rules of pleading to require an affirmative statement that the claim is within the statute of limitations. I have seen many, many complaints on time-barred debt claims. But since the statute of limitations is an affirmative defense, there is nothing patently wrong about suing on a stale claim, and there is nothing that requires a judge to advocate for application of limitations. Putting this requirement in place for claims in the District Courts, where the vast majority of collection work is conducted, would be a potent gate-keeper. This would prevent a large number of bogus claims from reaching the courthouse.
  • Enforce the existing rules of evidence in connection with the affidavits being submitted. Nobody is directing the judiciary to rubber stamp anything. The current salary for the 112 District Court judges is $127,252. That is more than adequate recompense to read the complaints and affidavits! None of the harms complained of can occur if a judge does not sign an order. So, upon reading the affidavits, they simply need to apply the existing rules of evidence. And if the affidavit is defective, set that matter in for a disposition hearing. Let the Plaintiff bring its witnesses and evidence to the courthouse. Is that too old-fashioned?

    The facts set forth in an affidavit must be admissible, no less than if a live witness is sitting before the judge. The live witness must demonstrate a basis for personal knowledge, or a familiarity with the business records. Also, the documents would have to be shown by the live witness to be properly within the business records of the suing entity. Presentation by affidavit is no different. I lay responsibility for reading the submitted affidavits on the bench. It is not an excuse for Judge Clyburn or others to explain that most affidavit judgments are automatic, based on the submitted affidavit. They are paid to vette the document, not to rubber stamp the claim. And if any lawyer or firm is consistently submitting bogus affidavits, they should not be acquiring judgments. Period. I don’t ask judges to plug holes in my pleadings, nor should they.
  • Require an affidavit concerning non-discharge in bankruptcy as a threshold matter of pleading. The Bar is already required to affirm that a defendant is not in active military service. To do this, we check a public database, or hire private investigator’s to check that same public database. With the federal PACER system, it is just as easy for the Bar to check whether a debtor/defendant has been adjudged bankrupt, and whether a discharge has been granted (currently a "for fee" system, but my feelings about whether public access to the federal docket system should be free is for another day). There is also the ability of the debtor, or even the court, to report clear violations of the Automatic Stay, to the bankruptcy trustee’s office for further sanction.

And for a nickel more, I’ll tell you a story about a bridge….

Monday, July 18, 2011

Cert granted! Is the bank a non-holder in possession? Should it matter to you?

Anderson v. Burson will be argued in the Court of Appeals on September 1, 2011.  Cook some popcorn in the office microwave, pop up the big screen in your conference room, and settle in for the webcast!

Maryland's highest court will hear argument on whether a "non-holder in possession" has standing to execute on the debt's security instrument.  In a world of missing endorsements, missing originals, or incomplete assignments, this could be huge.  I posted a summary of the COSA opinion in December, 2010.

It's like a game show, these days, trying to identify the holder/owner/servicer/agent/nominee/beneficiary/etc. for a given instrument to the courts. Cue up the introductory fanfare from the band, pick curtain one, two or three, and let the announcer's voice resonate throughout the courtroom, declaring for the judge "and the lender is....."

Thursday, July 14, 2011

A title insurer's duty to defend may not terminate until the check is written!

A New York case feeds the debate about when a title insurer's duty to defend ends. In Busch v. Fidelity National Title Ins. Co., 2011 N.Y. Slip Op. 03948, 2011 WL 197259 (N.Y.A.D. 3 Dept.), the title insurer offered money to its insured for diminution in value caused by a neighbor's claimed easement over the insured's property.  Fidelity stopped paying for the insured's counsel, and the insured continued the litigation for several years, hiring a succession of lawyers.

Fidelity was sued by its insured, who sought recovery of fees he spent in the litigation.  Fidelity took the position that its duty to defend ended when it made an offer to pay for diminution in value.  The insured alleged that there was no such agreement made.

The appellate court said that more litigation was necessary to flesh out the terms of the offer, and whether there was a settlement.  It was important to the court that Fidelity never tendered a settlement check. But the court was clear that an offer, alone, does not terminate the duty to defend.  There must be  a tender of money, a signed agreement or a release.

So, my claim handling friends, what is the lesson?  It is sound practice, in any state, to tender a check and obtain a signed document.  And if the check is not negotiated, or the agreement is not signed, the insurer is left to either continue defending or to file a declaratory judgment action that seeks relief from the policy.