“Vapor Money” Theory to Avoid Repayment of Real Property Loan Rejected by Utah Court of Appeals

Debtors attempting to avoid repayment of a loan secured with by a Deed of Trust against real property or to invalidate a Trustee’s Sale under the Deed of Trust will find no succor in Utah by claiming that a loan not backed by “lawful money” of the United States is unenforceable.  In Brook v. Woodall, 2011 UT App 151, the Utah Court of Appeals held that such a claim has no basis in law.

Michael Creps Brook (“Brook”) executed a Deed of Trust in favor of Lehman Brothers Bank, FSB (“Lehman Brothers”) against property owned by  him in Santaquin, Utah.  The property was subsequently sold at Trustee’s sale by James Woodall, the Trustee under the Deed of Trust (“Woodall”).

Brook and Robert George Wray (Brook’s purported susequently “duly appointed trustee” on a deed of trust) filed a complaint against Woodall, Lehman Brothers and others claiming with “strange and vague allegations” that Lehman Brothers issued Brook an invalid loan.  Brook and Wray alleged that the loan was backed by credit and not “lawful money,” a theory known as a “vapor money” or “no money lent” theory.  Because the loan was invalid, Brook and Wray asserted, Brook had no obligation to repay the loan, and the sale of the property by Woodall was, accordingly, illegal.

The District Court dismissed the complaint.  Brook and Wray appealed.  The Utah Court of Appeals, on its own Motion for Summary Disposition, affirmed the District Court’s dismissal.  Citing prior federal court case law holding the theory to be a “patently ludicrous argument,” the Court of Appeals noted that the “vapor money” theory has been rejected by courts throughout the country for over twenty years and held that the District Court correctly dismissed the complaint for failure to state a claim upon which relief could be granted.

A variation on the “vapor money” theory is the “paper money” theory which alleges bank loans to be invalid because the loans are evidenced by credit or paper money not backed by gold.

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“Easements by Plat” and Private Roads

“Easement by Plat” Applies to Easements over Private Roads

On May 6, 2011, The Utah Supreme Court issued its opinion in the case of Oak Lane Homeowners Association v. Griffin, 2011 UT 25.  The case addresses the issue of whether a deed that references a recorded plat gives rise to an easement over a private road.  The Supreme Court held that  “an easement by plat arises over either a public or a private road.” (Emphasis in original)  Id ¶13.   The case also affirms the proposition that maintenance of a private right of way “should be distributed between dominant and servient tenements in proportion to their relative use of the road, as nearly as such may be ascertained.” Id. ¶21.

An “easement by plat” over a private right of way is presumptively created.  There can be no evidence of abandonment of the easement and three specific conditions must be met: 1) the landowner must own property abutting the road in which the easement is claimed; 2) the deed conveying title to the property must reference a recorded plat; and 3) the recorded plat must show the road  abutting the property.

In the Oak Lane case, the owners of five lots in a subdivision filed a plat with the city creating the Oak Hills Subdivision.  The plat showed a public road running along the east side of the subdivision and a private road (which became Oak Lane).  Lots 1, 3, 4 and 5 were accessible only by Oak Lane.  Lot 2 was accessible via the public road as well as Oak Lane.  Alpine City accepted the plat, although the plat did not conform with the city’s zoning ordinances then in effect.

Twelve years after the plat had been filed (with title to Lot 2 being owned by two intervening property owners), the Griffins acquired title to Lot 2.  The deed conveying title to the Griffins contained the language that it was “[s]ubject to easements, covenants, conditions and restrictions of record.”  The Griffins continuously used Oak Lane for ingress and egress to Lot 2 for the next fifteen years, after which time, the owners of Lots 1, 3, 4 and 5 decided to form an Association to manage and maintain Oak Lane.

The Griffins declined to join the Association and asserted they were entitled to continue to use Oak Lane to access their property.  At the request of the Association, the two prior intervening owners of Lot 2 quitclaimed whatever interests they might hold in Oak Lane to the Association.  The Association then placed boulders on Oak Lane to prevent access by the Griffins to Oak Lane from Lot 2.  The Griffins sued.

The District Court ruled in favor of the Griffins.  After an appeal and a remand, summary judgment was again granted in favor of the Griffins on the grounds that “an easement was created over the private lane, contained in the subdivision, for all those property owners who abut the lane.”  Id ¶6.  The Association again appealed, claiming the ruling erroneously created a new type of easement – an “easement by plat.”  The Court of Appeals affirmed, and the Supreme Court granted certiorari.

The Supreme Court ruled that pursuant to their deed, the Griffins owned a private easement over Oak Lane appurtenant to Lot 2.  The Supreme Court noted that “[T]here is ample support for the creation of such an easement [an easement by plat] over public roads. We see no reason to distinguish between public and private roads for the purpose of creating an easement by virtue of a dee’s reference to a recorded plat.”  (Emphasis in original).  Id. ¶8.  

The Association argued that affidavits procured from the prior owners showed that they “understood that Oak Lane was a private road” and they could use it “only with permission.  The Supreme Court held that those statements were not proof of abandonment or intent of abandonment.  Additionally, the Griffins appeared to have used Oak Lane continuously since their purchase of Lot 2 [15 years].

The Association also argued that because Oak Lane was never a public road, no public easement ever existed, so no private easement could pass to the Griffins as appurtenant to their Lot.  The Supreme Court rejected this claim, stating that the case law relied on by the Association merely stood for the proposition that “for either type of easement to “survive the other, the easements must be (1) held contemporaneously and (2) not abandoned after one or the other is extinguished.”  Id. ¶16.

The Association next argued that a private road is equivalent to a vacated public road.  The Supreme Court again disagreed with the Association’s claim, citing prior case law holding that subsequent abandonment of a public right-of-way has no effect on a private easement owned by an abutting landowner.  The fee is still encumbered by any easements that previously existed over the vacated road. Id. ¶18, 20.

The final argument of the Association was that it would be “inequitable” to allow the Griffins to use Oak Lane without contributing to the cost of its maintenance.  The Supreme Court agreed, stating “the upkeep of Oak Lane ought to be determined by proportionate use.”  Id. ¶22.  The Association was not precluded by the ruling from seeking such a remedy.

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Non-Judicial Foreclosure Process in Utah

NON-JUDICIAL FORECLOSURE PROCESS IN UTAH

(Foreclosure of Trust Deeds – Utah Code Ann. §§57-1-10 – 57-1-36)

1.  A Trustee conducting a non-judicial Trustee’s Sale must be qualified as a Trustee in the State of Utah.  Only a qualified Trustee is authorized to exercise the power of sale under a Trust Deed. Non-judicial sales are not conducted under the supervision of a court of law; accordingly, strict compliance with the statute is required.  The following persons and entities are authorized to act as a Trustee in the State of Utah:

a.  Any active member of the Utah State Bar who maintains a place of business within the state where the Trustor or other interested parties may meet with the Trustee to:

i.  Request information about what is required to reinstate or payoff the obligation secured by the trust deed

ii.  Deliver written communications to the lender

iii.  Deliver funds to reinstate or payoff the loan secured by the Trust Deed; or

iv.  Deliver funds by a bidder at a foreclosure sale to pay for the purchase of the property secured by the trust deed.

b.  Any depository institution as defined by Utah law, or insurance company authorized to do business and actually doing business in Utah under the laws of Utah or the United States.

c.  Any corporation authorized to conduct a trust business and actually conducting a trust business in Utah under the laws of Utah or the United States.

d.  Any title insurance company or agency that:

i.    Is authorized to conduct insurance business in the state;

ii.  Is actually doing business in the state; and

iii.  Maintains a bona fide office in the state.

e.  Any agency of the United States government; or

f.  Any association or corporation licensed, chartered, or regulated by the Farm Credit Administration or its successor.

g.  The requirement of a bona fide office in the state is fulfilled if the person or company maintains a physical office in the State of Utah.

i.  That is open to the public

ii.  That is staffed during regular business hours and days

iii.  At which the Trustor may, in person, request a payoff and deliver funds, including reinstatement of default amounts.

2.  Upon being authorized by the beneficiary under the Trust Deed, The Trustee records a Notice of Default in the County (or Counties) in which the property tobe foreclosed is located. The Notice of Default must:

a.  Properly identify the Trust Deed being foreclosed including: the date of execution, recording information, Name of the Trustor, Tax Identification Number

b.  Contain the legal description of the property subject to the Trust Deed being foreclosed and

c.  A brief statement of the default alleged to have occurred.

3.  The Trustee must include with the Notice of Default (and a subsequent Notice of Sale).

a.  The name of the Trustee

b.  The mailing address of the Trustee;

c.  The address of a bona fide office of the Trustee where the Trustor can go in person to make payment or obtain information

d.  The hours during which the Trustee can be contacted regarding the Notice of Default (and Notice of Sale), which hours shall includeregular business hours in a regular business day; and

e.  A telephone number that the person may use to contact the Trustee during the hours the Trustee can be contacted.

4.  No later than ten (10) days after the date the Notice of Default is recorded, a copy of the Notice of Default (showing the recording information and date) must be mailed by certified or registered mail to the Trustor as set forth in the Deed of Trust and to each person or entity who has filed a Request for Notice of Default with regard to the property being foreclosed.

5.  After the Notice of Default is recorded, the Trustor has three (3) months from the date of recording to cure the default as described in the Notice of Default and reinstate the obligation secured by the Trust Deed.  A Request for a Reinstatement Statement must be received the Trustee at least ten (10) business days before the Trustee’s Sale in order to be timely.  After the expiration of the three (3) month period, the Beneficiary can declare due in full the entire amount secured by the Trust Deed.  A Request for a Payoff Statement is not timely unless the Trustee receives the request at least ten (10) business days before the Trustee’s Sale.

6.  Three (3) months after the recording date of the Notice of Default, the Trustee prepares and publishes a Notice of Sale in a newspaper of general circulation in each county in which the property is located.  The publication of the Notice ofSale must occur once each week for three (3) consecutive weeks.  The last publication must occur at least ten (10) days, but not more than thirty (30) daysprior to the sale of the property by the Trustee.

7.  The Notice of Sale must also be posted at least twenty (20) days prior to thedate of the sale of the property in a conspicuous place on the actual property tobe sold and at the office of the county recorder of each county in which theproperty is located.

8.  The Notice of Sale must be mailed by certified or registered mail to the Trustor as set forth in the Deed of Trust and to each person or entity that has filed a Request for Notice of Default with regard to the property being foreclosed.

9.  If the stated purpose of the obligation for which the Trust Deed was given as  security is to finance residential rental property, the Notice of Sale together with a “Notice to Tenant” must be posted:

a.     On the primary door of each dwelling unit on the property to be sold, if the property to be sold has fewer than nine dwelling units; or

b.     In at least two conspicuous places on the property to be sold, in addition to the posting required above, if the property to be sold has nine or more dwelling units.

10.  The Notice to Tenant must include a statement, in at least 14-point font, substantially as follows:

“Notice to Tenant – As stated in the accompanying Notice of Trustee’s Sale, this property is scheduled to be sold at public auction to the highest bidder unless the default in the obligation secured by this property is cured. If the property is sold, you may be allowed under federal law to continue to occupy your rental unit until your rental agreement expires, or until 90 days after the           date you are served with a notice to vacate, whichever is later.  If your rental or lease agreement expires after the 90-day period, you may need to provide a copy of your rental or lease agreement to the new owner to prove your right to remain on the property longer than 90 days after the sale of the property.  You must continue to pay your rent and comply with other requirements of your                 rental or lease agreement or you will be subject to eviction for violating your rental or lease agreement.
 The new owner or the new owner’s representative will probably contact you after the property is sold with directions about where to pay rent.  The new owner of the property may or may not want to offer to enter into    a new rental or lease agreement with you at the expiration of the period described above.”

11.  The failure to provide a “Notice to Tenant” does not invalidate a Trustee’s Sale.

13.  The sale of the property by the Trustee is conducted at the County Courthouse in the county in which the property is located.

14.  The Trustee, for any reason the Trustee deems expedient, can postpone the sale of the property for up to forty-five (45) days from the original date of sale asset forth in the Notice of Sale. No other notice of the postponed sale is required, unless the postponement exceeds 45 days. In that event, The Trustee must re-notice the sale in the same manner as the original Notice of Sale.

15.  Once the sale of the property is completed, the Trustee records a Trustee’sDeed conveying title to the property to the successful bidder at the Trustee’s Sale.

16.  The Trustor has no redemption rights after the sale of the property in a non-judicial foreclosure sale. 

17.  An action in court to recover the amount by which the balance due to the Beneficiary (including the full amount of the indebtedness, interests, costs, expenses of sale and trustee’s and attorney’s fees) exceeds the fair market value of the property as of the date of the sale (Deficiency Action) must be commenced within three (3) months of the date of the Trustee’s Sale.

18.  In the best of circumstances, the minimum time required to complete a non-judicial foreclosure sale, through the sale is 120 days.

Timeline – Non-Judicial Foreclosures, Utah

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Federal Reserve Board Announces Enforcement Actions Against 10 Banking Organizations and against MERS

On April 13, 2011, the Federal Reserve Board (FRB) issued a press release announcing enforcement actions against 10 banking organizations requiring the organizations to “address a pattern of misconduct and negligence related to deficient practices” in mortgage loan servicing and foreclosures. The ten banking organizations listed in the press release represent approximately 65% of the servicing industry or $6.8 trillion in mortgage balances.

The FRB also announced enforcement actions against Lender Processing Services, Inc. (LPS)and MERSCORP (MERS) requiring LPS to address deficient document execution services in connection with foreclosures and MERS to address “significant weaknesses in, among other things, oversight, management supervision and corporate governance.”

The full text of the press release follows:

Press Release

Release Date: April 13, 2011

For immediate release
The Federal Reserve Board on Wednesday announced formal enforcement actions requiring 10 banking organizations to address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing. These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions.

The Board is taking these actions to ensure that firms under its jurisdiction promptly initiate steps to establish mortgage loan servicing and foreclosure processes that treat customers fairly, are fully compliant with all applicable law, and are safe and sound.

The 10 banking organizations are: Bank of America Corporation; Citigroup Inc.; Ally Financial Inc.; HSBC North America Holdings, Inc.; JPMorgan Chase & Co.; MetLife, Inc.; The PNC Financial Services Group, Inc.; SunTrust Banks, Inc.; U.S. Bancorp; and Wells Fargo & Company. Collectively, these organizations represent 65 percent of the servicing industry, or nearly $6.8 trillion in mortgage balances. All 10 actions require the parent holding companies to improve holding company oversight of residential mortgage loan servicing and foreclosure processing conducted by bank and nonbank subsidiaries.

In addition, the enforcement actions order the banking organizations that have servicing entities regulated by the Federal Reserve (Ally Financial, SunTrust, and HSBC) to promptly correct the many deficiencies in residential mortgage loan servicing and foreclosure processing. Those deficiencies were identified by examiners during reviews conducted from November 2010 to January 2011.

The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties. These monetary penalties will be in addition to the corrective actions that the banking organizations are expected to take pursuant to the enforcement actions.

The enforcement actions complement the actions under consideration by the federal and state regulatory and law enforcement agencies, and do not preclude those agencies from taking additional enforcement action. The Federal Reserve continues to work with other federal and state authorities to resolve these matters.

The actions taken Wednesday require each servicer to take a number of actions, including to make significant revisions to certain residential mortgage loan servicing and foreclosure processing practices. Each servicer must, among other things, submit plans acceptable to the Federal Reserve that:

strengthen coordination of communications with borrowers by providing borrowers the name of the person at the servicer who is their primary point of contact;
ensure that foreclosures are not pursued once a mortgage has been approved for modification, unless repayments under the modified loan are not made;
establish robust controls and oversight over the activities of third-party vendors that provide to the servicers various residential mortgage loan servicing, loss mitigation, or foreclosure-related support, including local counsel in foreclosure or bankruptcy proceedings;
provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process; and
strengthen programs to ensure compliance with state and federal laws regarding servicing, generally, and foreclosures, in particular.
The Federal Reserve will closely monitor progress at the firms in addressing these matters and will take additional enforcement actions as needed.

In addition to the actions against the banking organizations, the Federal Reserve on Wednesday announced formal enforcement actions against Lender Processing Services, Inc. (LPS), a domestic provider of default-management services and other services related to foreclosures, and against MERSCORP, Inc. (MERS), which provides services related to tracking and registering residential mortgage ownership and servicing, acts as mortgagee of record on behalf of lenders and servicers, and initiates foreclosure actions. These actions address significant compliance failures and unsafe and unsound practices at LPS and its subsidiaries, and at MERS and its subsidiary. The action requires LPS to address deficient practices related primarily to the document execution services that LPS, through its subsidiaries DocX, LLC, and LPS Default Solutions, Inc., provided to servicers in connection with foreclosures. MERS is required to address significant weaknesses in, among other things, oversight, management supervision, and corporate governance. The LPS action is being taken jointly with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, while the MERS action is being taken jointly with those agencies and the Federal Housing Finance Agency.

The Federal Reserve Board based its enforcement actions on the findings of the interagency reviews of the major mortgage servicers, LPS, and MERS. A summary of the findings from the reviews of the mortgage servicers is available in the Interagency Review of Foreclosure Policies and Practices, which is simultaneously being released by the Federal Reserve Board and the other agencies.

Attachments:
Interagency Review of Foreclosure Policies and Practices (461 KB PDF)
Consent Order for Bank of America Corp. (34 KB PDF)
Consent Order for Citigroup Inc. and CitiFinancial Credit Co. (28 KB PDF)
Consent Order for Ally Financial, Inc., ResCap, GMAC Mortgage, and Ally Bank (87 KB PDF)
Consent Order for HSBC North America Holdings, Inc. and HSBC Finance Corp. (76 KB PDF)
Consent Order for JPMorgan Chase & Co. and EMC Mtge. (39 KB PDF)
Consent Order for MetLife, Inc. (25 KB PDF)
Consent Order for PNC Financial Svs. Group, Inc. (25 KB PDF)
Consent Order for SunTrust Banks, Inc., SunTrust Bank, and SunTrust Mortgage (76 KB PDF)
Consent Order for U.S. Bancorp (25 KB PDF)
Consent Order for Wells Fargo & Co. (25 KB PDF)
Consent Order for LPS (47 KB PDF)
Consent Order for MERS (48 KB PDF)
2011 Enforcement Actions

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UTAH SUPREME COURT CLARIFIES LEGAL DOCTRINES ESTABLISHING BOUNDARY LINES

April 1, 2011, the Utah Supreme Court issued its opinion in the case of Bahr v. Imus. 2011 UT 19.  The case clarifies three boundary doctrines in Utah case law.  Moral of the story:  Good fences do not always make good neighbors – it costs less to hire a surveyor than to litigate boundary issues.

The case began in 1983 when Imus entered into a verbal agreement with the neighbors on either side, Dalton to the east and Wyman to the West, by which they all agreed to cooperate in fencing their respective properties.  In so doing, the group set the fence locations using their own calculations and a tape measure.  Fences were built and the Imuses installed extensive landscaping on their property, including an irrigation system and a koi pond.

As things happen, in 1985, Wyman sold to Carlisle who treated the established fence as the boundary line.  In 1988, Carlisle sold to Bahr.  The relationship between Imus and Bahr was cordial for some 19-20 years; however, at some point (the exact timing of which was disputed) a Russian olive tree and its removal became the focus of discord between Imus and Bahr.

Each obtained a survey.  Both surveys revealed discrepancies in the legal description versus the fence location.  The parties were unable to resolve their dispute and Bahr brought a quiet title action, claiming, among other causes of action, trespass by the Imuses.  Imus countered that the boundary had been established by acquiescence or agreement.  Alternatively, Imus claimed that Bahr was equitably estopped from contesting the boundary.

The trial court granted summary judgment in favor of Imus on the grounds of equitable estoppel because Imus and Wyman (Bahr’s predecessor in interest) had made mutual representations that the fence line was the boundary line, Imus had relied on those representations by landscaping up to the fence line and Imus would be injured if the boundary as established was not upheld.  Bahr appealed and the Court of Appeals affirmed.

The Supreme Court affirmed the grant of Summary Judgment.  The basis for the decision, however, was not equitable estoppel.  The Supreme Court affirmed “on the alternative basis of an enforceable oral agreement establishing a boundary by agreement n the parties’ fence line.”  ¶21.  The Court then explained and refined the elements of the three boundary dispute theories found in Utah case law, taking “ this opportunity to delineate the nature and elements of these doctrines and to clarify their relationship to one another.” ¶20.

Boundary by Estoppel.

Boundary by estoppel is designed to prevent fraud and injustice and to protect innocent landowners who reasonably rely on the representations of their neighbors regarding boundary lines.  The elements for equitable estoppel are: 1) an affirmative admission, statement or act inconsistent with the position afterwards asserted; 2) action by the other party in reliance on the admission, statement or act; and 3) injury to the relying party resulting from allowing the first party to make the inconsistent admission, statement or act.  ¶23.

The Court emphasized that an estoppel premised on an act or omission falling short of an affirmative representation will not meet the requirements of the first element.  The Court declined to require a showing of bad faith or superior knowledge, stating that the focus is to be on the innocent party who reasonably relied on an affirmative representation, “not on the subjective intentions of the party making the representation.” ¶27.

To meet the second element, reliance must be reasonable.  Thus, the Court concluded, the parties “must have been ignorant of the true boundary. “ ¶29.  A demonstration of “objective uncertainty” is not required, although it could “certainly reinforce a plaintiff’s showing of reasonable reliance.”  Id.

The third element is proof of injury, which will be found if the “injury is of sufficient gravity…that it would render it unfair or unreasonable to enforce the boundary.”  ¶30.  The Court specifically declined to adopt a limitation requiring a “permanent improvement” to have been made before an injury could be established.  The Court instead directed the inquiry to be made into the “substantiality of the claimants injury.”  ¶32.

In the Imus case, the theory of equitable estoppel failed on the first element – none of the parties knew the true location of the boundary.

Boundary by Acquiescence.

Boundary by acquiescence is based in the “realization, ancient in our law, that peace and good order of society [are] best served by leaving at rest possible disputes over long established boundaries.”  ¶35, quoting Staker v. Ainsworth, 785 P.2d 417 (Utah 1990).  The four elements required to establish a boundary by acquiescence are: 1) occupation up to a visible line marked by monuments, fences or buildings, 2) mutual acquiescence in the line as a boundary, 3) for a long period of time, 4) by adjoining landowners.  Id.  Objective uncertainty regarding the “true” boundary line is not required.

For the first element to be met, courts are to consider whether an occupation up to a visible line would place a reasonable party on notice that the line was being treated as a boundary line.   The second element is met where the neighbors do not behave in a fashion inconsistent with the belief that the visible line is the boundary line.  The third element requires an unbroken period of no less than twenty years in which each of the other elements is met.  The fourth element requires that the parcels be contiguous. ¶36-38.

Summary judgment could not be granted on the theory of boundary by acquiescence  in the Imus case because there was an issue of material fact as to when the dispute arose and, so, whether the twenty year requirement could be met.

Boundary by Agreement.

Boundary by agreement is “predicated on a principle of repose [and is] designed to set at rest boundaries commonly the subject of strife.”  ¶40, quoting  Blanchard v. Smith, 255 P.2d 729 (Utah 1953).

The elements of boundary by agreement are: 1) an agreement between adjoining landowners; 2) settling a boundary that is uncertain or in dispute; 3) an injury would occur if the boundary were not upheld; and demarcation of a boundary line such that a reasonable party would be placed on notice that the given line is being treated as a boundary. ¶41.

The first element requires that there be an express agreement.  The agreement may be oral, “but it must be explicit…[It] requires an actual express statement of agreement.”  ¶42.  An oral agreement is proved by actual possession up to the lines agreed upon.  Boundary by Agreement does not require the passage of a long period of time.  The doctrine is based on the showing of an express agreement.  Once an agreement has been established it is enforceable.  Requiring a long period of time conflicts with the policy of repose and creates continued uncertainty.  ¶45.

The second element requires uncertainty as to the location of the boundary.  This is required to satisfy the Statute of Frauds.  An express agreement fixing a location of an unknown boundary is not a transfer of interest in land and is an exception to the Statute of Frauds. ¶47.  The third element requiring reliance ensures that important title interests are not unnecessarily undermined.  A party seeking to enforce a boundary agreement must have placed “enough reliance on the agreement that it would now be unjust not to enforce it.”  ¶50.

The fourth element requiring sufficient demarcation of the boundary line applies only in cases involving successors in interests.  The Court concluded that while it was fair to bind the original parties to their agreement, it would be unfair to bind successors in interest without “objective indicia that would place such parties on notice regarding the boundary agreed upon.”  ¶51.  The Court noted that the fourth element will often be satisfied when the third element is, but that the two elements focus on distinct actors.  Id.

The Court ruled that Imus was entitled to summary Judgment based on the doctrine of boundary by agreement.  There was an oral agreement between Imus and the Bahr’s predecessor in interest regarding the location of a boundary line which was unknown or uncertain.  Imus acted in reliance on the agreement by constructing a fence and landscaping their property.  If the boundary line were not upheld, Imus would be unjustly injured.  The fence constructed between the two properties served as a sufficient demarcation of the boundary line.

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Homeowner’s Assessments in Bankruptcy

A Homeowner’s Obligation to Pay Homeowner’s Assessments Continues After a Homeowner has filed Bankruptcy and While the Bankruptcy is in Process.

Many homeowners who file bankruptcy are under the mistaken impression that they have no legal obligation to pay ongoing homeowner’s assessments while the bankruptcy case is still open.  Unpaid assessments and ongoing assessments are secured by the unit owned by the debtor, so long as there is sufficient value in the unit to cover the amount owed to prior lienholders and the assessments.

If the value of the prior liens against the property exceeds the value of the property, however, under Utah law, the homeowners’ assessments that predate the bankruptcy petition may become unsecured and will be either discharged under a Chapter 7 or paid a percentage of the amounts owed pro rata with other unsecured creditors.

The Bankruptcy Code, however, makes it clear that homeowner’s assessments that come due after the date of the filing of the petition commencing the bankruptcy case are not discharged in the bankruptcy and remain personal debts of the debtor who holds title to the property and for which the debtor is responsible.

Section 523(a)(16) specifically provides:

“A discharge….does not discharge an individual debtor from any debt –

(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal,       equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case.

In most cases under Chapter 13, this issue should not present a problem.  If the debtor wants to keep the home and the Chapter 13 Plan does not provide for payment of the ongoing post petition assessments, the homeowner’s association can object to the confirmation of the Plan and require the debtor to provide for the payment of the post-petition assessments.  A letter from the attorney for the association to the attorney for the debtor may be sufficient to remind the debtor of his or her post-petition obligations.  In some instances, however, a written Objection will need to be filed with the bankruptcy court.  The reminder should be sent early in the bankruptcy so as to prevent the debtor from accruing an insurmountable post-petition past due amount.

However, if the case is one under Chapter 7 and/or the debtor has chosen to turn the home back to the bank, the question becomes one of cost.  Generally, in these instances, the purchase money bank or prior lienholder will obtain relief from the automatic stay and proceed with a foreclosure, and, under Utah law, foreclose the lien of the homeowners association.  With no collateral securing the association lien, the association is left with only a collection action against the debtor personally for assessments that became due after the filing of the petition.  When the property is sold, the purchaser at the foreclosure sale will become responsible for the assessments, but the debtor remains personally liable for assessments between the date of the filing of the petition and the date the title is transferred from the debtor.

It is not clear whether a bankruptcy court order granting relief from the stay is required to pursue collection of post-petition assessments while the bankruptcy case is still open.  The bankruptcy code prohibits only collection action against debtors for pre-petition debts.  In a Chapter 7, the association need only wait for discharge to proceed with a collection action.  However, in a Chapter 13, a post-petition collection action may involve action against the post-petition wages of the debtor that are property of the bankruptcy estate.  That would indicate that an association should obtain an order from the bankruptcy court granting relief from the automatic stay allowing the collection action to proceed.

In the Bankruptcy Court for the State of Utah, there is a filing fee of  $150.00 for a Motion for Relief from the Automatic Stay.  Additionally attorney’s fees will be incurred in pursuing the Motion.  Although the filing fee and the attorney’s fees are usually recoverable costs under most Declarations, the debtor probably doesn’t have anything against which to collect.

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